YUMANITY THERAPEUTICS, INC. (Form: 10-Q, Received: 08/12/2021 16:24:36)

Large accelerated filer

Accelerated filer

Non-accelerated
filer

Smaller reporting company

Emerging growth company

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM

10-Q

(Mark One)

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

For the quarterly period ended June 30, 2021

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

For the transition period from

Commission File Number:

001-38549

YUMANITY THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware		20-8436652
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

40 Guest Street, Suite 4410 Boston, MA		02135
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:

617-409-5300

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	YMTX	The Nasdaq Capital Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of

Regulation S-T

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule

12b-2

of the Exchange Act.

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act). Yes ☐ No ☒

As of August 5, 2021, the registrant had 10,306,306 shares of common stock, $0.001 par value per share, outstanding.

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Summary of the Material Risks Associated with Our Business

We are subject to various risks associated with our businesses and industries. These risks include the following:

•

we have incurred significant operating losses since our inception and anticipate we will incur continued losses for the foreseeable future;

•

we will need additional funding to

advance YTX-7739 through

clinical development, which funding may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit, or terminate our product development efforts or other operations;

•

we have concentrated our research and development efforts on the treatment of neurodegenerative diseases, a field that has seen limited success in drug development. Further, our product candidates are based on new approaches and novel technology, which makes it difficult to predict the time and cost of product candidate development and subsequently obtaining regulatory approval;

•

we depend on our collaboration with Merck and may in the future depend on other collaborations with third parties for the research, development and commercialization of certain of the product candidates we may develop. If any such collaborations are not successful, we may not be able to realize the market potential of those product candidates;

•

we may encounter difficulties in enrolling subjects in our clinical trials, thereby delaying or preventing development of our product candidates;

•

our clinical trials may fail to demonstrate adequate safety and efficacy of our product candidates, which would prevent, delay, or limit the scope of regulatory approval and commercialization;

•

our product candidates may cause serious adverse events or other undesirable side effects that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any;

•

we face significant competition in an environment of rapid technological and scientific change, and there is a possibility that our competitors may achieve regulatory approval before we do or develop therapies that are safer, more advanced, or more effective, which may negatively impact our ability to successfully market or commercialize any product candidates we may develop and ultimately harm our financial condition;

•

the current pandemic

of COVID-19 and

the future outbreak of other highly infectious or contagious diseases could seriously harm our research, development and potential future commercialization efforts, increase our costs and expenses and have a material adverse effect on our business, financial condition and results of operations;

•

the regulatory approval processes of the FDA and comparable foreign regulatory authorities are lengthy, time-consuming, and inherently unpredictable. If we are ultimately unable to obtain regulatory approval for our product candidates, we will be unable to generate product revenue and our business will be substantially harmed; and

•

we may not seek to protect our intellectual property rights in all jurisdictions throughout the world and we may not be able to adequately enforce our intellectual property rights even in the jurisdictions where we seek protection.

The summary risk factors described above should be read together with the text of the full risk factors below, in the section entitled “Risk Factors” in Part II, Item 1A. and the other information set forth in this Quarterly Report on

Form 10-Q, including

our condensed consolidated financial statements and the related notes, as well as in other documents that we file with the U.S. Securities and Exchange Commission (“SEC”). The risks summarized above or described in full below are not the only risks that we face. Additional risks and uncertainties not precisely known to us, or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, results of operations and future growth prospects.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on

Form 10-Q contains

forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risks and uncertainties. All statements, other than statements of historical fact, contained in this Quarterly Report on Form

10-Q,

including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would,” or the negative of these words or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

The forward-looking statements in this Quarterly Report on Form

10-Q

include, among other things, statements about:

•

the timing, progress and results of preclinical studies and clinical trials for our programs and product candidates, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available and our research and development programs;

•

our ability to recruit and enroll suitable patients in our clinical trials;

•

the potential attributes and benefits of our product candidates;

•

our ability to develop and advance product candidates into, and successfully complete, clinical studies;

•

the timing, scope or likelihood of regulatory filings and approvals;

•

our ability to obtain and maintain regulatory approval for our product candidates, and any related restrictions, limitations or warnings in the label of an approved product candidate;

•

the implementation of our business model and our strategic plans for our business, product candidates, technology and our discovery engine;

•

our commercialization, marketing and manufacturing capabilities and strategy;

•

the pricing and reimbursement of our product candidates, if approved;

•

the rate and degree of market acceptance of our product candidates, if approved;

•

our ability to establish or maintain collaborations or strategic relationships or obtain additional funding;

•

our ability to contract with and rely on third parties to assist in conducting our clinical trials and manufacturing our product candidates;

•

the size and growth potential of the markets for our product candidates, and our ability to serve those markets, either alone or in partnership with others;

•

our ability to obtain funding for our operations, including funding necessary to complete further development, approval and, if approved, commercialization of our product candidates;

•

the period over which we anticipate our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements;

•

the potential for our business development efforts to maximize the potential value of our portfolio;

•

our ability to compete with other companies currently marketing or engaged in the development of treatments for the indications that we are pursuing for our product candidates;

•

our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates;

•

our financial performance;

•

our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals;

•

our expectations related to the use of our cash reserves;

•

our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

•

the impact of laws and regulations, including without limitation recently enacted tax reform legislation;

•

our expectations regarding the time during which we are an emerging growth company under the JOBS Act;

•

the effect

of COVID-19 on

the foregoing; and

•

other risks and uncertainties, including those listed under the caption “Risk Factors” in Part II, Item 1A.

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We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on Form

10-Q,

particularly in the “Risk Factors” section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Moreover, we operate in a competitive and rapidly changing environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, collaborations, joint ventures, or investments we may make or enter into.

You should read this Quarterly Report and the documents that we file with the Securities and Exchange Commission with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this Quarterly Report on Form

10-Q

are made as of the date of this Quarterly Report on Form

10-Q,

and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

iii

Table of Contents


		Page
PART I.	FINANCIAL INFORMATION		1
Item 1.	Financial Statements (Unaudited)		1
	Condensed Consolidated Balance Sheets		1
	Condensed Consolidated Statements of Operations		2
	Condensed Consolidated Statements of Comprehensive Income (Loss)		3
	Condensed Consolidated Statements of Preferred Units and Stockholders’ Equity (Deficit)		4
	Condensed Consolidated Statements of Cash Flows		5
	Notes to Unaudited Condensed Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		31
Item 4.	Controls and Procedures		31
PART II.	OTHER INFORMATION		32
Item 1.	Legal Proceedings		32
Item 1A.	Risk Factors		32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		73
Item 3.	Defaults Upon Senior Securities		73
Item 4.	Mine Safety Disclosures		73
Item 5.	Other Information		73
Item 6.	Exhibits		74
Signatures			75

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

YUMANITY THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

(Unaudited)


	June 30, 2021			December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	47,329		$	80,819
Marketable securities		8,299			4,498
Prepaid expenses and other current assets		2,557			2,264

Total current assets		58,185			87,581
Property and equipment, net		592			874
Operating lease right-of-use assets		21,160			23,678
Deposits		386			386
Restricted cash		928			2,066
Assets held-for-sale		—			250

Total assets	$	81,251		$	114,835

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,811		$	7,384
Accrued expenses and other current liabilities		3,631			7,851
Current portion of long-term debt		5,107			2,891
Operating lease liabilities		4,758			4,468
Current portion of finance lease obligation		84			166
Deferred revenue		2,458			8,104

Total current liabilities		17,849			30,864
Long-term debt, net of discount and current portion		10,079			13,237
Operating lease liabilities, net of current portion		12,032			14,479
Finance lease obligation, net of current portion		22			48
Other liabilities		162			—

Total liabilities		40,144			58,628

Commitments and contingencies (Note 10)
Stockholders’ equity:
Common stock, $0.001 par value; 125,000,000 shares authorized; 10,282,046 shares issued and 10,193,831 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively		10			10
Additional paid-in capital		208,043			204,007
Accumulated deficit		(166,946	)		(147,810	)

Total stockholders’ equity		41,107			56,207

Total liabilities and stockholders’ equity	$	81,251		$	114,835

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

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YUMANITY THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share/unit and per share/unit amounts)

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Collaboration revenue	$	2,114		$	—		$	5,646		$	—
Operating expenses:
Research and development		7,327			3,939			14,106			8,968
General and administrative		4,712			2,599			10,764			4,631

Total operating expenses		12,039			6,538			24,870			13,599

Loss from operations		(9,925	)		(6,538	)		(19,224	)		(13,599	)

Other income (expense):
Change in fair value of preferred unit warrant liability		—			21			—			26
Interest expense		(463	)		(455	)		(951	)		(909	)
Interest income and other income (expense), net		(66	)		—			(95	)		45
Gain on debt extinguishment		—			—			1,134			—

Total other income (expense), net		(529	)		(434	)		88			(838	)

Net loss	$	(10,454	)	$	(6,972	)	$	(19,136	)	$	(14,437	)

Gain on extinguishment of Class B preferred units		—			6,697			—			6,697
Net loss applicable to common shareholders		(10,454	)		(275	)		(19,136	)		(7,740	)

Net loss per share/unit, basic and diluted	$	(1.03	)	$	(0.13	)	$	(1.88	)	$	(3.59	)

Weighted average common shares/units outstanding, basic and diluted		10,195,608			2,156,363			10,194,474			2,153,190

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

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YUMANITY THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Net loss	$	(10,454	)	$	(6,972	)	$	(19,136	)	$	(14,437	)
Other comprehensive income:
Unrealized gains on marketable securities, net of tax of $0		—			—			—			—

Comprehensive loss	$	(10,454	)	$	(6,972	)	$	(19,136	)	$	(14,437	)

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

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YUMANITY THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF PREFERRED UNITS AND STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share/unit amounts)

(Unaudited)


	Preferred Units				Common Units				Defaulting Class B Preferred Units				Common Stock				Additional Paid-in		Accumulated Other Comprehensive		Accumulated			Total Stockholders’ Equity/ Members’
	Units		Amount		Units		Amount		Shares		Amount		Shares		Amount		Capital		Gain (Loss)		Deficit			(Deficit)
Balances at December 31, 2020		—	$	—		—	$	—		—	$	—		10,193,831	$	10	$	204,007	$	—	$	(147,810	)	$	56,207
Stock/equity-based compensation expense		—		—		—		—		—		—		—		—		1,407		—		—			1,407
Net loss		—		—		—		—		—		—		—				—		—		(8,682	)		(8,682	)

Balances at March 31, 2021		—		—		—		—		—		—		10,193,831	$	10	$	205,414	$	—	$	(156,492	)	$	48,932

Issuance of common stock from at the market offering, net of issuance costs		—		—		—		—		—		—		82,132		—		1,313		—		—			1,313
Exercises of common stock options		—		—		—		—		—		—		6,083		—		57		—		—			57
Stock/equity-based compensation expense		—		—		—		—		—		—		—		—		1,259		—		—			1,259
Net loss		—		—		—		—		—		—		—		—		—		—		(10,454	)		(10,454	)

Balances at June 30, 2021		—	$	—		—	$	—		—	$	—		10,282,046	$	10		208,043	$	—	$	(166,946	)	$	41,107


	Preferred Units						Common Units					Defaulting Class B Preferred Units				Common Stock				Additional Paid-in		Accumulated Other Comprehensive		Accumulated			Total Stockholders’ Equity/ Members’
	Units			Amount			Units			Amount		Units		Amount		Shares		Amount		Capital		Gain (Loss)		Deficit			(Deficit)
Balances at December 31, 2019		12,391,101		$	89,699			2,163,099		$	5,120		—	$	—		—	$	—	$	—	$	—	$	(97,020	)	$	(91,900	)
Stock/equity-based compensation expense		—			—			—			570		—		—		—		—		—		—		—			570
Net loss		—			—			—			—		—		—		—		—		—		—		(7,465	)		(7,465	)

Balances at March 31, 2020		12,391,101			89,699			2,163,099		$	5,690		—	$	—		—	$	—	$	—	$	—	$	(104,485	)	$	(98,795	)

Issuance of Class C preferred units, net of issuance costs of $388		5,404,588		$	21,235																						$	—
Exchange of Class B preferred units for Defaulting Class B preferred units		(836,319	)		(288	)		—			—		836,319		288		—		—		—		—		—			—
Gain on extinguishment of Class B preferred units		—			(6,697	)		—			—		—		—		—		—		—		—		6,697		$	6,697
Forfeiture of unvested incentive units		—			—			(351	)		—		—		—		—		—		—		—		—			—
Stock/equity-based compensation expense		—			—						502																	502
Net loss		—			—			—			—		—		—		—		—		—		—		(6,972	)		(6,972	)

Balances at June 30, 2020		16,959,370		$	103,949			2,162,748		$	6,192		836,319	$	288		—	$	—		—	$	—	$	(104,760	)	$	(98,568	)

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

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YUMANITY THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Six Months Ended June 30,
	2021			2020
Cash flows from operating activities:
Net loss		(19,136	)		(14,437	)
Adjustments to reconcile net loss to net cash used in operating activities:
Net amortization of premiums (accretion of discounts) on marketable securities		(7	)		(3	)
Depreciation and amortization expense		375			388
Non-cash lease expense		2,518			899
Stock/equity-based compensation expense		2,666			1,072
Other non-cash expense		55			—
Non-cash interest expense		284			232
Gain on debt extinguishment		(1,134	)		—
Change in fair value of preferred unit warrant liability		—			(26	)
Loss (gain) on sale of property and equipment		63			(2	)
Changes in operating assets and liabilities:
Accounts receivable		—			(15,000	)
Prepaid expenses and other current assets		(164	)		(471	)
Deposits		—			(340	)
Operating lease liabilities		(2,157	)		(318	)
Accounts payable		(5,573	)		(913	)
Accrued expenses and other current liabilities		(4,047	)		(385	)
Deferred revenue		(5,646	)		15,000

Net cash used in operating activities		(31,903	)		(14,304	)

Cash flows from investing activities:
Purchases of marketable securities		(9,869	)		—
Proceeds from sales and maturities of marketable securities		6,075			1,350
Purchases of property and equipment		(90	)		(169	)
Proceeds from sale of property and equipment		—			12

Net cash (used in) provided by investing activities		(3,884	)		1,193

Cash flows from financing activities:
Proceeds from issuance of Class C preferred units, net of offering costs paid		—			21,419
Proceeds from Paycheck Protection Program loan		—			1,123
Proceeds from at the market offering, net of issuance costs		1,313			—
Proceeds from exercise of stock options		57			—
Payments of debt issuance costs related to long-term debt		(103	)		(72	)
Payments of finance lease obligations		(108	)		(175	)

Net cash provided by financing activities		1,159			22,295

Net (decrease) increase in cash, cash equivalents and restricted cash		(34,628	)		9,184
Cash, cash equivalents and restricted cash at beginning of period		82,885			14,246

Cash, cash equivalents and restricted cash at end of period		48,257			23,430

Supplemental cash flow information:
Cash paid for interest	$	660		$	613
Supplemental disclosure of noncash investing and financing activities:
Deferred financing costs included in accounts payable	$	—		$	184
Operating lease liabilities arising from obtaining right-of-use assets	$	—		$	10,219

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

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YUMANITY THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of Business and Basis of Presentation

Yumanity Therapeutics, Inc. (together with its wholly owned subsidiaries, the “Company” or “Yumanity”) is a clinical stage biopharmaceutical company engaged in the research and development of treatments for neurodegenerative diseases caused by protein misfolding.

The Company is subject to risks similar to those of other early clinical stage companies in the biopharmaceutical industry, including dependence on key individuals, the need to develop commercially viable products, competition from other companies, many of whom are larger and better capitalized, the impact of the

COVID-19

pandemic and the need to obtain adequate additional financing to fund the development of its product candidates. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be maintained, that any product candidates developed will obtain required regulatory approval or that any approved products will be commercially viable. Even if the Company’s development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from the sale of its products.

Merger with Proteostasis Therapeutics, Inc.

On December 22, 2020, Proteostasis Therapeutics, Inc. (“Proteostasis” or “PTI”) completed its previously announced merger transaction with Yumanity, Inc. (formerly Yumanity Therapeutics, Inc.) in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of August 22, 2020, as amended on November 6, 2020 (the “Merger Agreement”), by and among Pangolin Merger Sub, Inc., a wholly-owned subsidiary of Proteostasis (“Merger Sub”), Yumanity Holdings, LLC (“Holdings”) and Yumanity, Inc., pursuant to which Merger Sub merged with and into Yumanity, Inc., with Yumanity, Inc. surviving as a wholly owned subsidiary of Proteostasis (the “Merger”). Immediately prior to the effective time of the Merger, Holdings merged with and into Yumanity, Inc. and Yumanity, Inc. continued to exist as the surviving corporation. On December 22, 2020, in connection with, and prior to the completion of, the Merger, Proteostasis effected a

1-for-20

reverse stock split of its common stock (the “Reverse Stock Split”). Immediately following the Merger, Proteostasis changed its name to “Yumanity Therapeutics, Inc.”

At the effective time of the Merger (the “Effective Time”), each share of Yumanity Inc.’s common stock, par value $0.01 (the “Yumanity Common Stock”), outstanding immediately prior to the Effective Time was converted into the right to receive shares of PTI based on an exchange ratio set forth in the Merger Agreement. At the Effective Time following the Reverse Stock Split, the exchange ratio was determined to be 0.2108 shares of PTI Common Stock for each share of Yumanity Common Stock (the “Exchange Ratio”). At the closing of the Merger on December 22, 2020, PTI issued an aggregate of 6,024,433 shares of its common stock to Yumanity, based on the Exchange Ratio. In addition, all options and warrants exercisable for shares of common stock of Yumanity, Inc. became options and warrants exercisable for shares of common stock of PTI equal to the Exchange Ratio multiplied by the number of shares of Yumanity Inc.’s common stock previously represented by such stock options and warrants, as applicable, with a proportionate adjustment in exercise price. No fractional shares were issued in connection with the Exchange Ratio.

The transaction was accounted for as a reverse merger and as an asset acquisition in accordance with GAAP. Under this method of accounting, Yumanity was deemed to be the accounting acquirer for financial reporting purposes. This determination was primarily based on the fact that, immediately following the Merger: (i) Yumanity’s equity holders owned a majority of the voting rights in the combined organization, (ii) Yumanity designated a majority of the members (7 of 9) of the initial board of directors of the combined organization and (iii) Yumanity’s senior management hold all key positions in the senior management of the combined organization. Accordingly, for accounting purposes, (i) the Merger was treated as the equivalent of the Yumanity issuing stock to acquire the net assets of PTI, (ii) the net assets of PTI were allocated a portion of the transaction price and recorded based upon their relative fair values in the financial statements at the time of closing, (iii) the reported historical operating results of the combined organization prior to the Merger will be those of Yumanity and (iv) for periods prior to the transaction, shareholders’ equity of the combined organization is presented based on the historical equity structure of Yumanity. As a result, as of the closing date of the Merger, the net assets of PTI were recorded at their acquisition-date fair values in the financial statements of Yumanity and the reported operating results prior to the Merger will be those of Yumanity. As used herein, the words “the Company” refer to, for periods following the Merger, Yumanity Therapeutics, Inc., together with its wholly owned subsidiaries, and for periods prior to the Merger, Holdings, and its wholly owned subsidiary, as applicable.

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The Yumanity Reorganization

On December 22, 2020, immediately prior to the closing of the Merger, pursuant to the terms of the Merger Agreement, the Company completed the Yumanity Reorganization whereby Holdings, the sole stockholder and holding company parent of Yumanity, Inc., merged with and into Yumanity, Inc., with Yumanity, Inc. as the surviving corporation. In connection with the Yumanity Reorganization, each outstanding common unit of Holdings was exchanged for shares of common stock of Yumanity, Inc. based upon a ratio associated with the terms of each common unit, each outstanding preferred unit of Holdings was converted into shares of common stock of Yumanity, Inc. based upon the ratio associated with each individual series of preferred units, each outstanding option to purchase shares of common units of Holdings was converted into an outstanding option to purchase shares of common stock of Yumanity, Inc. on a

1-for-1

basis, with a corresponding adjustment to the exercise price, and each outstanding warrant to purchase preferred units or common units of Holdings was converted into a warrant to purchase shares of common stock of Yumanity, Inc. based upon the ratio associated with each individual series of preferred units or on a

1-for-1

basis, respectively, with a corresponding adjustment to the exercise price, as applicable.

Basis of presentation

The Company’s condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Unless otherwise noted, all references to common stock/unit share and per share amounts have also been adjusted to reflect the Exchange Ratio.

Going concern

The Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the original issuance date of the condensed consolidated financial statements.

Since its inception, the Company has funded its operations primarily with equity and debt including proceeds from the Merger. The Company has incurred recurring losses and negative cash flows from operations since inception, including net losses of $10.5 million and $19.1 million for the three and six months period ended June 30, 2021. In addition, as of June 30, 2021, the Company had an accumulated deficit of $166.9 million. The Company expects to continue to generate operating losses for the foreseeable future. As of June 30, 2021, the Company expects that its cash, cash equivalents and marketable securities will fund its operating expenses, capital expenditure requirements and debt service payments

late

into the third quarter of 2022.

The Company will require additional financing to fund operations and plans to obtain additional funding through private or public equity financings, debt financings, or other capital sources, including collaborations with other companies or other strategic transactions. There is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all. If the Company is unable to obtain additional funding, the Company will be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects, or the Company may be unable to continue operations.

Impact of the

COVID-19

pandemic

The

COVID-19

pandemic, which began in December 2019 and has spread worldwide, has caused many governments to implement measures to slow the spread of the outbreak. The outbreak and government measures taken in response have had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred, supply chains have been disrupted, and facilities and production have been suspended. The future progression of the pandemic and its effects on the Company’s business and operations are uncertain. The

COVID-19

pandemic may affect the Company’s ability to initiate and complete preclinical studies, delay its clinical trial or future clinical trials, disrupt regulatory activities, or have other adverse effects on its business and operations. The pandemic has already caused significant disruptions in the financial markets, and may continue to cause such disruptions, which could impact the Company’s ability to raise additional funds to support its operations. Moreover, the pandemic has significantly impacted economies worldwide and could result in adverse effects on the Company’s business and operations.

Clinical trial sites in many countries, including those in which the Company operates, have incurred delays due to

COVID-19.

Certain of the sites in the

YTX-7739

Phase 1b clinical trial have incurred delays due to

COVID-19,

resulting in a delay in the expected timing of early results from that study. There continues to be a risk of additional delays to the Company’s clinical programs.

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To date, the Company has not incurred impairment losses in the carrying values of its assets as a result of the pandemic and it is not aware of any specific related event or circumstance that would require it to revise its estimates reflected in these condensed consolidated financial statements. The extent to which the

COVID-19

pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including current and future clinical trials and research and development costs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning

COVID-19,

the actions taken to contain or treat it, and the duration and intensity of the related effects.

At-the-Market Offering Program

In April 2021, we entered into a sales agreement with Jefferies LLC (“Jefferies”) with respect to an at-the-market (“ATM”) offering program under which we may issue and sell, from time-to-time at our sole discretion, shares of our common stock, in an aggregate offering amount of up to $60.0 million. Jefferies acts as our sales agent and will use commercially reasonable efforts to sell shares of common stock from time-to-time, based upon instruction us. We will pay Jefferies up to 3% of the gross proceeds from any common stock sold through the sales agreement. We sold 82,132 shares of its common stock under the ATM program during the three months ended June 30, 2021 for gross proceeds of $1.3 million. As of June 30, 2021, approximately $58.7 million of common stock remained available for future issuance under the ATM program.

2. Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The condensed balance sheet as of December 31, 2020 was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). The accompanying condensed financial statements, as of June 30, 2021 and for the three and six months ended June 30, 2021, are unaudited and have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited condensed financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the year ended December 31, 2020 included in the Company’s Annual Report on Form

10-K

for the year ended December 31, 2020 filed with the SEC on March 31, 2021. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s condensed consolidated financial position as of June 30, 2021 and condensed consolidated results of operations and cash flows for the three and six months ended June 30, 2021 and 2020 have been made. The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2021.

Summary of Significant Accounting Policies

The Company’s significant accounting policies, which are disclosed in the audited financial statements for the year ended December 31, 2020 and the notes thereto, are included in the Company’s Annual Report on Form

10-K

that was filed with the SEC on March 31, 2021. There were no changes to significant accounting policies during the three and six months ended June 30, 2021.

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, revenue recognition, the accrual of research and development expenses, the valuation of common units prior to the Merger and the valuation of stock/unit-based awards. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates as there are changes in circumstances, facts, and experience. Actual results may differ from those estimates or assumptions.

Fair value measurements

Certain assets and liabilities are carried at fair value under 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.

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•

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 and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The Company’s cash equivalents and marketable securities are carried at fair value, determined according to the fair value hierarchy described above (see Note 3). The carrying values of the Company’s accounts payable and accrued expenses approximate their fair values due to the short-term nature of these liabilities. The carrying value of the Company’s long-term debt under its loan and security agreement approximates its fair value due to its variable interest rate.

Recently issued accounting pronouncements

In December 2019, the FASB issued ASU

2019-12,

Income Taxes—Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes

(“ASU

2019-12”).

ASU

2019-12

simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU

2019-12

is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company adopted this standard as of January 1, 2021, and depending on the amendment, adoption was applied on a retrospective, modified retrospective, or prospective basis. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

3. Fair Value Measurements and Marketable Securities

The following tables present the Company’s fair value hierarchy for its assets and liabilities, which are measured at fair value on a recurring basis (in thousands):


	Fair Value Measurements at June 30, 2021 Using:
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	45,784			$	—	$	45,784
Marketable securities:
Commercial paper				8,299		—		8,299

	$	45,784	$	8,299	$	—	$	54,083


	Fair Value Measurements at December 31, 2020 Using:
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	77,129	$	—	$	—	$	77,129
Commercial paper		—		1,800		—		1,800
Marketable securities:
Commercial paper		—		4,498		—		4,498

	$	77,129	$	6,298	$	—	$	83,427

Marketable securities were valued by the Company using quoted prices in active markets for similar securities, which represent a Level 2 measurement within the fair value hierarchy.

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Marketable securities by security type consisted of the following (in thousands):


	June 30, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Commercial paper	$	8,299	$	—	$	—	$	8,299

	$	8,299	$	—	$	—	$	8,299


	December 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Commercial paper	$	4,498	$	—	$	—	$	4,498

	$	4,498	$	—	$	—	$	4,498

The Company’s marketable securities are due within one year.

4. Collaboration Agreement

In June 2020, the Company entered into an exclusive license and research collaboration agreement (the “Collaboration Agreement”) with Merck Sharp & Dohme Corp. (“Merck”) to support the research, development and commercialization of products for the treatment of amyotrophic lateral sclerosis (ALS) and frontotemporal lobar dementia (FTLD). Pursuant to the Collaboration Agreement, the Company granted Merck an exclusive, worldwide license with the right to grant and authorize sublicenses, under certain intellectual property rights related to two certain undisclosed targets in connection with the Company’s ALS and FTLD programs to make, have made, use, import, offer to sell and sell compounds and products covered by such intellectual property rights. In the event that the exploitation of such compound or product would infringe during the term of the Merck Collaboration Agreement a claim of an issued patent controlled by Yumanity, Yumanity also granted Merck

a non-exclusive, sublicensable,

royalty-free license under such issued patent to exploit such compound and product.

Under the terms of the Collaboration Agreement, the Company and Merck are each responsible to perform certain research activities in accordance with a mutually agreed upon research plan. Upon the completion of certain stages of the research plan, Merck will elect to either advance and make certain contractual option payments or terminate the applicable research program. If Merck elects not to advance a research program, such program terminates and the rights granted to Merck in the program revert to the Company. Following completion of the research program, Merck is responsible for the development and commercialization of the compounds developed pursuant to the research program and any product containing such compounds.

Under the terms of the Collaboration Agreement, the Company received an upfront payment totaling $15.0 million in July 2020 and is eligible to receive up to $280.0 million upon achievement of specified research and development milestones, and up to $250.0

million upon achievement of specified sales-based milestones as well as a tiered, mid-single digit royalty on net sales of licensed products, subject to customary reductions.

Unless terminated earlier, the Collaboration Agreement will continue in full force and effect until one or more products has received marketing authorization and, thereafter, until expiration of all royalty obligations under the Collaboration Agreement. The Company or Merck may terminate the Collaboration Agreement upon an uncured material breach by the other party or insolvency of the other party. Merck may also terminate the Merck Collaboration Agreement for any reason upon certain notice to the Company.

Merck also participated in the Company’s Class C preferred units financing in June 2020 with terms consistent with those of other investors that purchased Class C preferred units in June 2020. The Class C preferred units were issued at a price of $4.0008 per unit, which was determined to be fair value based on the same price paid by other investors that purchased Class C preferred units in the financing. The equity investment was considered to be distinct from the Collaboration Agreement.

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The Company assessed the promised goods and services to determine if they are distinct. Based on this assessment, the Company determined that Merck cannot benefit from the promised goods and services separately from the others as they are highly interrelated and therefore not distinct. Accordingly, the promised goods and services represent one combined performance obligation and the entire transaction price was allocated to that single combined performance obligation. The performance obligation is being satisfied over the research term as the Company performs the research and development activities through the first substantive option period, and participates in a Joint Steering Committee to oversee research and development activities. Accordingly, the upfront payment of $15.0 million was recorded as deferred revenue and will be recognized as revenue as the performance obligation is

satisfied. The Company recognizes revenue using

the cost-to-cost method,

which it believes best depicts the transfer of control to the customer. Under

the cost-to-cost method,

the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation. Under this method, revenue is recorded as a percentage of the estimated transaction price based on the extent of progress towards completion. As of June 30, 2021, the aggregate amount of the transaction price related to the unsatisfied portion of the performance obligation is $2.5 million, which is expected to be recognized as revenue within the next year. For the three and six month periods ended June 30, 2021, the Company recorded $2.1 million and $5.6 million of collaboration revenue, respectively, related to the Collaboration Agreement. At contract inception, the potential milestone payments that the Company is eligible to receive were excluded from the transaction price as they were fully constrained. At the end of each reporting period, the Company reevaluates the transaction price and as uncertain events are resolved or other changes in circumstances occur, and if necessary, the Company will adjust its estimate of the transaction price. Any additions to the transaction price would be reflected in the period as a cumulative

revenue catch-up. At

the inception of the arrangement, the Company evaluated the options held by Merck to either advance or terminate the applicable research program to determine if they provided Merck with any material rights. The Company concluded that the options were not issued at a significant and incremental discount, and therefore do not provide Merck with a material right. As such, these options were excluded as performance obligations and will be accounted for if and when they occur.

The Company assessed the Collaboration Agreement to determine whether a significant financing component exists and concluded that a significant financing component does not exist.

5. Accrued Expenses

Accrued expenses consisted of the following (in thousands):


	June 30, 2021		December 31, 2020
Accrued employee compensation and benefits	$	1,073	$	4,295
Accrued external research and development expenses		1,465		1,780
Accrued professional fees		598		987
Other		495		789

	$	3,631	$	7,851

6. Debt

Long-term debt consisted of the following (in thousands):


	June 30, 2021			December 31, 2020
Principal amount of long-term debt	$	15,000		$	16,123
Less: Current portion of long-term debt		(5,107	)		(2,891	)

Long-term debt, net of current portion		9,893			13,232
Debt discount, net of accretion		(333	)		(348	)
Accrued end-of-term payment		519			353

Long-term debt, net of discount and current portion	$	10,079		$	13,237

The Company has outstanding borrowings of $15.0 million (“Tranche 1”) under a loan and security agreement entered into in December 2019 (the “Term Loan”) with Hercules Capital, Inc. (the “Lender”). The Company could have borrowed an additional $5.0 million upon the occurrence of a development milestone and an equity event as defined in the agreement (“Tranche 2”), and could still borrow an additional $10.0 million

that

may become available to be drawn upon lender approval. Borrowings under the Term Loan are repayable in monthly interest-only payments until August 1, 2021, with the option to extend an additional six months upon the drawdown of Tranche 2. The interest-only period will be followed by monthly payments of equal principal plus interest until the loan maturity date of January 1, 2024. Outstanding borrowings bear interest at the greater of i) 8.75% and ii) the prime rate as reported in the Wall Street Journal plus 4.00%. A final payment fee of 5.25% of the amounts drawn under the Term Loan is due upon the earlier of the maturity date or the repayment date if paid early, whether voluntary or upon acceleration due to default. The Company may repay the Term Loan at any time by paying the outstanding principal balance in full, along with any unpaid accrued interest, the final payment fees of 5.25% of the amounts drawn and a prepayment fee calculated on amounts being prepaid. The prepayment fee is 3.0% if the Term Loan is repaid within the

one-year

anniversary of the draw date, 2.0% if paid between the first and second-year anniversary of the draw date and 1.0% if paid after the second anniversary of the draw date but before the maturity date.

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In April 2020, the Term Loan was amended to permit indebtedness consisting of a loan under the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) provided that such loan shall be unsecured, shall not contain any terms or conditions that are adverse to the Lender’s rights under the loan and that the Company will not prepay such loan. In June 2020, the Term Loan was amended and an additional final payment fee of $0.3 million became due upon repayment of the loan.

On December 22, 2020, the Company entered into an Unconditional Secured Guaranty and Pledge Agreement (the “Guaranty”) with the Lender as a condition to the Lender’s consent to the Merger under the Term Loan between Yumanity, Inc. as borrower and the Lender. Immediately prior to the Merger, Yumanity, Inc. entered into a Fourth Amendment and Consent to Loan and Security Agreement dated as of December 22, 2020 with the Lender (the “Loan Amendment”). The Guaranty provides for the Company’s guaranty of Yumanity Inc.’s obligations under the Loan Agreement and provides the Lender a security interest in all of Company’s assets other than intellectual property as collateral. The Loan Amendment provides for the Lender’s consent to the Merger and to the creation and funding of a Silicon Valley Bank Paycheck Protection Program escrow account to hold funds in connection with Yumanity’s outstanding Paycheck Protection Program loan amounts for which Yumanity has submitted a forgiveness application. The Loan Amendment also amends the definition of “Change in Control” to include the situations in which the Company no longer controls Yumanity, Inc. The remaining terms and conditions of the Loan Agreement generally continue in the form existing prior to the Loan Amendment.

As of June 30, 2021 and December 31, 2020, the interest rate applicable to borrowings under the Term Loan was 8.75%. For the six months ended June 30, 2021, the weighted average effective interest rate on outstanding borrowings under the Term Loan was approximately 6.29%. On March 29, 2021, the Term Loan was amended again to allow for the creation of a new foreign subsidiary, as well as changing certain covenants related to the financial operations of said subsidiary. The subsidiary was formed on April 23, 2021.

On April 13, 2021 the Term Loan was amended to reduce the additional final payment fee of

$0.3 million to $0.1 million upon repayment of the loan.

Borrowings under the Term Loan are collateralized by substantially all of the Company’s personal property, other than its intellectual property. There were no financial covenants associated with the Term Loan; however, the Company is subject to certain affirmative and negative covenants restricting the Company’s activities, including limitations on dispositions, mergers or acquisitions; encumbering its intellectual property; incurring indebtedness or liens; paying dividends; making certain investments; and engaging in certain other business transactions. The obligations under the Term Loan are subject to acceleration upon the occurrence of specified events of default, including a material adverse change in the Company’s business, operations or financial or other condition. Upon the occurrence of an event of default and until such event of default is no longer continuing, the annual interest rate will be 5.0% above the otherwise applicable rate.

In April 2020, prior to entering into the Merger Agreement with PTI in August 2020, the Company issued a Promissory Note to Silicon Valley Bank, pursuant to which it received loan proceeds of $1.1 million (the “Loan”) provided under the PPP established under the CARES Act and guaranteed by the U.S. Small Business Administration. On April 3, 2021, the Company was notified by Silicon Valley Bank that the Loan forgiveness application was accepted by the Small Business Association as of March 30, 2021. Accordingly, the Company has recognized $1.1 million in income for debt extinguishment.

As of June 30, 2021, future principal payments due are as follows (in thousands):


Year	Aggregate Minimum Payments
2021	$	2,268
2022		5,805
2023		6,341
2024		586
2025		—

	$	15,000

7. Stock/Equity-Based Compensation

Restricted Stock Units (RSUs)

On January 14, 2021, the Company’s compensation committee of the board approved payment to be made to Company employees through a grant of RSUs based on the February 1, 2021 closing share price of the Company’s common stock with a fair value of $2.2 million. The requisite service period for the awards ranges from one to four years (the vesting period). The Company recognized employee stock-based compensation expense for the RSU grant on a straight-line basis over the vesting period of the awards. As of June 30, 2021, 122,419 RSUs were granted and 112,544 were outstanding, and the Company recognized $0.3 million and $0.6 million of stock-based compensation expense during the three and six months ended June 30, 2021, respectively.

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The following table summarizes the Company’s RSU activity for the six months ended June 30, 2021:


	Units			Weighted Average Grant Date Fair Value
Unvested balance at December 31, 2020		—		$	—
Issued		122,469		$	17.89
Vested		—		$	—
Forfeited		(9,925	)	$	17.89
Unvested balance at June 30, 2021		112,544		$	17.89

Summary of plans

Upon completion of the Merger, the Company assumed PTI’s 2016 Stock Option and Incentive Plan (the “2016 Plan”) and PTI’s 2016 Employee Stock Purchase Plan (the “2016 ESPP”).

2016 Stock Option and Incentive Plan

On February 3, 2016, PTI’s stockholders approved the 2016 Plan, which became effective on February 9, 2016. The 2016 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock units, restricted stock awards and other stock-based awards. The number of shares initially reserved for issuance under the 2016 Plan was 79,092 shares. The number of shares of common stock that may be issued under the 2016 Plan will automatically increase each January 1, beginning January 1, 2017, by the lesser of 3% of the shares of the Company’s common stock outstanding on the immediately preceding December 31, or an amount determined by the Company’s board of directors or the compensation committee of the board of directors. The shares of common stock underlying any awards that are forfeited, canceled, repurchased, or are otherwise terminated by the Company under the 2016 Plan and the 2008 Equity Incentive Plan, as amended (the “2008 Plan”) will be added back to the shares of common stock available for issuance under the 2016 Plan. On January 1, 2020, an additional 303,495

shares were reserved for issuance under the 2016 Plan in accordance with the provisions of the 2016 Plan described above. Options granted under the 2016 Plan with service-based vesting conditions generally vest over

four

years

and expire after

ten

years

. As of June 30, 2021 the total number of shares of the Company’s common stock reserved for issuance under the 2016 Plan was

626,100

, of which

117,549

shares are available for future issuance under the 2016 Plan.

2016 Employee Stock Purchase Plan

On February 3, 2016, PTI’s stockholders approved the 2016 ESPP, which became effective in connection with the completion of the PTI’s initial public offering. A total of 6,938 shares of common stock were initially reserved for issuance under the 2016 ESPP. In addition, the number of shares of common stock that may be issued under the 2016 ESPP will automatically increase each January 1, beginning January 1, 2017, by the lesser of (i) 6,938 shares of common stock, (ii) 1% of the Company’s shares of common stock outstanding on the immediately preceding December 31, or (iii) an amount determined by the Company’s board of directors or the compensation committee of the board of directors. As of

June

, 202

, the total number of shares reserved under the 2016 ESPP was 41,626 shares. The number of shares reserved for issuance under the 2016 ESPP was increased by 6,937 shares effective as of January 1, 2021 in accordance with the provisions of the 2016 ESPP described above.

Yumanity Therapeutics, Inc. Amended and Restated 2018 Stock Option and Grant Plan

On December 4, 2018, the Company’s board of directors adopted the 2018 Unit Option and Grant Plan (the “2018 Plan”), which was approved by the Company’s members on December 5, 2018. The 2018 Plan provided for the Company to grant unit options, restricted unit awards and unrestricted unit awards to employees, directors and consultants of the Company. As part of the Yumanity Reorganization and the Merger, the 2018 Plan was amended and restated as the “Yumanity Therapeutics, Inc. Amended and Restated 2018 Stock Option and Grant Plan”. Each stock option outstanding under the 2018 Plan at the Effective Time of the Merger was automatically converted into a stock option exercisable for the same number of shares of Yumanity common stock, and then assumed by the Company, based on the Exchange Ratio and the exercise price per share of such outstanding stock option, as adjusted for the Exchange Ratio. The 2018 Plan is administered by the board of directors or, at the discretion of the board of directors, by a committee of the board of directors. The exercise prices, vesting and other restrictions are determined at the discretion of the board of directors, or its committee if so delegated.

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Options granted

under the 2018 Plan with service-based vesting conditions generally vest over

four years

and expire after

ten years

. The total number of common shares that may be issued under the 2018 Plan is

1,527,210

as of

June 30

, 2021. Shares that are forfeited, canceled, reacquired by the Company prior to vesting, satisfied without the issuance of shares or otherwise terminated (other than by exercise) and units that are withheld upon the exercise of an option or settlement of an award to cover exercise price or tax withholding shall be added back to units available under the 2018 Plan. As of June 30, 2021,

266,542

shares remain available for issuance under the 2018 Plan.

Under each plan, the exercise price per option granted is not less than the fair market value of common stock as of the date of grant.

2021 Inducement Plan

On April 13, 2021 the Board of Directors approved the adoption of the Company’s 2021 Inducement Plan (the “2021 Plan”), which is used exclusively for the grant of equity awards to individuals who were not previously employees of the Company (or following a bona fide period of

non-employment),

as an inducement material to such individual’s entering into employment with the Company, pursuant to Rule 416 under the Securities Act of 1933. As of June 30, 2021, the total number of shares of the Company’s common stock that may be issued under the 2021 Plan is

504,000 shares of which 341,600

shares are available for future issuance under the 2021 Plan. Shares that are expired, forfeited, canceled or otherwise terminated without having been fully exercised will be available for future grant under the 2021 Plan.

Option valuation

The fair value of option grants is estimated using the Black-Scholes option-pricing model. Prior to the Merger, the Company was a private company and lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock/unit volatility based on the historical volatility of a publicly traded set of peer companies. The expected term of the Company’s options has been determined utilizing a midpoint convention estimate. 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. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

Option activity

The following table summarizes the Company’s option activity during six months ended June 30, 2021:


	Number of Shares/ Units			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
						(in years)		(in thousands)
Outstanding as of December 31, 2020		944,961		$	20.70		8.29		6,522
Granted		872,725		$	17.17		9.84		—
Exercised		(6,083	)		9.39		7.53		14
Forfeited		(54,656	)	$	12.73				—
Outstanding as of June 30, 2021		1,756,947		$	19.35		8.08		2,473
Vested and expected to vest as of June 30, 2021		1,736,947		$	19.37		8.06		—

The aggregate intrinsic value of options is calculated as the difference between the exercise price of the options and the fair value of the Company’s common stock/units for those stock/unit options that had exercise prices lower than the fair value of the Company’s common stock/units.

The grant date fair value of options granted during the period was $12.9 million, or $14.79 per share on a weighted-average basis and will be recognized as compensation expense over the requisite service period ranging from one to four years.

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Stock/equity-based compensation

The Company recorded stock/equity-based compensation expense related to common stock/unit options and restricted units in the following expense categories in its condensed consolidated statements of operations (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Research and development expenses	$	355	$	149	$	746	$	375
General and administrative expenses		904		353		1,920		697

	$	1,259	$	502	$	2,666	$	1,072

As of June 30, 2021, total unrecognized compensation cost related to unvested options and restricted common stock was $14.1 million, which is expected to be recognized over a weighted average period of 2.82 years.

8. Net Loss Per Share

Basic and diluted net loss per share was calculated as follows (in thousands, except share and per share amounts):


	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Numerator:
Net los s	$	(10,454	)	$	(6,972	)		(19,136	)		(14,437	)
Gain on extinguishment of Class B preferred unit s		—			6,697			—			6,697
Net loss applicable to common shareholders	$	(10,454	)	$	(275	)	$	(19,136	)	$	(7,740	)

Denominator:
Weighted average common shares/units outstanding, basic and diluted		10,195,608			2,156,363			10,194,474			2,153,190

Net loss per share/unit, basic and diluted	$	(1.03	)	$	(0.13	)	$	(1.88	)	$	(3.59	)

The following common stock equivalents presented based on amounts outstanding at each period end, have been excluded from the calculation of diluted net loss per share because including them would have had an anti-dilutive impact:


	As of June 30,
	2021		2020
Options to purchase common stock		1,756,947		1,043,156
Warrants to purchase common stock or shares convertible into common stock		99,986		99,986

		1,856,933		1,143,142

9. Leases

The Company leased office and laboratory facilities in Cambridge, Massachusetts (the “Old Premises”) from an investor in the Company under a noncancelable operating lease that began in April 2015 and expired in March 2020. In February 2020, the Company amended the lease for the Old Premises to extend the lease expiration to April 30, 2020. The amendment was accounted for as a lease reassessment and

the right-of-use asset

and lease liability were remeasured at the reassessment date of February 2020 resulting in an increase of $0.1 million to

the right-of-use asset

for prepaid rent and a reduction of $0.1 million to the lease liability. In May 2020, the Company amended the lease for the Old Premises to extend the lease expiration to May 23, 2020 and recognized the final rent payment of less than $0.1 million in expense.

In February 2020, the Company entered into a license agreement with a third party for the use of office and laboratory space in Boston, Massachusetts, commencing in May 2020 (the “New Premises”). The Company determined that this license agreement qualified as a lease under ASC 842, Leases (“ASC 842”). The initial term of the license agreement is three years with the option to extend for a total of

three one-year periods

at fair-market rent at the time of each extension. In addition to use of office and laboratory space, the license fee includes various laboratory, office, and operational support services to be provided by the licensor. The initial monthly license fee escalates 3% annually and totals approximately $12.0 million for the three-year term. Additionally, the licensee agreement for the New Premises requires the Company to pay for

a non-exclusive, irrevocable

license to

use forty-two unreserved

parking spaces adjacent to the New Premises at the prevailing monthly parking rate. On May 1, 2020, the lease commencement date was met and the Company recorded an operating lease asset of $10.6 million and a corresponding lease liability of $10.2 million.

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On December 22, 2020, as part of the Merger, the Company acquired a lease for approximately 30,000 square feet of office and laboratory space (the “Merger Premises”) in Boston, Massachusetts. The lease commenced in January 2018 with rent payments commencing in April 2018. The initial term of the lease was ten years with the option to extend for an additional seven years at fair-market rent at the time of the extension. In addition to use of office and laboratory space, the Company is responsible for paying its allocable portion of building and laboratory operating expenses separately from rent, based on actual costs incurred. Remaining fixed lease payments at the time of the Merger were approximately $14.2 million. On December 22, 2020, the Company recorded an operating lease asset and corresponding lease liability of $10.2 million associated with this lease. The operating lease asset was increased by the value attributable to the below-market lease of $3.1 million and an allocated portion of the excess purchase price for the Merger of $1.9 million.

On January 7, 2021 the Company entered into a sublease agreement (the “Sublease”) with Moma Therapeutics, Inc. (the “Subtenant”), whereby the Company subleased the entire Merger Premises to the Subtenant. The initial term of the Sublease commences on the date the Company receives consent to the Sublease from the landlord and shall continue until 18 months from the commencement date. The Sublease provides for the first monthly installment of rent to be paid by the Subtenant on the date of the Sublease.

The Sublease provides for an initial annual base rent of $1,939,340, which increases annually up to a maximum annual base rent of $1,997,520. The Subtenant also is responsible for paying to the Company operating costs, annual tax costs and all utility costs attributable to the Premises during the term of the Sublease. Expense arising from the Merger Premises of $0.5 million and $1.0 million for the three and six months ended June 30, 2021, respectively, and lease income from the Sublease of $0.5 million and

0.8 million for the three and six months ended, respectively, are classified in operating expense on a net basis.

The Company also leases property and equipment under agreements that are accounted for as finance leases.

The components of lease cost were as follows (in thousands):


	Six Months Ended June 30,
	2021		2020
Operating lease cost	$	3,053	$	1,069
Short-term lease cost		—		—
Variable lease cost		272		232
Finance lease cost:
Amortization of lease assets		77		190
Interest on lease liabilities		5		12

Total finance lease cost	$	82	$	202

Supplemental disclosure of cash flow information related to leases was as follows (in thousands):


	Six Months Ended June 30,
	2021		2020
Cash paid for amounts included in the measurement of operating lease liabilities (operating cash flows)	$	2,970	$	667
Cash paid for amounts included in the measurement of finance lease liabilities (operating cash flows)	$	5	$	12
Cash paid for amounts included in the measurement of finance lease liabilities (financing cash flows)	$	108	$	175
Operating lease liabilities arising from obtaining right-of-use assets	$	—	$	10,219
Finance lease liabilities arising from obtaining right-of-use assets	$	—	$	—

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The weighted-average remaining lease term and discount rate were as follows:


	As of June 30,
	2021			2020
Weighted-average remaining lease term (in years) used for:
Operating leases		4.75			2.83
Finance leases		1.11			0.99
Weighted-average discount rate used for:
Operating leases		9.08	%		8.80	%
Finance leases		5.88	%		6.47	%

Because the interest rates implicit in the license agreement and lease agreement assumed from PTI were not readily determinable, the Company’s incremental borrowing rate was used to calculate the present value of each. The present value of the Company’s finance leases was calculated using the rate implicit in the lease.

As of June 30, 2021, future annual lease payments under the Company’s real estate operating leases and equipment finance leases were as follows (in thousands):


Year	Operating Leases			Finance Leases
2021	$	3,027		$	60
2022		6,173			49
2023		2,977			—
2024		1,931			—
2025		1,985			—
Thereafter		4,840			—

Total future lease payments		20,933			109
Less: Imputed interest		(4,143	)		(3	)

Total lease liabilities	$	16,790		$	106

The following table presents lease assets and liabilities and their classification on the condensed consolidated balance sheet (in thousands):


Leases	Condensed Consolidated Balance Sheet Classification	Amount
Assets:
Operating lease assets	Operating lease right-of-use assets	$	21,160
Finance lease assets	Property and equipment, net		97

Total leased assets		$	21,257

Liabilities:
Current:
Operating lease liabilities	Operating lease liabilities	$	4,758
Finance lease liabilities	Current portion of finance lease obligation		84
Non-current:
Operating lease liabilities	Operating lease liabilities, net of current portion		12,032
Finance lease liabilities	Finance lease obligation, net of current portion		22

Total lease liabilities		$	16,896

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10. Commitments and Contingencies

License agreement

The Company has a tangible property and patent license agreement with Whitehead Institute for Biomedical Research (“Whitehead”) entered into in 2016 and subsequently amended in 2016 and 2018, under which the Company obtained a certain exclusive and

non-exclusive,

royalty-bearing, sublicensable, worldwide license to make, sell and distribute products under certain

patents owned by Whitehead for certain

know-how

related to specific neurodegenerative diseases. In consideration for the rights granted by the agreement, the Company paid a

one-time

license fee of less than $0.1 million and issued 300,000 common units valued at $0.8 million. The Company is required to pay annual maintenance fees of up to $0.1 million through the termination of the agreement. The Company is also required to pay up to an aggregate of approximately $1.9 million upon the achievement of certain developmental and regulatory milestones for the first two licensed products under its first indication. The Company is also required to pay additional milestone amounts for subsequent licensed products under its first or subsequent indications, but at a lower rate. The Company did not meet any milestones for the six months ended June 30, 2021 and the year ended December 31, 2020. The Company must also pay a royalty in the low single digits on future sales by the Company and a mid single to low double digit percentage of certain income received from sublicensees and certain partners. The license agreement remains in effect until the expiration of the

last-to-expire

patent licensed under the agreement. Whitehead may terminate the agreement upon the Company’s uncured material breach of the agreement, including failure to make required payments under the agreement or to achieve certain milestones, or if the Company becomes insolvent or bankrupt. The Company may terminate the license agreement at any time upon providing certain written notice to Whitehead.

Contingent Value Rights Agreement

In connection with the Merger, the Company entered into a Contingent Value Rights Agreement (the “CVR Agreement”) with Shareholder Representative Services LLC as representative of the PTI stockholders. The CVR Agreement entitles each holder of Company Common Stock as of immediately prior to the effective time of the Merger (the “Effective Time”) to receive certain net proceeds, if any, derived from the grant, sale or transfer of rights of the CF Assets ( the “CF Assets”) to any one of three specified counterparties completed during the

9-month

period after the Effective Time (with any potential payment obligations continuing until the

10-year

anniversary of the closing of the Merger Agreement). The CVR agreement became effective at Closing of the Merger and will continue in effect until the payment of all amounts payable thereunder or, if no CF Asset sale is completed, at the nine-month anniversary of the Effective Time. No

liability has been recorded at June 30, 2021 and December 31, 2020 associated with the CVRs as each of the three counterparties has expressed that it is not interested in a transaction and so any related amounts are not considered probable or estimable.

Indemnification agreements

In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, contract research organizations, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors and its executive officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. The Company has not incurred any material costs as a result of such indemnifications and is not currently aware of any indemnification claims.

11. Related Parties

There were no related party transactions for the three and six months ended June 30, 2021. The Company leased certain office and laboratory space from an investor in the Company until May 2020. Lease expense and amounts paid to the investor associated with this lease agreement for three and six months ended June 30, 2020 was $0.0 million and $0.6 million, respectively.

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Item 2. 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 appearing elsewhere in this Quarterly Report on

Form 10-Q

and our audited financial statements included in our Annual Report on Form

10-K

for the year ended December 31, 2020 filed with the SEC on March 31, 2021. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on

Form 10-Q,

including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report on

Form 10-Q,

our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis.

Overview

We are a clinical stage biopharmaceutical company focused on the discovery and development of innovative, disease-modifying therapies for neurodegenerative diseases. Neurodegenerative diseases cause a progressive loss of structure and function in the brain, leaving patients with devastating damage to their nervous system and widespread functional impairment. Although treatments may help relieve some of the physical or mental symptoms associated with neurodegenerative diseases, few of the currently available therapies slow or stop the continued loss of neurons, resulting in a critical unmet need. We are specifically focused on developing novel disease-modifying therapies to treat devastating conditions, either with large or orphan disease markets, including Parkinson’s disease, dementia with Lewy bodies, multiple system atrophy (“MSA”), amyotrophic lateral sclerosis (“ALS”, also known as Lou Gehrig’s disease), frontotemporal lobar degeneration (“FTLD”), and Alzheimer’s disease.

Our goal is to advance one new program into the clinic every year. Our lead program,

YTX-7739,

is now in Phase 1 clinical trials for the potential treatment and disease modification of Parkinson’s disease.

YTX-7739

targets an enzyme known as

stearoyl-CoA

desaturase (“SCD”). Inhibition of SCD in multiple cellular systems, including patient-derived neurons, as well as in a novel mouse model of Parkinson’s disease, has been demonstrated to overcome the toxicity of misfolded alpha-synuclein or α-synuclein, a protein strongly associated with Parkinson’s disease. In February 2021, we announced the results of a Phase 1 single ascending dose (“SAD”) study of

YTX-7739

in healthy volunteers, which evaluated a broad range of doses of

YTX-7739.

We also completed a Phase 1a multiple ascending dose (“MAD”) study in healthy volunteers, and announced results in April 2021. A Phase 1b clinical study of

YTX-7739

in patients with Parkinson’s disease has commenced as a continuation of the MAD study. The Phase 1b part of the study will assess safety, tolerability and pharmacokinetics of

YTX-7739

as well as proof of biology in patients with Parkinson’s disease by exploring biomarkers of target engagement. The study will also explore potential correlative clinical parameters such as electroencephalography and neuroimaging measurements to monitor for early effects of

YTX-7739,

noting, however, that such effects may be difficult to see given the relatively short duration of the trial (28 days) compared to the length of Parkinson’s disease progression. Early results from the Phase 1b part are anticipated in the fall of 2021. Our second program,

YTX-9184,

also inhibits SCD but is chemically distinct from

YTX-7739.

Good Laboratory Practice (“GLP”) safety pharmacology and toxicological studies for

YTX-9184

were initiated in the second quarter of 2020. We anticipate commencing the

first-in-human

studies of

YTX-9184

in 2021 and intend to develop

YTX-9184

for the potential treatment of dementia with Lewy bodies, a devastating neurodegenerative disease which is also characterized by the abnormal accumulation of aggregates of α-synuclein. Pending the results of the Phase 1b study in

YTX-7739

and additional preclinical data, we may choose to study

YTX-7739

for the potential treatment of dementia with Lewy bodies (or other disorders of α-synuclein) instead of

YTX-9184,

as this may provide an opportunity to see results in patients sooner, given the studies done to date of

YTX-7739.

Additionally, based on promising preclinical data in one animal model, we plan to initiate a window-of-opportunity study of an SCD inhibitor in glioblastoma multiforme patients in 2022 once further validation of the preclinical data has been achieved in a second animal model. At the center of our scientific foundation is our drug discovery engine, which is based on technology licensed from the Whitehead Institute, an affiliate of the Massachusetts Institute of Technology. This core technology, combined with investments and advancements by us, is designed to enable rapid screening to identify drugs with the potential to modify disease by overcoming toxicity in disease-causing gene networks. Toxicity in many neurodegenerative diseases results from an aberrant accumulation of misfolded proteins in the brain. We leverage our proprietary discovery engine to identify and screen novel drug targets and drug molecules for their ability to protect nerve cells from toxicity arising from misfolded proteins. To date, we have identified over 20 targets, most of which have not previously been linked to neurodegenerative diseases. We believe this discovery platform will allow us to replenish our pipeline as programs advance into clinical development.

We have incurred significant operating losses since inception. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our current or future product candidates. Our net losses were $10.5 million and $19.1 million, respectively, for the three and six months ended June 30, 2021. As of June 30, 2021, we had an accumulated deficit of $166.9 million. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We expect that our expenses and capital requirements will increase substantially in connection with our ongoing activities particularly if and as we:

•

successfully complete preclinical and clinical development of our product candidates;

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•

successfully submit investigational new drug, or IND, applications or comparable applications, for our product candidates;

•

identify, assess or develop new product candidates from our discovery engine platform;

•

develop a sustainable and scalable manufacturing process for our product candidates, as well as establish and maintain commercially viable supply relationships with third parties that can provide adequate products and services to support clinical activities and commercial demand for our product candidates;

•

negotiate favorable terms in any collaboration, licensing, or other arrangements into which we may enter;

•

obtain regulatory approvals for product candidates for which we successfully complete clinical development;

•

launch and successfully commercialize product candidates for which we obtain regulatory approval, either by establishing a sales, marketing, and distribution infrastructure or collaborating with a partner;

•

negotiate and maintain an adequate price for our product candidates, both in the United States and in foreign countries where our products are commercialized;

•

obtain market acceptance of our product candidates as viable treatment options;

•

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

•

address any competing technological and market developments;

•

maintain, protect, expand, and enforce our portfolio of intellectual property rights, including patents, trade secrets, and

know-how;

and

•

attract, hire and retain qualified personnel.

We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. If we obtain regulatory approval for any of our product candidates and do not enter into a commercialization partnership, we expect to incur significant expenses related to developing our internal commercialization capability to support product sales, marketing, manufacturing and distribution activities. We also expect to incur additional costs associated with operating as a public company.

As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales or additional licensing agreements, we expect to finance our operations through the sale of equity offerings, debt financings or other capital sources, which may include collaborations with other companies or other strategic transactions. We may be unable to raise additional funds or enter into other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we could have to significantly delay, reduce or eliminate development and commercialization of one or more of our product candidates or delay our pursuit of potential

in-licenses

or acquisitions.

Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

We expect to continue to incur significant operating losses for at least the next several years as we advance our product candidates through preclinical and clinical development, manufacture our product candidates for clinical or commercial use, and, ultimately, seek regulatory approval. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. We may also incur expenses in connection with the

in-licensing

or acquisition of additional product candidates.

As a result, until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through public or private securities offerings, debt financings or other sources, which may include licensing, collaborations or other strategic transactions or arrangements. We may be unable to raise additional funds or enter into such other transactions or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such transactions or arrangements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates or delay our pursuit of potential

in-licenses

or acquisitions.

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Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. Typically, it takes many years to develop one new product from the time it is discovered to when it is available for treating patients, and development may cease for a number of reasons. Because of the numerous risks and uncertainties associated with product development, including any impact from the

COVID-19

pandemic, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

As of June 30, 2021, we had cash, cash equivalents and short-term investments of $55.6 million. We believe that our existing cash, cash equivalents and short-term investments will enable us to fund our operating expenses and capital expenditure requirements late into the third quarter of 2022 from the date of issuance of the condensed consolidated financial statements included in this Quarterly Report. 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. See “— Liquidity and Capital Resources.” Our future viability beyond that point is dependent on our ability to raise additional capital to finance our operations.

COVID-19

March 2020, COVID-19 was declared

a global pandemic by the World Health Organization and to date,

the COVID-19 pandemic

continues to present a substantial public health and economic challenge around the world. The length of time and full extent to which

the COVID-19 pandemic

will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain, subject to change and difficult to predict. While we continue to conduct our research and development activities,

the COVID-19 pandemic

may cause disruptions that affect our ability to initiate and complete preclinical studies and clinical trials or to procure items that are essential for our research and development activities. The pandemic has already caused significant disruptions in the financial markets, and may continue to cause such disruptions, which could impact our ability to raise additional funds to support our operations. Moreover, the pandemic has significantly impacted economies worldwide and could result in adverse effects on our business and operations. Clinical trial sites in many countries, including those in which we operate, have incurred delays due to

COVID-19.

Certain of the sites in the

YTX-7739

Phase 1b clinical trial have incurred delays due to

COVID-19,

resulting in a delay in the expected timing of early results from that study. There continues to be a risk of additional delays to our clinical programs.

We plan to continue to closely monitor the ongoing impact of

the COVID-19 pandemic

on our employees and our business operations. In an effort to provide a safe work environment for our employees, we have, among other things, implemented measures to enable remote work whenever possible. We expect to continue to take actions as may be required or recommended by government authorities or as we determine are in the best interests of our employees and other business partners in light of the pandemic.

Merger with Proteostasis

On August 22, 2020, Proteostasis Therapeutics, Inc, a Delaware corporation (“Proteostasis”), Pangolin Merger Sub, Inc. (“Merger Sub”), Yumanity, Inc. (formerly Yumanity Therapeutics, Inc.), and Yumanity Holdings, LLC (“Holdings”), entered into the Merger Agreement, as amended on November 6, 2020, pursuant to which Merger Sub merged with and into Yumanity, Inc. Immediately prior to the closing of the transaction, Holdings merged with and into Yumanity, Inc. with Yumanity, Inc. surviving the Merger (the “Yumanity Reorganization”) and, upon the closing of the Merger, Yumanity, Inc. became a wholly owned subsidiary of Proteostasis. The Merger was completed on December 22, 2020 pursuant to the terms of the Merger Agreement. In connection with the completion of the Merger, Proteostasis changed its name to Yumanity Therapeutics, Inc., and the trading symbol changed from “PTI” to “YMTX.” We refer to the historical operations of Holdings and Yumanity, Inc. as Yumanity and following the Merger, the business conducted by Yumanity became our primary business.

Pursuant to the terms of the Merger Agreement, upon closing of the Merger, all of Yumanity, Inc.’s outstanding common stock was exchanged for common stock of Proteostasis and all outstanding options and warrants to purchase common stock of Yumanity, Inc. were exchanged for options and warrants to purchase common stock of Proteostasis.

The transaction was accounted for as a reverse merger and as an asset acquisition in accordance with Generally Accepted Accounting Principles in the United States, or GAAP. Under this method of accounting, Yumanity was deemed to be the accounting acquirer for financial reporting purposes. This determination was primarily based on the facts that, immediately following the Merger: (i) Yumanity’s equity holders owned a substantial majority of the voting rights in the combined organization, (ii) Yumanity designated a majority of the members (7 of 9) of the initial board of directors of the combined organization and (iii) Yumanity’s senior management held all key positions in the senior management of the combined organization. Accordingly, for accounting purposes, the transaction was treated as the equivalent of Yumanity issuing stock to acquire the net assets of Proteostasis. As a result, as of the closing date of the Merger, the net assets of Proteostasis were recorded at their acquisition-date fair values in the financial statements of the Company and the reported operating results prior to the Merger are those of Yumanity.

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Private Placement

On December 14, 2020, we entered into a subscription agreement with certain accredited investors for the sale by us in a private placement of 1,460,861 shares of our common stock for a price of $23.00 per share. We refer to this sale herein as the Private Placement. The Private Placement closed on December 22, 2020. The aggregate gross proceeds for the issuance and sale of the common stock were $33.6 million and, after deducting certain of our expenses, the net proceeds we received in the Private Placement were $31.6 million.

At-the-Market

Offering Program

In April 2021, we entered into a sales agreement with Jefferies LLC (“Jefferies”) with respect to an

at-the-market

(“ATM”) offering program under which we may issue and sell, from

time-to-time

at our sole discretion, shares of our common stock, in an aggregate offering amount of up to $60.0 million. Jefferies acts as our sales agent and will use commercially reasonable efforts to sell shares of common stock from

time-to-time,

based upon instruction us. We will pay Jefferies up to 3% of the gross proceeds from any common stock sold through the sales agreement. We sold 82,132 shares of its common stock under the ATM program during the three months ended June 30, 2021 for gross proceeds of $1.3 million. As of June 30, 2021, approximately $58.7 million of common stock remained available for future issuance under the ATM program.

Financial Operations Overview

Revenue

To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products for the foreseeable future. If our development efforts for product candidates are successful and result in regulatory approval or licenses with third parties, we may generate revenue in the future from product sales, milestone payments under our existing collaboration agreement or payments from other license agreements that we may enter into with third parties.

In June 2020, we entered into a research collaboration and license agreement (the “Collaboration Agreement”) with Merck Sharp & Dohme Corp. (“Merck”), focused on accelerating the development of new treatments for neurodegenerative diseases. Under the terms of the Collaboration Agreement, Merck will gain exclusive rights to two novel pipeline programs for the treatment of ALS and FTLD. We and Merck will collaborate to advance the two preclinical programs during the research term, after which Merck has the right to continue clinical development and commercialization. Under the Collaboration Agreement, we received an upfront payment totaling $15.0 million and are eligible to receive future milestone payments of up to $530.0 million associated with the successful research, development and sales of marketed products for pipeline programs, as well as royalties on net sales. We will perform certain research and development activities over the research term pursuant to the Collaboration Agreement and will participate on a Joint Steering Committee to oversee research and development activities. We cannot provide assurance as to the timing of future milestone or royalty payments or that we will receive any of these payments at all.

We will record revenue over the research term as we satisfy our performance obligation under the Collaboration Agreement. Accordingly, the upfront payment of $15.0 million will be recognized as revenue

using the cost-to-cost method, which

we believe best depicts the transfer of control to the customer.

Under the cost-to-cost method, the

extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation. We recorded $2.1 million and $5.6 million of collaboration revenue for the three and six months ended June 30, 2021, respectively, related to the Collaboration Agreement. We did not recognize any revenue during the three and six months ended June 30, 2020.

Operating Expenses

Research and Development

Research and development expenses consist primarily of costs incurred in connection with the discovery, preclinical and clinical development and manufacture of our product candidates, and include:

•

salaries, benefits, stock/equity-based compensation, consultants and other related costs for individuals involved in research and development activities;

•

external research and development expenses incurred under agreements with contract research organizations (“CROs”), investigative sites and other scientific development services;

•

costs incurred under agreements with contract development and manufacturing organizations (“CDMOs”) for developing and manufacturing material for preclinical studies and clinical trials;

•

licensing agreements and associated milestones;

•

costs related to compliance with regulatory requirements;

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•

lab supplies and other lab related expenses; and

•

facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent, insurance and other operating costs.

We expense research and development costs as incurred and recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf, and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. Nonrefundable advance payments for goods and services to be received in the future for use in research and development activities are deferred and capitalized in prepaid expenses and other current assets. The capitalized amounts are expensed as the related goods are delivered or the services are performed. Upfront payments, milestone payments and annual maintenance fees under license agreements are expensed in the period in which they are incurred.

Our external direct research and development expenses are tracked by product candidate and consist primarily of costs that include fees and other expenses paid to outside consultants, CROs, CDMOs and research laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. Our direct research and development expenses by product candidate also include fees incurred under third-party license agreements. We do not allocate employee costs and costs associated with our platform technology, early stage discovery efforts, laboratory supplies and facilities, including depreciation or other indirect costs, to specific product candidates because these costs are deployed across multiple programs and our platform and, as such, are not separately classified.

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect research and development costs to increase significantly for the foreseeable future as we continue the

development of YTX-7739 and YTX-9184 and any

product candidates we may develop in the future. We cannot accurately project total program-specific expenses through commercialization. There are numerous factors associated with the successful commercialization of product candidates including future trial design and various regulatory requirements, many of which cannot yet be determined with accuracy based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development program and plans.

The successful development and

commercialization of YTX-7739 and YTX-9184 and any

product candidates we may develop in the future is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the following:

•

the timing and progress of preclinical and clinical development activities;

•

the number and scope of preclinical and clinical programs we decide to pursue;

•

the ability to maintain current research and development programs and to establish new ones;

•

establishing an appropriate safety profile with

IND-enabling

or foreign equivalent studies;

•

successful patient enrollment in, and the initiation and completion of, clinical trials;

•

the successful completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the FDA or any comparable foreign regulatory authority;

•

the receipt of regulatory approvals from applicable regulatory authorities;

•

the timing, receipt and terms of any marketing approvals from applicable regulatory authorities;

•

our ability to establish new licensing or collaboration arrangements;

•

the performance of our future collaborators, if any;

•

establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;

•

development and timely delivery of commercial-grade drug formulations that can be used in our planned clinical trials and for commercial launch;

•

obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights;

•

launching commercial sales of product candidates, if approved, whether alone or in collaboration with others; and

•

maintaining a continued acceptable safety profile of the product candidates following approval.

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Any changes in the outcome of any of these variables with respect to the development of our product candidates in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of these product candidates. For example, if the FDA or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect, or if we experience significant delays in enrollment in any of our planned clinical trials, we could be required to expend significant additional financial resources and time to complete clinical development of that product candidate. We may never obtain regulatory approval for any of our product candidates. Drug commercialization will take several years and millions of dollars in development costs.

General and Administrative

General and administrative expenses consist primarily of personnel-related expenses, including salaries, benefits, and stock/equity-based compensation expenses for personnel in executive, finance, accounting, human resources and other administrative functions. Other significant general and administrative expenses include legal fees relating to patent, intellectual property and corporate matters, and fees paid for accounting, audit, consulting and other professional services, as well as facilities, and other allocated expenses, which include direct and allocated expenses for rent, insurance and other operating costs.

We anticipate that our general and administrative expenses will increase in the future as our business expands to support our continued research and development activities, including our future clinical programs. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, among other expenses. We also anticipate increased expenses associated with being a public company, including costs for audit, legal,

regulatory, and tax-related services related

to compliance with the rules and regulations of the SEC listing standards applicable to companies listed on a national securities exchange, director and officer insurance premiums and investor relations costs.

Other Income (Expense)

Change in Fair Value of Warrant Liabilities

In connection with our loan and security arrangements, we issued warrants to purchase preferred units. These warrants were liability classified and remeasured to fair value at each reporting date, with changes in the fair value recognized as a component of other income (expense) in our statement of operations.

Immediately prior to the Merger, all of our outstanding warrants to purchase preferred units were exchanged and became warrants to purchase shares of common stock. As a result, the fair value of the warrants was reclassified to

additional paid-in capital

and there is no longer a warrant liability to remeasure.

Interest Expense

Interest expense consists of interest charged on outstanding borrowings associated with our loan and security agreements, as well as amortization of debt issuance costs and accretion of a final payment payable upon the maturity or the repayment in full of all obligations under such loans. Interest expense also consists of interest related to finance leases.

Interest Income and Other Income (Expense), Net

Interest income consists of interest earned on our invested cash balances. Other income (expense), net includes a gain on the extinguishment of debt upon forgiveness of the PPP loan (see Paycheck Protection Loan section of the Description of Indebtedness below).

Income Taxes

Prior to the Yumanity Reorganization, Holdings was treated as a partnership for federal income tax purposes and, therefore, its owners, and not Holdings, were subject to U.S. federal or state income taxation. Holdings’ directly held subsidiary was treated as a corporation for U.S. federal income tax purposes and subject to taxation in the United States. After the Yumanity Reorganization, the Company and its subsidiary are both taxpaying entities. In each reporting period, our tax provision included the effects of consolidating our subsidiary’s results of operations. Since our inception, we have not recorded any income tax benefits for the net losses we incurred in each year or for our earned research and development tax credits, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss carryforwards and tax credits will not be realized. Utilization of U.S. federal and state net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986, and corresponding provisions of state law, due to ownership changes that be occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study. We have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date.

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Results of Operations

Comparison of the Three Months Ended June 30, 2021 and 2020

The following table summarizes our results of operations for the three months ended June 30, 2021 and 2020:


	Three Months Ended June 30,
	2021			2020			Change
	(in thousands)
Collaboration revenue	$	2,114		$	—		$	2,114
Operating expenses:
Research and development		7,327			3,939			3,388
General and administrative		4,712			2,599			2,113

Total operating expenses		12,039			6,538			5,501

Loss from operations		(9,925	)		(6,538	)		(3,387	)

Other income (expense):
Change in fair value of preferred unit warrant liability		—			21			(21	)
Interest expense		(463	)		(455	)		(8	)
Interest income and other income (expense), net		(66	)		—			(66	)
Loss on debt extinguishment		—			—			—

Total other expense, net		(529	)		(434	)		(95	)

Net loss	$	(10,454	)	$	(6,972	)	$	(3,482	)

Collaboration Revenue

Collaboration revenue recognized during the three months ended June 30, 2021 of $2.1 million was related to our Collaboration Agreement with Merck. The upfront payment of $15.0 million received in July 2020 was initially recorded as deferred revenue and is being recognized as revenue under the

cost-to-cost

method as research and development is being performed.

Research and Development Expenses


	Three Months Ended June 30,
	2021		2020			Change
	(in thousands)
Direct research and development expenses by program:
YTX-7739	$	2,397	$	804			1,593
YTX-9184		642		(9	)		651
Platform, research and discovery, and unallocated expenses:							—
Platform and other early stage research external costs		731		117			614
Personnel related (including equity-based compensation)		2,126		1,896			230
Facility related and other		1,431		1,131			300

Total research and development expenses	$	7,327	$	3,939		$	3,388

Research and development expenses were $7.3 million for the three months ended June 30, 2021, an increase of $3.4 million from $3.9 million for the three months ended June 30, 2020. Direct expenses of our

YTX-7739

program increased by $1.6 million in the three months ended June 30, 2021, compared to the three months ended June 30, 2020. The change was due primarily to an increase in clinical and consultant costs as

YTX-7739

progressed from a SAD study in 2020 to MAD clinical studies during the first quarter of 2021. Direct expenses of our

YTX-9184

program increased by $0.7 million from near zero for the three months ended June 30, 2020 to $0.6 million for the three months ended June 30, 2021. The change was primarily due to preclinical and consulting costs as the program progresses towards clinical studies. Platform and other early-stage research external costs increased by $0.6 million from $0.6 million in the three months ended June 30, 2020 to $0.7 million in the three months ended June 30, 2021. This change was primarily due to decreased laboratory activities as a result of

COVID-19

in 2020 as well as preparations for the move to new office and laboratory space in the second quarter of 2020. Personnel related costs increased by $0.2 million primarily due to hiring in the research and development function during the fourth quarter of 2020 which continued to be reflected in the three months ended June 30, 2021.

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General and Administrative Expenses


	Three Months Ended June 30,
	2021		2020		Change
	(in thousands)
Personnel related (including equity-based compensation)	$	2,138	$	1,172		966
Professional and consultant fees		1,403		1,094		309
Facility related and other		1,171		333		838

Total general and administrative expenses	$	4,712	$	2,599	$	2,113

General and administrative expenses were $4.7 million for the three months ended June 30, 2021, an increase of $2.1 million from $2.6 million for the three months ended June 30, 2020. The increase of $1.0 million in personnel related costs was primarily due to $0.5 million in stock/equity-based compensation and $0.3 million due to additional hiring in the general and administrative function. Personnel-related costs for each of the three months ended June 30, 2021 and 2020 included stock/equity-based compensation of $0.9 million and $0.4 million, respectively. Professional and consultant fees increased by $0.3 million primarily due to higher audit expenses and legal fees related to operating as a public company. Facility and other related costs increased by $0.8 million primarily due to incremental public company insurance premiums of $0.5 million and $0.2 million of lease expense in excess of sublease income.

Other Income (Expense)

Other income (expense), net increased by $0.1 million from the three months ended June 30, 2021 to the three months ended June 30, 2020 resulting primarily from a $0.1 million loss on disposal of fixed assets acquired in the Merger.

Comparison of the Six Months Ended June 30, 2021 and 2020

The following table summarizes our results of operations for the six months ended June 30, 2021 and 2020:


	Six Months Ended June 30,
	2021			2020			Change
	(in thousands)
Collaboration revenue	$	5,646		$	—		$	5,646
Operating expenses:
Research and development		14,106			8,968			5,138
General and administrative		10,764			4,631			6,133

Total operating expenses		24,870			13,599			11,271

Loss from operations		(19,224	)		(13,599	)		(5,625	)

Other income (expense):
Change in fair value of preferred unit warrant liability		—			26			(26	)
Interest expense		(951	)		(909	)		(42	)
Interest income and other income (expense), net		(95	)		45			(140	)
Loss on debt extinguishment		1,134			—			1,134

Total other expense, net		88			(838	)		926

Net loss	$	(19,136	)	$	(14,437	)	$	(4,699	)

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Collaboration Revenue

Collaboration revenue recognized during the six months ended June 30, 2021 of $5.6 million was related to our Collaboration Agreement with Merck. The upfront payment of $15.0 million received in July 2020 was initially recorded as deferred revenue and is being recognized as revenue

under the cost-to-cost method

as research and development is being performed.

Research and Development Expenses


	Six Months Ended June 30,
	2021		2020		Change
	(in thousands)
Direct research and development expenses by program:
YTX-7739	$	4,118	$	1,598	$	2,520
YTX-9184		1,145		306		839
Platform, research and discovery, and unallocated expenses:
Platform and other early stage research external costs		1,801		832		969
Personnel related (including equity-based compensation)		4,154		4,168		(14	)
Facility related and other		2,888		2,064		824

Total research and development expenses	$	14,106	$	8,968	$	5,138

Research and development expenses were $14.1 million for the six months ended June 30, 2021, an increase of $5.1 million from $9.0 million for the six months ended June 30, 2020. Direct expenses of our

YTX-7739

program increased by $2.5 million in the six months ended June 30, 2021, compared to the six months ended June 30, 2020. The change was due primarily to an increase in clinical and consultant costs as

YTX-7739

progressed from a SAD study in 2020 to MAD clinical studies starting in the first quarter of 2021. Direct expenses of our

YTX-9184

program increased by $0.8 million from $0.3 million for the six months ended June 30, 2020 to $1.1 million for the six months ended June 30, 2021. The change was primarily due to preclinical and consulting costs as the program progresses towards clinical studies. Platform and other early-stage research external costs increased by $1.0 million from $0.8 million in the six months ended June 30, 2020 to $1.8 million in the six months ended June 30, 2021. This change was primarily due to decreased laboratory activities as a result of

COVID-19

in 2020 as well as preparations for the move to new office and laboratory space in the second quarter of 2020. Personnel related costs decreased by less than $0.1 million primarily due to employee turnover in the research and development function during 2020 which continued to be reflected in the six months ended June 30, 2021.

General and Administrative Expenses


	Six Months Ended June 30,
	2021		2020		Change
	(in thousands)
Personnel related (including equity-based compensation)	$	4,407	$	2,423		1,984
Professional and consultant fees		3,488		1,743		1,745
Facility related and other		2,869		465		2,404

Total general and administrative expenses	$	10,764	$	4,631	$	6,133

General and administrative expenses were $10.8 million for the six months ended June 30, 2021, an increase of $6.1 million from $4.6 million for the six months ended June 30, 2020. The increase of $2.0 million in personnel related costs was primarily due to $1.2 million in stock/equity-based compensation and $0.6 million due to additional hiring in the general and administrative function. Personnel-related costs for each of the six months ended June 30, 2021 and 2020 included stock/equity-based compensation of $1.9 million and $0.7 million, respectively. Professional and consultant fees increased by $1.7 million primarily due to higher audit expenses and legal fees related to operating as a public company. Facility and other related costs increased by $2.4 million primarily due to incremental public company insurance premiums of $1.1 million, $0.8 million of lease expense in excess of sublease income, and $0.2 million paid in settlement of litigation.

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Other Income (Expense)

Other income (expense), net increased by $0.9 million from the six months ended June 30, 2021 to the six months ended June 30, 2020 resulting primarily from a $1.1 million gain on the extinguishment of debt upon forgiveness of the PPP loan (see Paycheck Protection Loan section of the Description of Indebtedness below). This loan was obtained in April 2020, prior to entering into the Merger Agreement with Proteostasis in August 2020.

Liquidity and Capital Resources

Sources of Liquidity

Since our inception, we have not generated revenue from product sales and have incurred significant operating losses and negative cash flows from our operations. We have funded our operations to date primarily with proceeds from sales of preferred units and an upfront payment from our collaboration agreement with Merck received in July 2020. In December 2020, we completed the Merger with Proteostasis and acquired its $35.9 million of cash, cash equivalents and restricted cash. Immediately following the Merger, we also completed a private placement of an aggregate of 1,460,861 shares of our common stock and received net proceeds of approximately $31.6 million. We have also funded operations using borrowings under loan and security agreements.

Cash Flows

The following table summarizes our sources and uses of cash for the six months ended June 30, 2021 and 2020:


	Six Months Ended June 30,
	2021			2020
	(in thousands)
Cash used in operating activities	$	(31,903	)	$	(14,304	)
Cash (used in) provided by investing activities		(3,884	)		1,193
Cash provided by financing activities		1,159			22,295

Net (decrease) increase in cash, cash equivalents, and restricted cash	$	(34,628	)	$	9,184

Net Cash Used in Operating Activities

During the six months ended June 30, 2021, operating activities used $31.9 million of cash, resulting from our net loss of $19.1 million, primarily due to net cash changes in our operating assets and liabilities of $17.6 million and the add back of the $1.1 million gain on extinguishment included in our net loss for the period. Those changes were offset by

non-cash

charges of $4.8 million, including $2.5 million of

non-cash

lease expense and $2.6 million of stock/equity-based compensation expense. Net cash provided by changes in our operating assets and liabilities for the six months ended June 30, 2021 consisted of a $5.6 million decrease in deferred revenue due to the recognition of revenue related to the Collaboration Agreement (see note 4 to the financial statements). Additionally, there was a $9.6 million decrease in accounts payable and accrued expenses and other current liabilities, primarily due to $5.7 million that was paid to settle severance and other obligations resulting from the merger, as well as payment of $1.7 million of 2020 performance bonuses offset by 2021 bonus expense accrued, and $1.7 million of banking commissions paid related to the Private Placement that closed in the fourth quarter of 2020. There was also a decrease of $2.2 million in operating lease liabilities resulting from lease payments.

During the six months ended June 30, 2020, operating activities used $14.3 million of cash, resulting from our net loss of $14.4 million and net cash used by changes in our operating assets and liabilities of $2.4 million, partially offset

by non-cash charges

of $2.6 million. Net cash used by changes in our operating assets and liabilities for the six months ended June 30, 2020 consisted of a $1.3 million decrease in accounts payable and accrued expenses and other current liabilities, a $0.3 million decrease in operating lease liabilities, a $0.5 million increase in prepaid expenses and other current assets, and a $0.3 million increase in deposits.

Changes in accounts payable, accrued expenses and prepaid expenses in all periods were generally due to growth in our business and the timing of vendor invoicing and payments.

Net Cash (Used in)/Provided by Investing Activities

During the six months ended June 30, 2021, net cash used in investing activities was $3.9 million, primarily related to net cash used of $3.8 million for net purchases of marketable securities and $0.1 million of purchases of property and equipment.

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During the six months ended June 30, 2020, net cash provided by investing activities was $1.2 million, primarily related to cash provided by the net sales and maturities of marketable securities, partially offset by the purchase of property and equipment.

Net Cash Provided by Financing Activities

Net cash used in financing activities for the six months ended June 30, 2021 was $1.2 million, consisting primarily of proceeds from issuance of common stock of $1.3 million, payments of debt issuance costs of $0.1 million and payments of finance lease obligations of $0.1 million.

Net cash used in financing activities for the six months ended June 30, 2020 was $22.3 million, consisting primarily of net proceeds from the issuance of Class C preferred units and proceeds from a government loan (Paycheck Protection Program (“PPP”) loan).

Description of Indebtedness

Loan and Security Agreement

We have outstanding borrowings of $15.0 million (“Tranche 1”), under a loan and security agreement entered into in December 2019 (the “Term Loan”) with Hercules Capital, Inc. (the “Lender”). Another $5.0 million became available upon the occurrence of a developmental milestone and an equity event defined in the agreement (“Trance 2”), but we elected not to draw it. An additional $10.0 million may become available to be drawn upon lender approval. Borrowings under the Term Loan are repayable in monthly interest-only payments until August 1, 2021. The interest-only period will be followed by monthly payments of equal principal plus interest until the loan maturity date of January 1, 2024. Outstanding borrowings bear interest at the greater of (i) 8.75% and (ii) the prime rate as reported in the Wall Street Journal plus 4.00%. A final payment fee of 5.25% of the amounts drawn under the Term Loan is due upon the earlier of the maturity date or the repayment date if paid early, whether voluntary or upon acceleration due to default. We may repay the Term Loan at any time by paying the outstanding principal balance in full, along with any unpaid accrued interest, the final payment fees of 5.25% of the amounts drawn and a prepayment fee calculated on amounts being prepaid. The prepayment fee is 3.0% if the Term Loan is repaid within the

one-year

anniversary of the draw date, 2.0% if paid between the first and second-year anniversary of the draw date and 1.0% if paid after the second anniversary of the draw date but before the maturity date.

In April 2020, the Term Loan was amended to permit indebtedness consisting of a loan under the PPP of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), provided that such loan shall be unsecured, shall not contain any terms or conditions that are adverse to the lender’s rights under the loan and that we will not prepay such loan. In June 2020, the Term Loan was amended and an additional final payment fee of $0.3 million became due upon repayment of the loan.

On December 22, 2020, we entered into an Unconditional Secured Guaranty and Pledge Agreement (the “Guaranty”) with the Lender as a condition to the Lender’s consent to the Merger under the Term Loan between us as borrower and the Lender. Immediately prior to the Merger, we entered into a Fourth Amendment and Consent to Loan and Security Agreement dated as of December 22, 2020 with the Lender (the “Loan Amendment”). The Guaranty provides for our guaranty of our obligations under the Loan Agreement and provides the Lender a security interest in all of our assets other than intellectual property as collateral. The Loan Amendment provides for the Lender’s consent to the Merger and to the creation and funding of a Silicon Valley Bank Paycheck Protection Program escrow account to hold funds in connection with our outstanding Paycheck Protection Program loan amounts for which we have submitted a forgiveness application. The Loan Amendment also amends the definition of “Change in Control” to include the situations in which we no longer control Yumanity, Inc., our wholly-owned subsidiary. The remaining terms and conditions of the Loan Agreement generally continue in the form existing prior to the Loan Amendment.

On March 29, 2021, the Term Loan was amended again to allow for the creation of a new foreign subsidiary, as well as changing certain covenants related to the financial operations of said subsidiary. The subsidiary was formed on April 23, 2021.

On April 13, 2021, the Term Loan was amended to reduce the additional final payment fee from $0.3 million to $0.1 million and to extend the availability of Tranche 2 from March 31, 2021 to June 30, 2021.

Borrowings under the Term Loan are collateralized by substantially all of our personal property, other than our intellectual property. There were no financial covenants associated with the Term Loan; however, we are subject to certain affirmative and negative covenants restricting our activities, including limitations on dispositions, mergers or acquisitions; encumbering our intellectual property; incurring indebtedness or liens; paying dividends; making certain investments; and engaging in certain other business transactions. The obligations under the Term Loan are subject to acceleration upon the occurrence of specified events of default, including a material adverse change to our business, operations or financial or other condition. Upon the occurrence of an event of default and until such event of default is no longer continuing, the annual interest rate will be 5.0% above the otherwise applicable rate.

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Paycheck Protection Program Loan

In April 2020, prior to entering into the Merger Agreement with Proteostasis in August 2020, we issued a Promissory Note to Silicon Valley Bank, pursuant to which we received loan proceeds of $1.1 million (the “PPP Loan”), provided under the PPP established under the CARES Act and guaranteed by the U.S. Small Business Administration. The PPP Loan was unsecured, was scheduled to mature on April 24, 2022, and had a fixed interest rate of 1.0% per annum. Equal monthly payments of principal and interest were to begin commencing in August 2021 until the maturity date. Interest would have accrued on the unpaid principal balance from the inception date of the loan. Forgiveness of the PPP Loan was only available for principal that is used for the limited purposes that expressly qualify for forgiveness under U.S. Small Business Administration requirements. On April 3, 2021, we were notified by Silicon Valley Bank that our forgiveness application was accepted by the Small Business Association as of March 30, 2021. Accordingly, we have recognized $1.1 million in income for debt extinguishment.

At-the-Market

Offering Program

In April 2021, we entered into a sales agreement with Jefferies LLC (“Jefferies”) with respect to an

at-the-market

(“ATM”) offering program under which we may issue and sell, from

time-to-time

time-to-time,

based upon instruction us.

We will pay Jefferies up to 3% of the gross proceeds from any common stock sold through the sales agreement. We sold 82,132 shares of its common stock under the ATM program during the three months ended June 30, 2021 for gross proceeds of $1.3 million. As of June 30, 2021, approximately $58.7 million of common stock remained available for future issuance under the ATM program.

Funding Requirements

We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials of our product candidates in development. In addition, we expect to incur additional costs associated with operating as a public company. We believe that our existing cash, cash equivalents and short-term investments will enable us to fund our operating expenses and capital expenditure requirements late into the third quarter of 2022 from the date of issuance of the condensed consolidated financial statements included in this quarterly report. The timing and amount of our operating expenditures will depend largely on:

•

the scope, number, initiation, progress, timing, costs, design, duration, any potential delays and results of clinical trials and nonclinical studies for our current or future product candidates;

•

the clinical development plans we establish for these product candidates;

•

the number and characteristics of product candidates and programs that we develop or may

in-license;

•

the outcome, timing and cost of regulatory reviews, approvals or other actions to meet regulatory requirements established by the FDA and comparable foreign regulatory authorities, including the potential for the FDA or comparable foreign regulatory authorities to require that we perform more studies for our product candidates than those that we currently expect;

•

our ability to obtain marketing approval for our product candidates;

•

the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights covering our product candidates;

•

our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the cost of defending intellectual property disputes, including patent infringement actions brought by third parties against us or our product candidates;

•

the cost and timing of completion of commercial-scale outsourced manufacturing activities with respect to our product candidates;

•

our ability to establish and maintain licensing, collaboration or similar arrangements on favorable terms and whether and to what extent we retain development or commercialization responsibilities under any new licensing, collaboration or similar arrangement;

•

the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products on our own;

•

the success of any other business, product or technology that we acquire or in which we invest;

•

the costs of acquiring, licensing or investing in businesses, product candidates and technologies;

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•

our need and ability to hire additional management and scientific and medical personnel;

•

the costs to operate as a public company in the U.S. including the need to implement additional financial and reporting systems and other internal systems and infrastructure for our business;

•

market acceptance of our product candidates, to the extent any are approved for commercial sale; and

•

the effect of competing technological and market developments.

The Merger and a concurrent private placement were completed in December 2020, which provided us with $35.1 million incremental cash from the Merger and net proceeds of $31.6 million from the concurrent private placement. As of August 12, 2021, the issuance date of the condensed consolidated financial statements for the six months ended June 30, 2021, we expect that our existing cash, cash equivalents and marketable securities will fund our operating expenses, capital expenditure requirements and debt service payments late into the third quarter of 2022. 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.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, and marketing, distribution or licensing arrangements with third parties. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect the rights of our stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, reduce or eliminate our product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

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 condensed consolidated financial statements included in this Quarterly Report on Form

10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company, as defined in

Rule 12b-2 under

the Securities Exchange Act of 1934, as amended, for this reporting period and are not required to provide the information required under this item.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our President and Chief Executive Officer and our Chief Business Officer (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2021. The term “disclosure controls and procedures,” as defined in Rules

13a-15(e)

and

15d-15(e)

under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2021, our President and Chief Executive Officer and our Chief Business Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

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Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules

13a-15(f)

and

15d-15(f)

under the Exchange Act) occurred during the three months ended June 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, as of June 30, 2021, we are not presently subject to any pending or threatened litigation that we believe, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Item 1A. Risk Factors.

Investing in our common stock involves a high degree of risk. You should carefully consider the following risks and uncertainties, together with all other information in this Quarterly Report on Form

10-Q,

including our condensed consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as our other filings with the Securities and Exchange Commission (“SEC”), before investing in our common stock. Any of the risk factors we describe below could adversely affect our business, financial condition or results of operations. The market price of our common stock could decline if one or more of these risks or uncertainties were to occur, which may cause you to lose all or part of the money you paid to buy our common stock. Additional risks that are currently unknown to us or that we currently believe to be immaterial may also impair our business. Certain statements below are forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements” in this Quarterly Report on Form

10-Q.

Risks Related to Our Business, Financial Position, and Need for Additional Capital

We are a clinical stage biopharmaceutical company with a very limited operating history and no products approved for commercial sale, which may make it difficult to evaluate our current business and predict our future success and viability.

We are a clinical stage biopharmaceutical company with a limited operating history, focused on developing therapeutics for neurodegenerative diseases. We were initially formed as a limited liability company in 2014 and converted into a corporation in 2015, we have no products approved for commercial sale, and we have not generated any revenue from product sales to date. We began human clinical trials for

YTX-7739

at the end of 2019 and have not initiated clinical trials for any of our other current product candidates. Our operations to date have been limited primarily to organizing and staffing, raising capital, and conducting research and development activities for our product candidates.

To date, we have not initiated or completed a pivotal clinical trial, obtained marketing approval for any product candidates, manufactured a commercial scale product, or arranged for a third party to do so on our behalf, or conducted sales and marketing activities necessary for successful product commercialization. Our short operating history as a company makes any assessment of our future success and viability subject to significant uncertainty. We will encounter risks and difficulties frequently experienced by early-stage biopharmaceutical companies in rapidly evolving fields, and we have not yet demonstrated an ability to successfully overcome such risks and difficulties. If we do not address these risks and difficulties successfully, our business will suffer.

We have incurred significant operating losses since our inception and anticipate we will incur continued losses for the foreseeable future.

We have funded our operations to date through proceeds from collaborations and sales of preferred units. From our inception through June 30, 2021, we have received gross proceeds of $125.5 million from such transactions. As of June 30, 2021, our cash, cash equivalents and marketable securities were $55.6 million. We have incurred net losses in each year since our inception, and we have an accumulated deficit of $166.9 million as of June 30, 2021.

Substantially all of our operating losses have resulted from costs incurred in connection with general and administrative costs associated with our operations, and our research and development programs, including for our preclinical and clinical product candidates and our discovery engine platform. We expect to incur increasing levels of operating losses over the next several years and for the foreseeable future. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ deficit and working capital. In any particular quarter or quarters, our operating results could be below the expectations of securities analysts or investors, which could cause our stock price to decline.

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We expect our research and development expenses to significantly increase in connection with our clinical trials of our product candidates. In addition, if we obtain marketing approval for our product candidates, we will incur significant sales and marketing, legal, and outsourced-manufacturing expenses. As a public company, we expect to continue to incur significant and increasing operating losses for the foreseeable future. Because of the numerous risks and uncertainties associated with developing pharmaceutical products, we are also unable to predict the extent of any future losses or when we will become profitable, if at all. Even if we do become profitable, we may not be able to sustain or increase our profitability on a quarterly or annual basis.

Drug development is a highly uncertain undertaking and involves a substantial degree of risk. We have never generated any revenue from product sales, and we may never generate revenue or be profitable.

Our ability to become profitable depends upon the ability of our product candidates to generate revenue. To date, we have not generated any revenue from our product candidates and we do not know when, or if, we will do so. We do not anticipate generating any revenue from product sales until after we have successfully completed clinical development and received regulatory approval for the commercial sale of a product candidate, if ever. Our ability to generate revenue depends on a number of factors, including, but not limited to:

•

successfully completing preclinical and clinical development of our product candidates;

•

successfully submitting investigational new drug, or IND, applications or comparable applications, for our product candidates;

•

identifying, assessing, and/or developing new product candidates from our discovery engine platform;

•

developing a sustainable and scalable manufacturing process for our product candidates, as well as establishing and maintaining commercially viable supply relationships with third parties that can provide adequate products and services to support clinical activities and commercial demand for our product candidates;

•

the prevalence, duration and severity of potential side effects or other safety issues experienced with our product candidates or future product candidates, if any;

•

negotiating favorable terms in any collaboration, licensing, or other arrangements into which we may enter;

•

obtaining regulatory approvals for product candidates for which we successfully complete clinical development;

•

launching and successfully commercializing product candidates for which we obtain regulatory approval, either by establishing a sales, marketing, and distribution infrastructure or collaborating with a partner;

•

negotiating and maintaining an adequate price for our product candidates, both in the United States and in foreign countries where our products are commercialized;

•

obtaining market acceptance of our product candidates as viable treatment options;

•

building out new facilities or expanding existing facilities to support our ongoing development activity;

•

addressing any competing technological and market developments;

•

maintaining, protecting, expanding, and enforcing our portfolio of intellectual property rights, including patents, trade secrets, and

know-how;

and

•

attracting, hiring, and retaining qualified personnel.

Because of the numerous risks and uncertainties associated with drug development, we are unable to predict the timing or amount of our expenses, or when we will be able to generate any meaningful revenue or achieve or maintain profitability, if ever. In addition, our expenses could increase beyond our current expectations if we are required by the U.S. Food and Drug Administration (the “FDA”), or foreign regulatory agencies, to perform studies in addition to those that we currently anticipate, or if there are any delays in any of our current or future collaborators’ clinical trials or the development of any of our product candidates. Even if one or more of our product candidates is approved for commercial sale, absent our entering into a collaboration or partnership agreement, we anticipate incurring significant costs associated with commercializing any approved product candidate and ongoing compliance efforts.

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Even if we are able to generate revenue from the sale of any approved products, we may not become profitable and may need to obtain additional funding to continue operations. Revenue from the sale of any product candidate for which regulatory approval is obtained will be dependent, in part, upon the size of the markets in the territories for which we gain regulatory approval, the accepted price for the product, the ability to get reimbursement at any price, and whether we own the commercial rights for that territory. The precise number of people with Parkinson’s disease, Alzheimer’s disease, and amyotrophic lateral sclerosis (“ALS”) is unknown. Our projections of both the number of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with our product candidates, are based on estimates. If the number of addressable patients is not as significant as we anticipate, the indication approved by regulatory authorities is narrower than we expect, or the reasonably accepted population for treatment is narrowed by competition, physician choice, or treatment guidelines, we may not generate significant revenue from sales of our product candidates, even if approved. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.

Our failure to become and remain profitable would decrease our value and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our pipeline of product candidates, or continue our operations and cause a decline in the value of our common stock, all or any of which may adversely affect our viability.

Due to the significant resources required for the development of our programs, and depending on our ability to access capital, we must prioritize development of certain product candidates. Moreover, we may fail to expend our limited resources on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

Our current portfolio consists of two programs and two additional potential programs. Our lead product candidate,

YTX-7739,

is in Phase 1 clinical development. We seek to maintain a process of prioritization and resource allocation to maintain an optimal balance between aggressively advancing product candidates, such as

YTX-7739,

and ensuring replenishment of our portfolio.

Due to the significant resources required for the development of our product candidates, we must focus on specific diseases and disease pathways and decide which product candidates to pursue and advance and the amount of resources to allocate to each. Our decisions concerning the allocation of research, development, collaboration, management, and financial resources toward particular product candidates or therapeutic areas may not lead to the development of any viable commercial product and may divert resources away from better opportunities. If we make incorrect determinations regarding the viability or market potential of any of our product candidates or misread trends in the biopharmaceutical industry, in particular for neurodegenerative diseases, our business, financial condition, and results of operations could be materially adversely affected. As a result, we may fail to capitalize on viable commercial products or profitable market opportunities, be required to forego or delay pursuit of opportunities with other product candidates or other diseases and disease pathways that may later prove to have greater commercial potential than those we choose to pursue, or relinquish valuable rights to such product candidates through collaboration, licensing, or other royalty arrangements in cases in which it would have been advantageous for us to invest additional resources to retain sole development and commercialization rights.

We will need additional funding to advance

YTX-7739

through clinical development, which funding may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit, or terminate our product development efforts or other operations.

As of June 30, 2021, our cash, cash equivalents and marketable securities were $55.6 million. We will require additional funding to advance

YTX-7739

beyond Phase 1 clinical trials and other planned early development of other programs generated by our discovery engine platform. Our ability to secure this additional funding may be adversely impacted by negative or ambiguous results in our Phase 1 clinical trial for

YTX-7739.

Developing small-molecule products is expensive, and we expect our discovery, research, and development expenses to increase substantially in connection with our ongoing activities, particularly as we advance our product candidates in clinical trials. We may also need additional funds sooner if we choose to pursue additional indications and/or geographies for our product candidates or otherwise expand more rapidly than we presently anticipate.

In addition, our independent registered public accounting firm has included an emphasis of matter paragraph relating to our need for additional financing to fund operations in its report on our audited financial statements, and we may be unable to continue as a going concern over the long-term.

Our operating plan may also change as a result of many factors currently unknown, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements, or a combination of these approaches. In any event, we will require additional capital to obtain regulatory approval for, and, if approved, to commercialize our product candidates. Raising funds in the current economic environment may present additional challenges. Even if we believe that we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations.

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Any additional fundraising efforts may divert our management from their

day-to-day

activities, which may adversely affect our ability to develop and, if approved, commercialize our product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to it, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of our stockholders and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares to decline. The sale of additional equity or convertible securities would dilute all of our stockholders. The incurrence of indebtedness would result in increased fixed payment obligations and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights, and other operating restrictions that could adversely impact our ability to conduct our business. We could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable and we may be required to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results, and prospects.

If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay, or discontinue one or more of our research or development programs or the commercialization of any approved product candidate or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition, and results of operations.

Risks Related to Our Product Development and Commercialization

Research and development of biopharmaceutical products is inherently risky.

We are at an early stage of development of the product candidates currently in our pipeline and are continuing to discover additional potential product candidates leveraging our discovery engine platform. To date, we have devoted substantially all of our efforts and financial resources to identify, secure intellectual property for, and develop our discovery engine platform and our product candidates, including conducting multiple preclinical studies, and providing general and administrative support for these operations. Our business depends heavily on the successful clinical development, regulatory approval, and commercialization of our lead product candidate,

YTX-7739

which is in clinical development. None of our product candidates have advanced into late-stage development or a pivotal clinical study and it may be years before any such study is initiated, if at all.

YTX-7739

will require substantial additional clinical development, testing, and regulatory approval before we are permitted to commence our commercialization. Further, we cannot be certain that any of our product candidates will be successful in clinical trials or obtain regulatory approval.

Our future success is dependent on our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize our product candidates, and we may fail to do so for many reasons, including the following:

•

our product candidates may not successfully complete preclinical studies or clinical trials;

•

a product candidate may, upon further study, be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria;

•

our competitors may develop therapeutics that render our product candidates obsolete or less attractive;

•

our competitors may develop platform technologies that render our platform technology obsolete or less attractive;

•

the product candidates that we develop and our discovery engine platform may not be sufficiently covered by intellectual property for which we hold exclusive rights;

•

the market for a product candidate may change so that the continued development of that product candidate is no longer reasonable or commercially attractive;

•

a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all;

•

we may not be able to establish manufacturing capabilities or arrangements with third-party manufacturers for clinical and, if approved, commercial study;

•

even if a product candidate obtains regulatory approval, we may be unable to establish sales and marketing capabilities, or successfully market such approved product candidate, to gain market acceptance; and

•

a product candidate may not be accepted as safe or effective by patients, the medical community or third-party payors, if applicable.

If any of these events occur, we may be forced to abandon our development efforts for a product candidate or candidates, which would have a material adverse effect on our business and could potentially cause us to cease operations. For instance, if we observe harmful side effects or other characteristics that indicate one product candidate is unlikely to be effective or otherwise does not meet applicable regulatory criteria, these findings may implicate the discovery engine platform as a whole.

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We may not be successful in our efforts to further develop our discovery engine platform technology and current product candidates. We are not permitted to market or promote any of our product candidates before we receive regulatory approval from the FDA or comparable foreign regulatory authorities, and we may never receive such regulatory approval for any of our product candidates. Each of our product candidates are in the early stages of development and will require significant additional clinical development, management of preclinical, clinical, and manufacturing activities, regulatory approval, adequate manufacturing supply, a commercial organization, and significant marketing efforts before we could generate any revenue from product sales, if at all.

The preclinical and clinical product candidates and current clinical trials are, and the future clinical trials and the manufacturing and marketing of our product candidates will be, subject to extensive and rigorous review and regulation by numerous government authorities in the United States, and in other countries where we intend to test and, if approved, market any product candidate. Before obtaining regulatory approvals for the commercial sale of any product candidate, we must, among other requirements, demonstrate through preclinical studies and clinical trials that the product candidate is safe and effective for use in each target indication. Drug development is a long, expensive, and uncertain process, and delay or failure can occur at any stage of any of our clinical trials. This process can take many years and may include post-marketing studies and surveillance, which will require the expenditure of substantial resources. Of the large number of drugs in development in the United States, only a small percentage will successfully complete the FDA regulatory approval process and will be commercialized. Accordingly, even if we are able to obtain the requisite financing to continue to fund our development and preclinical studies and clinical trials, we cannot assure you that any of our product candidates will be successfully developed or commercialized.

If any of our product candidates successfully complete clinical trials, we generally plan to seek regulatory approval to market our product candidates in the United States, the European Union (“EU”), and in additional foreign countries where we believe there is a viable commercial opportunity and significant patient need. We have never commenced, compiled, or submitted an application seeking regulatory approval to market any product candidate. We may never receive regulatory approval to market any product candidates even if such product candidates successfully complete clinical trials, which would adversely affect our viability. To obtain regulatory approval in countries outside the United States, we must comply with numerous and varying regulatory requirements of such other countries regarding safety, efficacy, chemistry, manufacturing and controls, clinical trials, commercial sales, pricing, and distribution of our product candidates. We may also rely on collaborators or partners to conduct the required activities to support an application for regulatory approval, and to seek approval, for one or more of our product candidates. We cannot be sure that any collaborators or partners will conduct these activities or do so within the timeframe we desire. Even if we (or any collaborators or partners) are successful in obtaining approval in one jurisdiction, we cannot ensure that we (or any collaborators or partners) will obtain approval in any other jurisdictions. If we are unable to obtain approval for our product candidates in multiple jurisdictions, our revenue and results of operations could be negatively affected.

Even if we receive regulatory approval to market any of our product candidates, we cannot assure you that any such product candidate will be successfully commercialized, widely accepted in the marketplace or more effective than other commercially available alternatives.

Investment in biopharmaceutical product development involves significant risk that any product candidate will fail to demonstrate adequate efficacy or an acceptable safety profile, gain regulatory approval, and become commercially viable. We cannot provide any assurance that we will be able to successfully advance any of our product candidates through the development process or, if approved, successfully commercialize any of our product candidates.

We may not be successful in our efforts to continue to create a pipeline of product candidates or to develop commercially successful products. If we fail to successfully identify and develop additional product candidates, our commercial opportunity may be limited.

One of our strategies is to identify and pursue clinical development of additional product candidates. Our portfolio currently consists of four programs, one of which is in clinical development and the rest of which are in research, discovery and preclinical stages of development. Identifying, developing, obtaining regulatory approval, and commercializing additional product candidates for the treatment of neurodegenerative diseases will require substantial additional funding and is prone to the risks of failure inherent in drug development. We cannot provide you any assurance that we will be able to successfully identify or acquire additional product candidates, advance any of these additional product candidates through the development process, successfully commercialize any such additional product candidates, if approved, or assemble sufficient resources to identify, acquire, develop or, if approved, commercialize additional product candidates. If we are unable to successfully identify, acquire, develop, and commercialize additional product candidates, our commercial opportunity may be limited.

We may not be able to conduct, or contract others to conduct, animal testing in the future, which could harm our research and development activities.

Certain laws and regulations relating to drug development require us to test our product candidates on animals before initiating clinical trials involving humans. Animal testing activities have been the subject of controversy and adverse publicity. Animal rights groups and other organizations and individuals have attempted to stop animal testing activities by pressing for legislation and regulation in these areas and by disrupting these activities through protests and other means. To the extent the activities of these groups are successful, our research and development activities may be interrupted or delayed.

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We have concentrated our research and development efforts on the treatment of neurodegenerative diseases, a field that has seen limited success in drug development. Further, our product candidates are based on new approaches and novel technology, which makes it difficult to predict the time and cost of product candidate development and subsequently obtaining regulatory approval.

We have focused our research and development efforts on addressing neurodegenerative diseases, including Parkinson’s disease, ALS and Alzheimer’s disease. Efforts by biopharmaceutical companies in the field of neurodegenerative diseases have seen limited successes in drug development. There are few effective therapeutic options available for patients with Parkinson’s disease, ALS or Alzheimer’s disease. Our future success is highly dependent on the successful development of our discovery engine platform technology and our product candidates for treating neurodegenerative diseases. Developing and, if approved, commercializing our product candidates for treatment of neurodegenerative diseases subjects us to a number of challenges, including engineering product candidates and obtaining regulatory approval from the FDA and other regulatory authorities who have only a limited set of precedents to rely on.

Our approach is centered on the key insight that human protein misfolding, a phenomenon at the root of virtually all neurodegenerative diseases, can be modeled effectively in yeast cells. Discoveries from the yeast system are then translated to diseased human cell lines created by adult stem cells using induced pluripotent stem cell technology (“iPSC”). This strategy may not prove to be successful. We cannot be sure that our approach will yield satisfactory therapeutic products that are safe and effective, scalable, or profitable.

Moreover, public perception of drug safety issues, including adoption of new therapeutics or novel approaches to treatment, may adversely influence the willingness of subjects to participate in clinical trials, or if approved, of physicians to prescribe our products.

We may encounter difficulties in enrolling subjects in our clinical trials, thereby delaying or preventing development of our product candidates.

There is no precise method of establishing the actual number of people with neurodegenerative diseases in any geography over any time period. It is estimated that more than 60 million people worldwide suffer from neurodegenerative diseases. If the actual number of people with neurodegenerative diseases is lower than we believe, we may experience difficulty in enrolling subjects in our clinical trials, thereby delaying development of our product candidates. Furthermore, we may experience difficulties in subject enrollment in our clinical trials for a variety of other reasons, including:

•

the subject eligibility criteria defined in the protocol, including biomarker-driven identification and/or certain highly-specific criteria related to stage of disease progression, which may limit the patient populations eligible for our clinical trials to a greater extent than competing clinical trials for the same indication that do not have biomarker-driven patient eligibility criteria;

•

eligibility requirements mandated by regulatory agencies which may limit the number of eligible patients in a given disorder;

•

the size of the study population required for analysis of the study’s primary endpoints;

•

the proximity of subjects to a study site;

•

the design of the study;

•

our use of academic sites, which may be less accustomed to running clinical trials and managing enrollment;

•

public perception of drug safety issues;

•

our ability to recruit clinical study investigators with the appropriate competencies and experience;

•

competing clinical trials for similar therapies or targeting patient populations meeting our patient eligibility criteria;

•

clinicians’ and patients’ perceptions as to the potential advantages and side effects of the product candidate being studied in relation to other available therapies and product candidates;

•

our ability to obtain and maintain patient consents;

•

the risk that subjects enrolled in clinical trials will not complete such studies, for any reason; and

•

the impact of the

COVID-19

pandemic on patient enrollment and retention and clinical trial site initiation.

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Our clinical trials may fail to demonstrate adequate safety and efficacy of our product candidates, which would prevent, delay, or limit the scope of regulatory approval and commercialization.

Before obtaining regulatory approvals for the commercial sale of any of our product candidates, we must, among other requirements, demonstrate through lengthy, complex, and expensive preclinical studies and clinical trials that our product candidates are both safe and effective for use in each target indication. Each product candidate must demonstrate an adequate risk versus benefit profile in our intended patient population and for our intended use.

Clinical testing is expensive and can take many years to complete, and our outcome is inherently uncertain. Failure can occur at any time during the clinical study process. The results of preclinical studies of our product candidates may not be predictive of the results of early-stage or later-stage clinical trials, and results of early-stage clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. The results of clinical trials in one set of subjects or disease indications may not be predictive of those obtained in another. In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in study procedures set forth in protocols, differences in the size and type of the patient populations, changes in and lack of adherence to the dosing regimen and other clinical study protocols, and the rate of dropout among clinical study participants. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy profile despite having progressed through preclinical studies and initial clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in later-stage clinical trials due to lack of efficacy or safety issues, notwithstanding promising results in early-stage studies. This is particularly true in neurodegenerative diseases, where failure rates historically have been higher than in other disease areas. Most product candidates that begin clinical trials are never approved by regulatory authorities for commercialization.

We have limited experience in designing clinical trials and may be unable to design and execute a clinical study to support marketing approval. We cannot be certain that our current clinical trials or any other future clinical trials will be successful. Additionally, any safety concerns observed in any one of our clinical trials in our targeted indications could limit the prospects for regulatory approval of our product candidates in those, and other indications, which could have a material adverse effect on our business, financial condition, and results of operations.

In addition, even if such clinical trials are successfully completed, we cannot guarantee that the FDA or foreign regulatory authorities will interpret the results as we do, and more studies could be required before we submit our product candidates for approval. To the extent that the results of the studies are not satisfactory to the FDA or foreign regulatory authorities for support of a marketing application, we may be required to expend significant resources, which may not be available to us, to conduct additional studies in support of potential approval of our product candidates. Even if regulatory approval is secured for any of our product candidates, the terms of such approval may limit the scope and use of our product candidates, which may also limit their commercial potential.

We may not be able to file IND applications or related amendments or similar applications and amendments outside the United States to commence additional clinical trials on the timelines expected, and even if we are able to, regulatory authorities may not permit us to proceed.

We may not be able to file future IND applications or similar applications outside the Unites States for our product candidates on the timelines we expect. For example, we may experience manufacturing delays or other delays with preclinical studies. Moreover, we cannot be sure that submission of an IND or similar application outside the United States will result in the FDA or respective regulatory authority allowing clinical trials to begin, or that, once begun, issues will not arise that suspend or terminate clinical trials. Additionally, even if such regulatory authorities agree with the design and implementation of the clinical trials set forth in IND or similar application, we cannot guarantee that such regulatory authorities will not change their requirements in the future. These considerations also apply to new clinical trials we may submit as amendments to existing IND or similar applications or to a new application. Any failure to file IND or similar applications on the timelines we expect or to obtain regulatory authorizations for our trials may prevent us from completing our clinical trials or commercializing our products on a timely basis, if at all.

Interim, “topline,” and preliminary data from our clinical trials that are announced or published from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

From time to time, we may publicly disclose preliminary or topline data from our clinical trials, which are based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular trial. We also make assumptions, estimations, calculations and conclusions as part of its analyses of data, and we may not have received or had the opportunity to fully evaluate all data. As a result, the topline or preliminary results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, topline data should be viewed with caution until the final data are available. From time to time, we may also disclose interim data from our clinical trials. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available or as patients from our clinical trials continue other treatments for their disease. Adverse differences between preliminary or interim data and final data could significantly harm our business prospects.

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In addition, the information we choose to publicly disclose regarding a particular clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is material or otherwise appropriate information to include in our disclosure.

If the interim, topline, or preliminary data that we report differs from actual or final results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, our product candidates may be harmed, which could harm our business, operating results, prospects or financial condition.

Our product candidates may cause serious adverse events or other undesirable side effects that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.

Serious adverse events or other undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay, or halt clinical trials, and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other regulatory authorities.

Further, clinical trials by their nature utilize a sample of the potential patient population for a limited duration of exposure. Rare and severe side effects of a product candidate may only be uncovered with a significantly larger number of patients exposed to the product candidate. If our product candidates receive marketing approval and we or others identify undesirable side effects caused by such product candidates (or any other similar products) after such approval, a number of potentially significant negative consequences could result, including:

•

regulatory authorities may suspend, withdraw, or limit their approval of such product candidates;

•

regulatory authorities may require the addition of labeling statements, such as a “boxed” warning or a contraindication;

•

we may be required to change the way such products are distributed or administered;

•

we may be required to conduct additional post-marketing studies and surveillance;

•

we may be required to implement a risk evaluation and mitigation strategy (“REMS”), or create a medication guide outlining the risks of such side effects for distribution to patients;

•

we may be subject to regulatory investigations and government enforcement actions;

•

subjects in a clinical study may experience severe or unexpected drug-related side effects;

•

we may decide, or regulatory authorities may require it, to conduct additional clinical trials or abandon product development programs;

•

we may decide to remove such products from the marketplace;

•

we could be sued and held liable for injury caused to individuals exposed to or taking our products;

•

the product may become less competitive; and

•

our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of the affected product candidates, could substantially increase the costs of commercializing our product candidates, and could significantly impact our ability to successfully commercialize our product candidates and generate revenues.

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Failures or delays in the commencement or completion of, or ambiguous or negative results from, our clinical trials of our product candidates could result in increased costs to us and could delay, prevent, or limit our ability to generate revenue and continue our business.

We do not know whether any of our clinical trials will begin or be completed on schedule, if at all, as the commencement and completion of clinical trials can be delayed or prevented for a number of reasons, including, among others:

•

the FDA or other regulatory bodies may not authorize us or our investigators to commence our planned clinical trials or any other clinical trials we may initiate, or may suspend our clinical trials, for example, through imposition of a clinical hold;

•

delays in filing or receiving approvals of additional investigational new drug (“IND”) applications that may be required;

•

lack of adequate funding to continue our clinical trials and preclinical studies;

•

negative results from our preclinical studies and clinical trials;

•

delays in reaching or failing to reach agreement on acceptable terms with prospective contract research organizations (“CROs”) and clinical study sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and study sites;

•

inadequate quantity or quality of a product candidate or other materials necessary to conduct clinical trials, for example delays in the manufacturing of sufficient supply of finished drug product;

•

difficulties obtaining ethics committee or Institutional Review Board (“IRB”) approval to conduct a clinical study at a prospective site or sites;

•

challenges in recruiting and enrolling subjects to participate in clinical trials, the proximity of subjects to study sites, eligibility criteria for the clinical study, the nature of the clinical study protocol, the availability of approved effective treatments for the relevant disease, and competition from other clinical study programs for similar indications;

•

severe or unexpected drug-related side effects experienced by subjects in a clinical study;

•

we may decide, or regulatory authorities may require it, to conduct additional clinical trials or abandon product development programs;

•

delays in validating, or inability to validate, any endpoints utilized in a clinical study, if necessary;

•

the FDA may disagree with our clinical study design and our interpretation of data from clinical trials, or may change the requirements for approval even after it has reviewed and commented on the design for our clinical trials;

•

reports from preclinical or clinical testing of other alpha-synuclein-dependent therapies that raise safety or efficacy concerns; and

•

difficulties retaining subjects who have enrolled in a clinical study but may be prone to withdraw due to rigors of the clinical trial, lack of efficacy, side effects, personal issues, or loss of interest.

Clinical trials may also be delayed or terminated as a result of ambiguous or negative interim results. In addition, a clinical study may be suspended or terminated by us, the FDA, the IRBs or ethics committees at the sites in which such clinical studies are being conducted, a data and safety monitoring board (“DSMB”) overseeing the clinical study at issue or other regulatory authorities due to a number of factors, including, among others:

•

failure to conduct the clinical study in accordance with regulatory requirements or our clinical protocols;

•

inspection of the clinical study operations or study sites by the FDA or other regulatory authorities that reveals deficiencies or violations that require us to undertake corrective action, including in response to the imposition of a clinical hold;

•

unforeseen safety issues, including any that could be identified in our preclinical studies or clinical trials, adverse side effects or lack of effectiveness;

•

changes in government regulations or administrative actions;

•

problems with clinical supply materials; and

•

lack of adequate funding to continue clinical trials.

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We may in the future seek orphan drug designation or exclusivity for certain of our product candidates. If our competitors are able to obtain orphan drug exclusivity for products that constitute the same drug and treat the same indications as our product candidates, we may not be able to have competing products approved by the applicable regulatory authority for a significant period of time.

We may in the future seek orphan drug designation or exclusivity for certain of our product candidates. Regulatory authorities in some jurisdictions, including the United States and the European Union, may designate drugs and biologics intended to treat relatively small patient populations as orphan drugs. Under the Orphan Drug Act of 1983, FDA may designate a product candidate as an orphan drug if it is intended to treat a rare disease or condition, which is defined as a disease or condition having a patient population of fewer than 200,000 individuals in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. In the European Union, the European Commission after recommendation from the EMA’s Committee for Orphan Medicinal Products grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than 5 in 10,000 persons in the European Union. Additionally, orphan designation is granted for products intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary investment in developing the drug or biologic product.

If we request orphan drug designation for our product candidates, there can be no assurances that FDA or the European Commission will grant any of our product candidates such designation. Additionally, orphan drug designation does not guarantee that any regulatory authority will accelerate regulatory review of, or ultimately approve, the product candidate, nor does it limit the ability of any regulatory authority to grant orphan drug designation to product candidates of other companies that treat the same indications.

Generally, if a product candidate with an orphan drug designation receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which precludes FDA or the European Commission from approving another marketing application for a product that constitutes the same drug treating the same indication for that marketing exclusivity period, except in limited circumstances. If another sponsor receives such approval before we do (regardless of our orphan drug designation), we will be precluded from receiving marketing approval for our product for the applicable exclusivity period. The applicable period is seven years in the United States and 10 years in the European Union. The exclusivity period in the European Union can be reduced to six years if a product no longer meets the criteria for orphan drug designation or if the product is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be revoked if any regulatory authority determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the product to meet the needs of patients with the rare disease or condition.

Even if we obtain orphan drug exclusivity for a product candidate, that exclusivity may not effectively protect the product candidate from competition because different drugs can be approved for the same condition. In the United States, even after an orphan drug is approved, FDA may subsequently approve another drug for the same condition if FDA concludes that the latter drug is not the same drug or is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care.

We are currently, and may in the future, conduct clinical trials for our product candidates outside the United States, and the FDA and similar foreign regulatory authorities may not accept data from such trials.

We are currently, and may in the future, conduct additional clinical trials outside the United States, including in Europe or other foreign jurisdictions. The acceptance of trial data from clinical trials conducted outside the United States by the FDA may be subject to certain conditions. In cases where data from clinical trials conducted outside the United States are intended to serve as the sole basis for marketing approval in the United States, the FDA will generally not approve the application on the basis of foreign data alone unless (i) the data are applicable to the United States population and United States medical practice; (ii) the trials were performed by clinical investigators of recognized competence; and (iii) the data may be considered valid without the need for an

on-site

inspection by the FDA or, if the FDA considers such an inspection to be necessary, the FDA is able to validate the data through an

on-site

inspection or other appropriate means. Additionally, the FDA’s clinical trial requirements, including sufficient size of patient populations and statistical powering, must be met. Many foreign regulatory bodies have similar approval requirements. In addition, such foreign trials would be subject to the applicable local laws of the foreign jurisdictions where the trials are conducted. There can be no assurance that the FDA or any similar foreign regulatory authority will accept data from trials conducted outside of the United States or the applicable jurisdiction. If the FDA or any similar foreign regulatory authority does not accept such data, it would result in the need for additional trials, which would be costly and time-consuming and delay aspects of our business plan, and which may result in our product candidates not receiving approval for commercialization in the applicable jurisdiction.

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Changes in regulatory requirements, FDA guidance, or unanticipated events during our preclinical studies and clinical trials of our product candidates may occur, which may result in changes to preclinical or clinical study protocols or additional preclinical or clinical study requirements, which could result in increased costs to us and could delay our development timeline.

Changes in regulatory requirements, FDA guidance, or unanticipated events during our preclinical studies and clinical trials may force us to amend preclinical studies and clinical trial protocols or the FDA may impose additional preclinical studies and clinical trial requirements. Amendments or changes to our clinical study protocols would require resubmission to the FDA and IRBs for review and approval, which may adversely impact the cost, timing, or successful completion of clinical trials. Similarly, amendments to our preclinical studies may adversely impact the cost, timing, or successful completion of those preclinical studies. If we experiences delays completing, or if we terminate, any of our preclinical studies or clinical trials, or if we are required to conduct additional preclinical studies or clinical trials, the commercial prospects for our product candidates may be harmed and our ability to generate product revenue will be delayed.

If, in the future, we are unable to establish sales and marketing capabilities or enter into agreements with third parties to sell and market any product candidates we may develop, we may not be successful in commercializing those product candidates if and when they are approved.

We do not currently have an infrastructure for the sales, marketing, and distribution of pharmaceutical products. In order to market our product candidates, if approved by the FDA or any other regulatory body, we must build our sales, marketing, managerial, and other

non-technical

capabilities, or make arrangements with third parties to perform these services. There are risks involved with both establishing our own commercial capabilities and entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force or reimbursement specialists is expensive and time-consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing and other commercialization capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our commercialization personnel.

If we enter into arrangements with third parties to perform sales, marketing, commercial support, and distribution services, our product revenue or the profitability of product revenue may be lower than if we were to market and sell any products we may develop ourselves. In addition, we may not be successful in entering into arrangements with third parties to commercialize our product candidates or may be unable to do so on terms that are favorable to us. We may have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively. If we does not establish commercialization capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our product candidates if approved.

If we are unable to establish adequate sales, marketing, and distribution capabilities, whether independently or with third parties, or if we are unable to do so on commercially reasonable terms, our business, results of operations, financial condition, and prospects will be materially adversely affected.

Even if we receive marketing approval for our product candidates, our product candidates may not achieve broad market acceptance by physicians, patients, healthcare payors, or others in the medical community, which would limit the revenue that we generate from their sales.

The commercial success of our product candidates, if approved by the FDA or other applicable regulatory authorities, will depend upon the awareness and acceptance of our product candidates among the medical community, including physicians, patients, and healthcare payors. If any of our product candidates are approved but do not achieve an adequate level of acceptance by physicians, patients, healthcare payors, and others in the medical community, we may not generate sufficient revenue to become or remain profitable. Market acceptance of our product candidates, if approved, will depend on a number of factors, including, among others:

•

the safety, efficacy, and other potential advantages of our approved product candidates compared to other available therapies;

•

limitations or warnings contained in the labeling approved for our product candidates by the FDA or other applicable regulatory authorities;

•

any restrictions on the use of our products together with other medications;

•

the prevalence and severity of any adverse effects associated with our products;

•

inability of certain types of patients to take our products;

•

the clinical indications for which our product candidates are approved;

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•

availability of alternative treatments already approved or expected to be commercially launched in the near future;

•

the potential and perceived advantages of our approved product candidates over current treatment options or alternative treatments, including future alternative treatments;

•

the size of the target patient population, and the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;

•

the strength of marketing and distribution support and timing of market introduction of competitive products;

•

publicity concerning our products or competing products and treatments;

•

pricing and cost effectiveness;

•

the effectiveness of our sales and marketing strategies;

•

our ability to increase awareness of our products through sales and marketing efforts;

•

our ability to obtain sufficient third-party payor coverage or reimbursement; or

•

the willingness of patients to pay

out-of-pocket

in the absence of third-party payor coverage.

If our product candidates are approved but do not achieve an adequate level of acceptance by patients, physicians, and payors, we may not generate sufficient revenue from our approved product candidates to become or remain profitable. Before granting reimbursement approval, healthcare payors may require us to demonstrate that our product candidates, in addition to treating these target indications, also provide incremental health benefits to patients. Our efforts to educate the medical community and third-party payors about the benefits of our product candidates may require significant resources and may never be successful.

We face significant competition in an environment of rapid technological and scientific change, and there is a possibility that our competitors may achieve regulatory approval before we do or develop therapies that are safer, more advanced, or more effective, which may negatively impact our ability to successfully market or commercialize any product candidates we may develop and ultimately harm our financial condition.

The development and commercialization of new drug products is highly competitive. Moreover, the neurodegenerative field is characterized by strong and increasing competition, with a strong emphasis on intellectual property. We may face competition with respect to any product candidates that we seek to develop or commercialize in the future from major pharmaceutical companies, specialty pharmaceutical companies, and biotechnology companies worldwide. Potential competitors also include academic institutions, government agencies, and other public and private research organizations that conduct research, seek patent protection, and establish collaborative arrangements for research, development, manufacturing, and commercialization.

There are a number of large pharmaceutical and biotechnology companies that are currently pursuing the development of products for the treatment of the neurodegenerative disease indications for which we have research programs, including Parkinson’s disease, ALS and Alzheimer’s disease. Companies that we are aware of are developing therapeutics in the neurodegenerative disease area include large companies with significant financial resources, such as AbbVie, AstraZeneca, Biogen, Bristol-Myers Squibb, Lilly, GlaxoSmithKline, Johnson & Johnson, Novartis, Roche, Sanofi, and Takeda. In addition to competition from other companies targeting neurodegenerative indications, any products we may develop may also face competition from other types of therapies, such as gene-editing therapies.

Many of our current or potential competitors, either alone or with their strategic partners, have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals, and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical study sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient, or are less expensive than any products that we may develop. Furthermore, currently approved products could be discovered to have application for treatment of neurodegenerative disease indications, which could give such products significant regulatory and market timing advantages over any of our product candidates. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for our product candidates and may obtain orphan product exclusivity from the FDA for indications our product candidates are targeting, which could result in our competitors establishing a strong market position before we are able to enter the market. Additionally, products or technologies developed by our competitors may render our potential product candidates uneconomical or obsolete, and we may not be successful in marketing any product candidates we may develop against competitors.

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In addition, we could face litigation or other proceedings with respect to the scope, ownership, validity and/or enforceability of our patents relating to our competitors’ products and our competitors may allege that our products infringe, misappropriate, or otherwise violate their intellectual property. The availability of our competitors’ products could limit the demand, and the price we are able to charge, for any products that we may develop and commercialize. See “Risks Related to Our Intellectual Property Rights.”

The current pandemic of

COVID-19

and the future outbreak of other highly infectious or contagious diseases could seriously harm our research, development and potential future commercialization efforts, increase our costs and expenses and have a material adverse effect on our business, financial condition and results of operations.

Broad-based business or economic disruptions could adversely affect our ongoing or planned research and development activities. For example, in December 2019, an outbreak of a novel strain of coronavirus originated in Wuhan, China, and has since spread to a number of other countries, including the United States. To date, the

COVID-19

pandemic has caused significant disruptions to the U.S. and global economy and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak is continually evolving and, as additional cases and new variants of the virus are identified, many countries, including the U.S., have reacted by instituting quarantines, restrictions on travel and mandatory closures of businesses. Certain states and cities, including where we or the third parties with whom we engage operate, have also reacted by instituting quarantines, restrictions on travel, “shelter in place” rules, restrictions on types of business that may continue to operate, and/or restrictions on the types of construction projects that may continue.

The extent to which

COVID-19

may impact our preclinical studies or clinical trial operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, the identification of new variants of the virus, the severity of

COVID-19,

or the effectiveness of actions to contain and treat

COVID-19.

The continued spread of

COVID-19

globally could adversely impact our preclinical studies or clinical trial operations in the United States, including our ability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to

COVID-19

if an outbreak occurs in their geography.

COVID-19

may also affect employees of third-party CROs located in affected geographies that we rely upon to carry out our clinical trials. Any negative impact

COVID-19

has to patient enrollment or treatment or the execution of our current product candidates and any future product candidates could cause costly delays to clinical trial activities, which could adversely affect our ability to obtain regulatory approval for and to commercialize our current product candidate and any future product candidates, increase our operating expenses, and have a material adverse effect on our financial results.

Further, the

COVID-19

outbreak caused delays in our Phase 1 single ascending dose trial of

YTX-7739

and certain of the sites in the

YTX-7739

Phase 1b clinical trial have incurred delays due to

COVID-19,

resulting in a delay in the expected timing of early results from that study.

COVID-19

may cause delays in our other clinical trials, including delays in enrollment, due to diversion or prioritization of trial site resources away from the conduct of clinical trials and toward the

COVID-19

pandemic. Key clinical trial activities, such as site monitoring, may be interrupted due to restrictions in travel, and some patients may be unwilling to enroll in our trials or be unable to comply with clinical trial protocols if quarantines or travel restrictions impede patient movement or interrupt healthcare services, which would delay our ability to conduct clinical trials or release clinical trial results. The spread of

COVID-19,

or another infectious disease, could also negatively affect the operations at our third-party manufacturers, which could result in delays or disruptions in the supply of our current product candidates and any future product candidates. In addition, we may take temporary precautionary measures intended to help minimize the risk of the virus to our employees, including temporarily requiring all employees to work remotely, suspending all

non-essential

travel worldwide for our employees, and discouraging employee attendance at industry events and

in-person

work-related meetings, which could negatively affect our business.

We cannot presently predict the scope and severity of any potential business shutdowns or disruptions. If we or any of the third parties with whom we engage, however, were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively affected, which could have a material adverse impact on our business and our results of operation and financial condition.

Risks Related to Our Regulatory Approval and Other Legal Compliance Matters

The regulatory approval processes of the FDA and comparable foreign regulatory authorities are lengthy, time-consuming, and inherently unpredictable. If we are ultimately unable to obtain regulatory approval for our product candidates, we will be unable to generate product revenue and our business will be substantially harmed.

The time required to obtain approval by the FDA and comparable foreign regulatory authorities is unpredictable, typically takes many years following the commencement of clinical trials, and depends upon numerous factors, including the type, complexity, and novelty of the product candidates involved. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions, which may cause delays in the approval or the decision not to approve an application. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other studies. We have not submitted for, or obtained regulatory approval for any product candidate, and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval.

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Applications for our product candidates could be delayed in receiving or fail to receive regulatory approval for many reasons, including but not limited to the following:

•

the FDA or comparable foreign regulatory authorities may disagree with the design, implementation, or results of our clinical trials;

•

the FDA or comparable foreign regulatory authorities may determine that our product candidates are not safe and effective for the proposed indication, or have undesirable or unintended side effects, toxicities, or other characteristics that preclude us obtaining marketing approval or prevent or limit commercial use;

•

the population studied in the clinical program may not be sufficiently broad or representative to assure efficacy and safety in the full population for which we seek approval;

•

the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;

•

the data collected from clinical trials of our product candidates may not be sufficient to support the submission of an NDA or other submission, or to obtain regulatory approval in the United States or elsewhere;

•

we may be unable to demonstrate to the FDA or comparable foreign regulatory authorities that a product candidate’s risk-benefit ratio for our proposed indication is acceptable;

•

the FDA or comparable foreign regulatory authorities may find deficiencies with or fail to approve the manufacturing processes, test procedures and specifications, or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and

•

the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.

This lengthy approval process, as well as the unpredictability of the results of clinical trials, may result in our failing to obtain regulatory approval to market any of our product candidates, which would significantly harm our business, results of operations, and prospects.

Even if we obtain regulatory approval for our product candidates, our products will remain subject to extensive regulatory scrutiny.

Even if we receive marketing approval for our product candidates, regulatory authorities may still impose significant restrictions on our product candidates, indicated uses or marketing, or impose ongoing requirements for potentially costly post-approval studies. If any of our product candidates are approved, they will be subject to ongoing regulatory requirements, including for manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing studies, and submission of safety, efficacy, and other post-marketing information, including both federal and state requirements in the United States and requirements of comparable foreign regulatory authorities.

Manufacturers and manufacturers’ facilities are required to comply with extensive requirements imposed by the FDA and comparable foreign regulatory authorities, including, for example, ensuring that quality control and manufacturing procedures conform to current Good Manufacturing Practice (“cGMP”) regulations and applicable product tracking and tracing requirements. As such, we and our contract manufacturers will be subject to continual review and inspections to assess compliance with cGMP and adherence to commitments made in any new drug application (“NDA”) or comparable marketing approval. Accordingly, we and others with whom we work must continue to expend time, money, and effort in all areas of regulatory compliance, including manufacturing, production, and quality control.

The FDA has significant post-marketing authority, including, for example, the authority to require labeling changes based on new safety information and to require post-marketing studies or clinical trials to evaluate serious safety risks related to the use of a drug. The FDA also has the authority to require, as part of an NDA or post-approval, the submission of a REMS. Any REMS required by the FDA may lead to increased costs to assure compliance with new post-approval regulatory requirements and potential requirements or restrictions on the sale of approved products, all of which could lead to lower sales volume and revenue.

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Any regulatory approvals that we receive for our product candidates will be subject to limitations on the approved indicated uses for which the product may be marketed and promoted or to the conditions of approval (including the requirement to implement a REMS), or contain requirements for potentially costly post-marketing testing. We will be required to report certain adverse reactions and production problems, if any, to the FDA and comparable foreign regulatory authorities. Any new legislation addressing drug safety issues could result in delays in product development or commercialization, or increased costs to assure compliance. The FDA and other agencies, including the U.S. Department of Justice, closely regulate and monitor the post-approval marketing and promotion of products to ensure that they are manufactured, marketed, and distributed only for the approved indications and in accordance with the provisions of the approved labeling. We will have to comply with requirements concerning advertising and promotion for our products. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved label. As such, we may not promote our products for indications or uses for which they do not have approval. The holder of an approved NDA or comparable marketing approval must submit new or supplemental applications and obtain approval for certain changes to the approved product, product labeling, or manufacturing process. We could also be asked to conduct post-marketing studies or clinical trials to verify the safety and efficacy of our products in general or in specific patient subsets.

If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of a product, such regulatory agency may impose restrictions on that product or us, including requiring withdrawal of the product from the market. If we fail to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may, among other things:

•

issue warning or untitled letters that would result in adverse publicity;

•

impose civil or criminal penalties;

•

suspend or withdraw regulatory approvals;

•

suspend or impose a clinical hold on any of our ongoing clinical trials;

•

refuse to approve pending applications or supplements to approved applications submitted by us;

•

impose restrictions on our operations;

•

require the conduct of additional post-market clinical trials to assess the safety of the product;

•

seize or detain products; or

•

request that we initiate a product recall.

Any government investigation of alleged violations of law could require us to expend significant time and resources in response, and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate revenue from our products, if approved. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of the company and our operating results will be adversely affected.

We are subject to healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, and diminished profits and future earnings.

Although we do not currently have any products on the market, if we obtain FDA approval for any of our product candidates and begins commercializing our products, we may be subject to additional healthcare statutory and regulatory requirements and enforcement by the federal government and the states and foreign governments in which we conduct our business. Healthcare providers, physicians, third-party payors, and others play a primary role in the recommendation and prescription of our product candidates, if approved. Our future arrangements with third-party payors will expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell, and distribute our product candidates, if we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include the following:

•

the federal Anti-Kickback Statute (“AKS”) prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, receiving, or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order, or recommendation of, any good or service, for which payment may be made under federal healthcare programs such as Medicare and Medicaid. The term “remuneration” has been broadly interpreted to include anything of value. Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. A person or entity does not need to have actual knowledge of the federal AKS or specific intent to violate it to have committed a violation. The AKS has been interpreted to apply to arrangements between biopharmaceutical manufacturers on the one hand and prescribers, purchasers, and formulary managers, among others, on the other;

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•

the federal False Claims Act imposes criminal and civil penalties, including those from civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease, or conceal an obligation to pay money to the federal government. Manufacturers can be held liable under the False Claims Act even when they do not submit claims directly to government payors if they are deemed to “cause” the submission of false or fraudulent claims. When an entity is determined to have violated the False Claims Act, the government may impose civil fines and penalties for each false claim, plus treble damages, and exclude the entity from participation in Medicare, Medicaid and other federal healthcare programs;

•

the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or making false or fraudulent statements relating to healthcare matters; similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation;

•

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their implementing regulations, which also impose obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security, and transmission of individually identifiable health information on health plans, healthcare clearing houses, and certain healthcare providers and their business associates, defined as independent contractors or agents of covered entities that create, receive or obtain protected health information in connection with providing a service for or on behalf of a covered entity. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, there may be additional federal, state and

non-U.S.

laws which govern the privacy and security of health and other personal information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts;

•

the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact, or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items, or services;

•

federal government price reporting laws, which require us to calculate and report complex pricing metrics in an accurate and timely manner to government programs;

•

federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers;

•

the federal transparency requirements, sometimes referred to as the “Sunshine Act,” under the Patient Protection and Affordable Care Act (the “ACA”) require manufacturers of drugs, devices, biologics, and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to the Centers for Medicare and Medicaid Services (“CMS”) information related to payments and other transfers of value to physicians ( as defined by the law), physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists and teaching hospitals, as well as physician ownership and investment interests, and requires applicable manufacturers and group purchasing organizations to report annually the ownership and investment interests held by such physicians and their immediate family members and payments or other “transfers of value” to such physician owners; Such information is subsequently made publicly available in a searchable format on a CMS website, effective January 1, 2022, these reporting obligations will extend to include transfers of value made to certain

non-physician

assistants and nurse practitioners; and

•

analogous state laws and regulations, such as state anti-kickback and false claims laws and transparency laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by

non-governmental

third-party payors, including private insurers, and some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to physicians and other healthcare providers or marketing expenditures and drug pricing. Several states also impose other marketing restrictions or require pharmaceutical companies to make marketing or price disclosures to the state and require the registration of pharmaceutical sales.

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In the event we decide to conduct clinical trials or continue to enroll subjects in our ongoing or future clinical trials, we may be subject to additional privacy requirements. The collection, use, storage, disclosure, transfer, or other processing of personal data regarding individuals in the EU, including personal health data, for example, is subject to the EU General Data Protection Regulation (“GDPR”). The GDPR is wide-ranging in scope and imposes numerous requirements on companies that process personal data, including requirements relating to processing health and other sensitive data, obtaining consent of the individuals to whom the personal data relates, providing information to individuals regarding data processing activities, implementing safeguards to protect the security and confidentiality of personal data, providing notification of data breaches, and taking certain measures when engaging third-party processors. The GDPR also imposes strict rules on the transfer of personal data to countries outside the EU, including the United States, and permits data protection authorities to impose large penalties for violations of the GDPR, including potential fines of up to €20 million or 4% of annual global revenues, whichever is greater. The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR. The GDPR may increase our responsibility and liability in relation to personal data that we process where such processing is subject to the GDPR, and we may be required to put in place additional mechanisms to ensure compliance with the GDPR, including as implemented by individual countries. Compliance with the GDPR is a rigorous and time-intensive process that may increase our cost of doing business or require us to change our business practices, and despite those efforts, there is a risk that we may be subject to fines and penalties, litigation, and reputational harm in connection with our European activities. Further to the United Kingdom’s (UK) exit from the EU, the UK GDPR and the UK Data Protection Act 2018 set out the UK’s data protection regime, which is independent from but aligned to the EU’s data protection regime.

Non-compliance

with the UK GDPR may result in monetary penalties of up to £17.5 million or 4% of worldwide revenue, whichever is higher. Although the EU Commission recently adopted adequacy decisions for the United Kingdom to facilitate data transfers between the EU and the United Kingdom, the respective provisions and enforcement of the GDPR and UK GDPR may diverge in the future and create additional regulatory challenges and uncertainties.

Additionally, other countries outside of Europe have enacted or are considering enacting similar privacy and data protection laws, which could increase the cost and complexity of delivering our services and operating our business. For example, Brazil enacted the General Data Protection Law, New Zealand enacted the New Zealand Privacy Act, China released a second draft of the Personal Information Protection Law, and Canada introduced the Digital Charter Implementation Act.

California recently enacted the California Consumer Privacy Act, or CCPA, which creates new individual privacy rights for California consumers (as defined in the law) and places increased privacy and security obligations on entities handling personal data of consumers or households. The CCPA requires covered businesses to provide certain disclosures to consumers about their data collection, use and sharing practices, and to provide affected California residents with ways to

opt-out

of certain sales or transfers of personal information, as well as the right to request, modify, and delete personal information. The CCPA went into effect on January 1, 2020, and the California State Attorney General submitted final regulations for review on June 2, 2020, which were finalized and are now effective. The California State Attorney General has commenced enforcement actions against violators as of July 1, 2020. Further, a new California privacy law, the California Privacy Rights Act, or CPRA, was passed by California voters on November 3, 2020. The CPRA will create additional obligations with respect to processing and storing personal information that are scheduled to take effect on January 1, 2023 (with certain provisions having retroactive effect to January 1, 2022). Other U.S. states also are considering omnibus privacy legislation and industry organizations regularly adopt and advocate for new standards in these areas. For example, Virginia recently enacted the Consumer Data Protection Act that will become effective on January 1, 2023, and is similar to the CCPA and CPRA, and Colorado recently enacted the Colorado Privacy Act, which will become effective on July 1, 2023, and which is similar to the CCPA and Virginia law. While the CCPA and CPRA provide exceptions for certain activities involving data collected in the context of clinical trials, health data governed by California’s Confidentiality of Medical Information Act, and PHI governed by HIPAA, and other state laws may contain similar exceptions, we cannot yet determine the impact the CCPA, CPRA, or other such existing or future laws, regulations and standards may have on our business.

Pharmaceutical and other healthcare companies have been prosecuted under these laws for a variety of promotional and marketing activities, such as: providing free trips, free goods, sham consulting fees and grants and other monetary benefits to prescribers; reporting to pricing services inflated average wholesale prices that were then used by federal programs to set reimbursement rates; engaging in

off-label

promotion; and submitting inflated best price information to the Medicaid Rebate Program to reduce liability for Medicaid rebates. Ensuring that our internal operations and future business arrangements with third parties comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations, or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations, including anticipated activities to be conducted by our sales team, were found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal, and administrative penalties, damages, fines, and exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations, any of which could substantially disrupt our operations. If any of the physicians or other providers or entities with whom we expect to do business is found not to be in compliance with applicable laws, they may be subject to criminal, civil, or administrative sanctions, including exclusions from government funded healthcare programs.

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If any of our product candidates obtain regulatory approval, additional competitors could enter the market with generic or other versions of such drugs, which may result in a material decline in sales of affected products.

Under the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman Act”) a pharmaceutical manufacturer may file an abbreviated new drug application (“ANDA”) seeking approval of a generic copy of an approved, small-molecule innovator product. Under the Hatch-Waxman Act, a manufacturer may also submit an NDA under Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act that references the FDA’s prior approval of the small-molecule innovator product. A 505(b)(2) NDA product may be for a new or improved version of the original innovator product. The Hatch-Waxman Act also provides for certain periods of regulatory exclusivity, which preclude FDA approval (or in some circumstances, FDA filing and reviewing) of an ANDA or 505(b)(2) NDA. For example, a drug that is granted regulatory approval may be eligible for five years of marketing exclusivity in the United States following regulatory approval if that drug is classified as a new chemical entity (“NCE”). A drug can be classified as a NCE if the FDA has not previously approved any other drug containing the same active moiety.

In addition to the benefits of regulatory exclusivity, an innovator NDA holder may have patents claiming the active ingredient, product formulation or an approved use of the drug, which would be listed with the product in the FDA publication, “Approved Drug Products with Therapeutic Equivalence Evaluations,” known as the “Orange Book.” If there are patents listed in the Orange Book, a generic or 505(b)(2) applicant that seeks to market our product before expiration of the patents must include in the ANDA or 505(b)(2) NDA a “Paragraph IV certification,” challenging the validity or enforceability of, or claiming

non-infringement

of, the listed patent or patents. Appropriate notice of the certification must be given to the innovator, too, and if within 45 days of receiving such notice the innovator sues to protect our patents, approval of the ANDA or 505(b)(2) is stayed for 30 months, or as lengthened or shortened by the court.

Accordingly, if any of our product candidates are approved, competitors could file ANDAs for generic versions of our small-molecule drug products or 505(b)(2) NDAs that reference our small-molecule drug products, respectively. If there are patents listed for our small-molecule drug products in the Orange Book, those ANDAs and 505(b)(2) NDAs would be required to include a certification as to each listed patent indicating whether the ANDA or 505(b)(2) NDA applicant does or does not intend to challenge the patent. We cannot predict which, if any, patents in our current portfolio or patents we may obtain in the future will be eligible for listing in the Orange Book, how any generic competitor would address such patents, whether we would sue on any such patents, or the outcome of any such suit.

We may not be successful in securing or maintaining proprietary patent protection for products and technologies we develop or license. Moreover, if any of our owned or

in-licensed

patents that are listed in the Orange Book are successfully challenged by way of a Paragraph IV certification and subsequent litigation, the affected product could immediately face generic competition and our sales would likely decline rapidly and materially. See “Risks Related to Our Intellectual Property Rights.”

The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of

off-label

uses. If we are found to have improperly promoted

off-label

uses, we may become subject to significant liability.

The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products. In particular, a product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as reflected in the product’s approved labeling. For example, if we receive marketing approval for

YTX-7739

as a treatment for Parkinson’s disease, physicians may nevertheless prescribe

YTX-7739

to their patients in a manner that is inconsistent with the approved label. If we are found to have promoted such

off-label

uses, we may become subject to significant liability. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in

off-label

promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. If we cannot successfully manage the promotion of our product candidates, if approved, we could become subject to significant liability, which would materially adversely affect our business and financial condition.

Even if approved, reimbursement policies could limit our ability to sell our product candidates.

In the United States and markets in other countries, patients generally rely on third-party payors to reimburse all or part of the costs associated with their treatment. Sales of our drugs will depend, in part, on the extent to which our drugs will be covered by third-party payors, such as government health programs, commercial insurance, and managed healthcare organizations. Significant uncertainty exists as to the coverage and reimbursement status of any product candidates for which we may obtain regulatory approval.

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Market acceptance and sales of our product candidates will depend on reimbursement policies and may be affected by healthcare reform measures. Coverage and adequate reimbursement from governmental healthcare programs, such as Medicare and Medicaid in the United States, and commercial payors are critical to new product acceptance. Third-party payors decide which drugs they will pay for and establish reimbursement levels. In the United States, the principal decisions about reimbursement for new medicines are typically made by CMS. CMS decides whether and to what extent our products will be covered and reimbursed under Medicare and private payors tend to follow CMS to a substantial degree. Coverage and reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a therapeutic is:

•

a covered benefit under our health plan;

•

safe, effective and medically necessary;

•

appropriate for the specific patient;

•

cost-effective; and

•

neither experimental nor investigational.

Government authorities and other third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels for those medications. Cost containment is a primary concern in the U.S. healthcare industry and elsewhere. Government authorities and these third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. We cannot be sure that reimbursement will be available for our product candidates and, if reimbursement is available, the level of such reimbursement. Reimbursement may impact the demand for, or the price of, our product candidates. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize our product candidates. Limited coverage and less than adequate reimbursement may reduce the demand for, or the price of, any product for which we obtain regulatory approval.

In some foreign countries, particularly in Canada and European countries, the pricing of prescription pharmaceuticals is subject to strict governmental control. In these countries, pricing negotiations with governmental authorities can take six to 12 months or longer after the receipt of regulatory approval and product launch. To obtain favorable reimbursement for the indications sought or pricing approval in some countries, we may be required to conduct a clinical study that compares the cost-effectiveness of our product candidates with other available therapies. If reimbursement for our product candidates is unavailable in any country in which we seek reimbursement, if it is limited in scope or amount, if it is conditioned upon our completion of additional clinical trials, or if pricing is set at unsatisfactory levels, our operating results could be materially adversely affected.

Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain.

In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay regulatory approval of our product candidates, restrict or regulate post-approval activities, and affect our ability to profitably sell any product candidates for which we obtain marketing approval.

Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality, and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. In March 2010, President Obama signed into law the ACA, a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry, and impose additional health policy reforms.

Among the provisions of the ACA of importance to our product candidates are the following:

•

an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biological products, apportioned among these entities according to their market share in certain government healthcare programs;

•

a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted, or injected;

•

an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13.0% of the average manufacturer price for branded and generic drugs, respectively;

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•

expansion of healthcare fraud and abuse laws, including the False Claims Act and the AKS, which include, among other things, new government investigative powers and enhanced penalties for

non-compliance;

•

a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% (increased to 70% in 2019 pursuant to subsequent legislation)

point-of-sale

discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D;

•

extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;

•

expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals, thereby potentially increasing manufacturers’ Medicaid rebate liability;

•

expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;

•

the requirements under the federal open payments program and its implementing regulations;

•

a requirement to annually report drug samples that manufacturers and distributors provide to physicians; and

•

a Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.

Some of the provisions of the ACA have yet to be fully implemented, while certain provisions have been subject to reform through legislation and Executive Orders by the previous U.S. presidential administration and to judicial challenges. In 2012, the U.S. Supreme Court heard challenges to the constitutionality of the individual mandate and the viability of certain provisions of the ACA. The Supreme Court’s decision upheld most of the ACA and determined that requiring individuals to maintain “minimum essential” health insurance coverage or pay a penalty to the Internal Revenue Service was within Congress’s constitutional taxing authority. However, as a result of tax reform legislation enacted into law in late December 2017, the individual mandate has been eliminated, effective January 1, 2019. On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas ruled that the individual mandate is a critical and inseverable feature of the ACA, and therefore, because it was repealed as part of the 2017 Tax Reform Act, the remaining provisions of the ACA are invalid as well. On December 18, 2019, the Fifth Circuit U.S. Court of Appeals held that the individual mandate is unconstitutional. On March 2, 2020, the United States Supreme Court granted the petitions for writs of certiorari to review this case, and held oral arguments on November 10, 2020. On June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA. Prior to the Supreme Court’s decision, President Biden issued an executive order to initiate a special enrollment period from February 15, 2021 through August 15, 2021 for the purpose of obtaining health insurance coverage through the ACA marketplace. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. It is unclear how other healthcare reform measures of the Biden administration or other efforts, if any, to challenge, repeal or replace the ACA will impact our business. In addition, other legislative changes have been proposed and adopted since the ACA was enacted. These changes included aggregate reductions to Medicare payments to providers of 2% per fiscal year through 2030. However, pursuant to the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, these Medicare sequester reductions will be suspended from May 1, 2020 through December 31, 2021 due to the

COVID-19

pandemic. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several providers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. We expect that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, new payment methodologies and in additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payers. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our products.

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At the federal level, President Biden signed an Executive Order on July 9, 2021 affirming the administration’s policy to (i) support legislative reforms that would lower the prices of prescription drug and biologics, including by allowing Medicare to negotiate drug prices, by imposing inflation caps, and, by supporting the development and market entry of lower-cost generic drugs and biosimilars; and (ii) support the enactment of a public health insurance option. Among other things, the Executive Order also directs HHS to provide a report on actions to combat excessive pricing of prescription drugs, enhance the domestic drug supply chain, reduce the price that the Federal government pays for drugs, and address price gouging in the industry; and directs the FDA to work with states and Indian Tribes that propose to develop section 804 Importation Programs in accordance with the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, and the FDA’s implementing regulations. FDA released such implementing regulations on September 24, 2020, which went into effect on November 30, 2020, providing guidance for states to build and submit importation plans for drugs from Canada. Further, on November 20, 2020 CMS issued an Interim Final Rule implementing the Most Favored Nation, or MFN, Model under which Medicare Part B reimbursement rates will be calculated for certain drugs and biologicals based on the lowest price drug manufacturers receive in Organization for Economic Cooperation and Development countries with a similar gross domestic product per capita. The MFN Model regulations mandate participation by identified Part B providers and would have applied to all U.S. states and territories for a seven-year period beginning January 1, 2021, and ending December 31, 2027. The MFN is currently subject to ongoing litigation. Further, authorities in Canada have passed rules designed to safeguard the Canadian drug supply from shortages. If implemented, importation of drugs from Canada and the MFN Model may materially and adversely affect the price we receive for any of our product candidates. Additionally, on December 2, 2020, HHS published a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The rule also creates a new safe harbor for price reductions reflected at the

point-of-sale,

as well as a safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers. on December 2, 2020, HHS published a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The rule also creates a new safe harbor for price reductions reflected at the

point-of-sale,

as well as a safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers. Further, implementation of this change and new safe harbors for

point-of-sale

reductions in price for prescription pharmaceutical products and pharmacy benefit manager service fees are currently under review by the Biden administration and may be amended or repealed. Although a number of these and other proposed measures may require authorization through additional legislation to become effective, and the Biden administration may reverse or otherwise change these measures, both the Biden administration and Congress have indicated that it will continue to seek new legislative measures to control drug costs.

On July 9, 2021, President Biden issued an executive order directing the FDA to, among other things, work with states and tribes to safely import prescription drugs from Canada, continue to clarify and improve the approval framework for generic drugs, and identify and address any efforts to impede generic drug competition.

We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject we to more stringent labeling and post-marketing testing and other requirements.

At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

It is likely that federal and state legislatures within the United States and foreign governments will continue to consider changes to existing healthcare legislation. We cannot predict the reform initiatives that may be adopted in the future or whether initiatives that have been adopted will be repealed or modified. The continuing efforts of the government, insurance companies, managed care organizations, and other healthcare payors of to contain or reduce costs of healthcare may adversely affect the demand for any product candidates for which we may obtain regulatory approval, our ability to set a price that we believe is fair for our products, our ability to obtain coverage and reimbursement approval for a product, our ability to generate revenue and achieve or maintain profitability; and the level of taxes that we are required to pay.

Our future growth may depend, in part, on our ability to commercialize our product candidates in foreign markets, where we would be subject to additional regulatory burdens and other risks and uncertainties.

Our future profitability may depend, in part, on our ability to commercialize our product candidates in foreign markets for which we may rely on collaboration with third parties. If we commercialize our product candidates in foreign markets, we would be subject to additional risks and uncertainties, including:

•

our customers’ ability to obtain reimbursement for our product candidates in foreign markets;

•

our inability to directly control commercial activities because we are relying on third parties;

•

the burden of complying with complex and changing foreign regulatory, tax, accounting, and legal requirements;

•

different medical practices and customs in foreign countries affecting acceptance in the marketplace;

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import or export licensing requirements;

•

longer accounts receivable collection times;

•

longer lead times for shipping;

•

language barriers for technical training;

•

reduced protection of intellectual property rights in some foreign countries;

•

the existence of additional potentially relevant third-party intellectual property rights;

•

foreign currency exchange rate fluctuations; and

•

the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute.

Foreign sales of our product candidates could also be adversely affected by the imposition of governmental controls, political and economic instability, trade restrictions, and changes in tariffs.

Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not mean that we will be successful in obtaining regulatory approval of our product candidates in other jurisdictions.

In order to market any product outside of the United States, however, we must establish and comply with the numerous and varying safety, efficacy, and other regulatory requirements of other countries. Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval in any other jurisdiction, but a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. For example, even if the FDA or other comparable foreign regulatory authority grants marketing approval of a product candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing, and promotion of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from those in the United States, including additional preclinical studies or clinical trials as clinical trials conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. The marketing approval processes in other countries may implicate all of the risks detailed above regarding FDA approval in the United States, as well as other risks. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval.

Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties, and costs for we and could delay or prevent the introduction of our products in certain countries. Failure to obtain marketing approval in other countries or any delay or other setback in obtaining such approval would impair our ability to market our product candidates in such foreign markets. Any such impairment would reduce the size of our potential market, which could have a material adverse impact on our business, results of operations, and prospects.

Our employees, independent contractors, consultants, commercial partners, and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.

We are exposed to the risk of fraud, misconduct, or other illegal activity by our employees, independent contractors, consultants, commercial partners, and vendors. Misconduct by these parties could include intentional, reckless, and negligent conduct that fails to: comply with the laws of the FDA and other comparable foreign regulatory authorities; provide true, complete and accurate information to the FDA and other comparable foreign regulatory authorities; comply with manufacturing standards we have established; comply with healthcare fraud and abuse laws in the United States and similar foreign fraudulent misconduct laws; or report financial information or data accurately or to disclose unauthorized activities to us. If we obtain FDA approval of any of our product candidates and begins commercializing those products in the United States, our potential exposure under such laws will increase significantly, and our costs associated with compliance with such laws are also likely to increase. In particular, sales, marketing, and other business arrangements in the healthcare industry are subject to extensive laws designed to prevent fraud, kickbacks, self-dealing, and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales and commission, certain customer incentive programs, and other business arrangements generally. Activities subject to these laws also involve the improper use of information obtained in the course of patient recruitment for clinical trials, which could result in regulatory sanctions and cause serious harm to our reputation. We have adopted a code of business conduct and ethics, but it is not always possible to identify and deter misconduct by employees and third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws. If any such actions are instituted against us, and we are not successful in defending itself or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.

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If we or any contract manufacturers and suppliers we engage fail to comply with environmental, health, and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.

We and any contract manufacturers and suppliers we engage are subject to numerous federal, state, and local environmental, health, and safety laws, regulations, and permitting requirements, including those governing laboratory procedures; the generation, handling, use, storage, treatment, and disposal of hazardous and regulated materials and wastes; the emission and discharge of hazardous materials into the ground, air, and water; and employee health and safety. Under certain environmental laws, we could be held responsible for costs relating to any contamination at our current or past facilities and at third-party facilities. We also could incur significant costs associated with civil or criminal fines and penalties.

We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act (“FCPA”) and other worldwide anti-bribery laws.

Our business activities may be subject to the FCPA and similar anti-bribery or anti-corruption laws, regulations or rules of other countries in which we operate, including the U.K. Bribery Act. The FCPA generally prohibits offering, promising, giving, or authorizing others to give anything of value, either directly or indirectly, to a

non-U.S.

government official in order to influence official action, or otherwise obtain or retain business. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls. Our business is heavily regulated and therefore involves significant interaction with public officials, including officials of

non-U.S.

governments. Additionally, in many other countries, the healthcare providers who prescribe pharmaceuticals are employed by their government, and the purchasers of pharmaceuticals are government entities; therefore, our dealings with these prescribers and purchasers are subject to regulation under the FCPA. Recently the SEC and Department of Justice have increased their FCPA enforcement activities with respect to biotechnology and pharmaceutical companies. There is no certainty that all of our employees, agents, contractors, or collaborators, or those of our affiliates, will comply with all applicable laws and regulations, particularly given the high level of complexity of these laws. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers, or our employees, the closing down of our facilities, requirements to obtain export licenses, cessation of business activities in sanctioned countries, implementation of compliance programs, and prohibitions on the conduct of our business. Any such violations could include prohibitions on our ability to offer our products in one or more countries and could materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, and our business, prospects, operating results, and financial condition.

Risks Related to Our Reliance on Third Parties

We depend on our collaboration with Merck and may in the future depend on other collaborations with third parties for the research, development and commercialization of certain of the product candidates we may develop. If any such collaborations are not successful, we may not be able to realize the market potential of those product candidates.

We have entered into a collaboration agreement with Merck and may seek other third-party collaborators for the research, development, and commercialization of certain of the product candidates we may develop. Our likely collaborators for any other collaboration arrangements include large and

mid-size

pharmaceutical companies, regional and national pharmaceutical companies, biotechnology companies and academic institutions. Under our collaboration with Merck, we have, and if we enter into any such arrangements with any other third parties, we will likely have, shared or limited control over the amount and timing of resources that our collaborators dedicate to the development or potential commercialization of any product candidates we may seek to develop with them. Our ability to generate revenue from these arrangements with commercial entities will depend on our collaborators’ abilities to successfully perform the functions assigned to them in these arrangements. We cannot predict the success of any collaboration that we enter into.

Collaborations involving our research programs, or any product candidates we may develop, pose the following risks to we:

•

collaborators generally have significant discretion in determining the efforts and resources that they will apply to these collaborations;

•

collaborators may not properly obtain, maintain, enforce, or defend intellectual property or proprietary rights relating to our product candidates or research programs or may use our proprietary information in such a way as to expose us to potential litigation or other intellectual property related proceedings, including proceedings challenging the scope, ownership, validity and enforceability of our intellectual property;

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collaborators may own or

co-own

intellectual property covering our product candidates or research programs that results from our collaboration with them, and in such cases, we may not have the exclusive right to commercialize such intellectual property or such product candidates or research programs;

•

we may need the cooperation of our collaborators to enforce or defend any intellectual property we contribute to or that arises out of our collaborations, which may not be provided to us;

•

disputes may arise between the collaborators and us that result in the delay or termination of the research, development, or commercialization of our product candidates or research programs or that result in costly litigation or arbitration that diverts management attention and resources;

•

collaborators may decide to not pursue development and commercialization of any product candidates we develop or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborator’s strategic focus or available funding or external factors such as an acquisition that diverts resources or creates competing priorities;

•

collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials, or require a new formulation of a product candidate for clinical testing;

•

collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our product candidates or research programs if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours;

•

collaborators with marketing and distribution rights to one or more product candidates may not commit sufficient resources to the marketing and distribution of such product candidates;

•

we may lose certain valuable rights under circumstances identified in our collaborations, including if we undergo a change of control;

•

collaborators may undergo a change of control and the new owners may decide to take the collaboration in a direction which is not in our best interest;

•

collaborators may become bankrupt, which may significantly delay our research or development programs, or may cause us to lose access to valuable technology,

know-how

or intellectual property of the collaborator relating to our products, product candidates or research programs;

•

key personnel at our collaborators may leave, which could negatively impact our ability to productively work with our collaborators;

•

collaborations may require us to incur short and long-term expenditures, issue securities that dilute our stockholders, or disrupt our management and business;

•

collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates or our discovery engine platform; and

•

collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all. If a present or future collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our development or commercialization program under such collaboration could be delayed, diminished, or terminated.

We may face significant competition in seeking appropriate collaborations. Recent business combinations among biotechnology and pharmaceutical companies have resulted in a reduced number of potential collaborators. In addition, the negotiation process is time-consuming and complex, and we may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of the product candidate for which we are seeking to collaborate, reduce or delay our development program or one or more of our other development programs, delay our potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to it on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop product candidates or bring them to market and generate product revenue.

Under our collaboration with Merck, and if we enter into other collaborations to develop and potentially commercialize any product candidates, we may not be able to realize the benefit of such transactions if us or our collaborator elects not to exercise the rights granted under the agreement or if us or our collaborator are unable to successfully integrate a product candidate into existing operations and company culture. In addition, if our agreement with any of our collaborators terminates, our access to technology and intellectual property licensed to us by that collaborator may be restricted or terminate entirely, which may delay our continued development of our product candidates utilizing the collaborator’s technology or intellectual property or require us to stop development of those product candidates completely. We may also find it more difficult to find a suitable replacement collaborator or attract new collaborators, and our development programs may be delayed or the perception of our in the business and financial communities could be adversely affected. Many of the risks relating to product development, regulatory approval, and commercialization described in this “Risk Factors” section also applies to the activities of our collaborators and any negative impact on our collaborators may adversely affect us.

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Our drug development programs and the potential commercialization of our product candidates will require substantial additional cash to fund expenses. For some of our product candidates, we may decide to collaborate with pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates, such as those that may result from our collaboration with Merck.

Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical studies, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge, and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate. The terms of any collaborations or other arrangements that we may establish may not be favorable to it.

In addition, our collaboration with Merck and any future collaborations that we enter into may not be successful. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborators generally have significant discretion in determining the efforts and resources that they will apply to these collaborations. Disagreements between parties to a collaboration arrangement regarding clinical development and commercialization matters can lead to delays in the development process or commercializing the applicable product candidate and, in some cases, termination of the collaboration arrangement. These disagreements can be difficult to resolve if neither of the parties has final decision-making authority. Collaborations with pharmaceutical or biotechnology companies and other third parties often are terminated or allowed to expire by the other party. Termination of our collaboration with Merck or any such termination or expiration of future collaborations would adversely affect us financially and could harm our business reputation.

We rely, and expect to continue to rely, on third parties to conduct any preclinical studies and clinical trials for our product candidates. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.

We do not have the ability to independently conduct preclinical studies and clinical trials. We rely on medical institutions, clinical investigators, contract laboratories, and other third parties, such as CROs, to conduct preclinical studies and clinical trials on our product candidates. We enter into agreements with third-party CROs to provide monitors for and to manage data for our clinical trials. We will rely heavily on these parties for execution of clinical trials for our product candidates and control only certain aspects of their activities. As a result, we will have less direct control over the conduct, timing, and completion of these clinical trials and the management of data developed through clinical trials than would be the case if we were relying entirely upon our own staff. Communicating with outside parties can also be challenging, potentially leading to mistakes as well as difficulties in coordinating activities. Outside parties may:

•

have staffing difficulties;

•

fail to comply with contractual obligations;

•

experience regulatory compliance issues;

•

undergo changes in priorities or become financially distressed; or

•

form relationships with other entities, some of which may be our competitors.

These factors may materially adversely affect the willingness or ability of third parties to conduct our clinical trials and may subject us to unexpected cost increases that are beyond our control. Nevertheless, we are responsible for ensuring that each of our clinical trials is conducted in accordance with the applicable protocol, legal, regulatory, and scientific requirements and standards, and our reliance on CROs does not relieve us of our regulatory responsibilities. We and our CROs are required to comply with regulations and guidelines, including Good Clinical Practices (“GCPs”) for conducting, monitoring, recording, and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate, and that the study patients are adequately informed of the potential risks of participating in clinical trials. These regulations are enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area and comparable foreign regulatory authorities for any products in clinical development. The FDA enforces GCP regulations through periodic inspections of clinical study sponsors, principal investigators and study sites. If we or our CROs fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that, upon inspection, the FDA will determine that any of our clinical trials comply with GCPs. In addition, our clinical trials must be conducted with product candidates produced under cGMP regulations and will require a large number of test patients. Our failure or the failure of our CROs to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process and could also subject it to enforcement action up to and including civil and criminal penalties.

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Although we design our clinical trials for our product candidates, CROs conduct all of the clinical trials. As a result, many important aspects of the clinical trials are outside of our direct control. In addition, the CROs may not perform all of their obligations under arrangements with us or in compliance with regulatory requirements, but we remain responsible and are subject to enforcement action that may include civil penalties and criminal prosecution for any violations of FDA laws and regulations during the conduct of our clinical trials. If the CROs do not perform clinical trials in a satisfactory manner, breach their obligations to us, or fail to comply with regulatory requirements, the development and commercialization of our product candidates may be delayed or our development program materially and irreversibly harmed. We cannot control the amount and timing of resources these CROs devote to our program or our clinical products. If we are unable to rely on clinical data collected by our CROs, we could be required to repeat, extend the duration of, or increase the size of our clinical trials and this could significantly delay commercialization and require significantly greater expenditures.

If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs. For example, the sponsored research agreement with Northwestern may be terminated by either party upon 60 days’ written notice to the other party. If our collaboration is delayed or terminated or our ability to continue to use the current research space is terminated as a result of conflicts of interest, we may not be able to continue our planned research projects and related clinical trials on the expected timeline and may need to spend significant time and efforts to secure alternative lab facilities and equipment. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, any clinical trials such CROs are associated with may be extended, delayed, or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, we believe that our financial results and the commercial prospects for our product candidates in the subject indication would be harmed, our costs could increase and our ability to generate revenue could be delayed.

The manufacture of our product candidates, particularly those that utilize our discovery engine platform, is complex and we may encounter difficulties in production. If we or any of our third-party manufacturers encounter such difficulties, or fail to meet rigorously enforced regulatory standards, our ability to provide supply of our product candidates for preclinical studies and clinical trials or our products for patients, if approved, could be delayed or stopped, or we may be unable to maintain a commercially viable cost structure.

The processes involved in manufacturing our drug product candidates, particularly those that utilize our discovery engine platform, are complex, expensive, highly-regulated, and subject to multiple risks. Further, as product candidates are developed through preclinical studies to late-stage clinical trials towards approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods, are altered along the way in an effort to optimize processes and results. Such changes carry the risk that they will not achieve these intended objectives, and any of these changes could cause our product candidates to perform differently and affect the results of planned clinical trials or other future clinical trials.

In addition, the manufacturing process for any products that we may develop is subject to FDA and other comparable foreign regulatory authority approval processes and continuous oversight, and we will need to contract with manufacturers who can meet all applicable FDA and foreign regulatory authority requirements, including, for example, complying with cGMPs, on an ongoing basis. If we or our third-party manufacturers are unable to reliably produce products to specifications acceptable to the FDA or other regulatory authorities, we may not obtain or maintain the approvals we need to commercialize such products. Even if we obtain regulatory approval for any of our product candidates, there is no assurance that either we or our contract manufacturers will be able to manufacture the approved product to specifications acceptable to the FDA or other regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential launch of the product, or to meet potential future demand. Any of these challenges could delay completion of clinical trials, require bridging clinical trials or the repetition of one or more clinical trials, increase clinical study costs, delay approval of our product candidate, impair commercialization efforts, increase our cost of goods, and have an adverse effect on our business, financial condition, results of operations, and growth prospects.

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We rely completely on third-party suppliers to manufacture our clinical drug supplies for our product candidates, and we intend to rely on third parties to produce preclinical, clinical, and commercial supplies of any future product candidates.

We do not currently have, nor do we plan to acquire, the infrastructure or capability to internally manufacture our clinical drug supply of our product candidates, or any future product candidates, for use in the conduct of our preclinical studies and clinical trials, and we lack the internal resources and the capability to manufacture any product candidates on a clinical or commercial scale. The facilities used by our contract manufacturers to manufacture the active pharmaceutical ingredient and final drug product must complete a

pre-approval

inspection by the FDA and other comparable foreign regulatory agencies to assess compliance with applicable requirements, including cGMPs, after we submit an NDA or relevant foreign regulatory submission to the applicable regulatory agency.

We do not control the manufacturing process of, and is completely dependent on, our contract manufacturers to comply with cGMPs for manufacture of both active drug substances and finished drug products. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or applicable foreign regulatory agencies, they will not be able to pass a

pre-approval

inspection and we would be unable to obtain regulatory approval for our product candidate. We may be required to change contract manufacturers and verify that the new contract manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations. We will also need to verify, such as through a manufacturing comparability study, that any new manufacturing process will produce our product candidate according to the specifications previously submitted to the FDA or another regulatory authority. The delays associated with the verification of a new CMO could negatively affect our ability to develop product candidates or commercialize our products in a timely manner or within budget. In addition, we have no direct control over our contract manufacturers’ ability to maintain adequate quality control, quality assurance, and qualified personnel. Furthermore, all of our contract manufacturers are engaged with other companies to supply and/or manufacture materials or products for such companies, which exposes our manufacturers to regulatory risks for the production of such materials and products. As a result, failure to satisfy the regulatory requirements for the production of those materials and products may affect the regulatory clearance of our contract manufacturers’ facilities generally. If the FDA or an applicable foreign regulatory agency determines now or in the future that these facilities for the manufacture of our product candidates are noncompliant, we may need to find alternative manufacturing facilities, which would adversely impact our ability to develop, obtain regulatory approval for or market our product candidates. Our reliance on contract manufacturers also exposes us to the possibility that they, or third parties with access to their facilities, will have access to and may appropriate our trade secrets or other proprietary information.

We do not have long-term supply agreements in place with our contractors, and each batch of our product candidates is individually contracted under a quality and supply agreement. If we engage new contractors, such contractors must complete an inspection by the FDA and other applicable foreign regulatory agencies. We plan to continue to rely upon contract manufacturers and, potentially, collaboration partners to manufacture commercial quantities of our product candidates, if approved. Our current scale of manufacturing is adequate to support all of our needs for preclinical studies and clinical study supplies.

Risks Related to Our Intellectual Property Rights

If we are unable to adequately protect our proprietary technology, or obtain and maintain issued patents that are sufficient to protect our product candidates, others could compete against us more directly by developing and commercializing products similar or identical to ours, which would have a material adverse impact on our business, results of operations, financial condition, and prospects.

Our success will depend significantly on our ability to obtain and maintain patent and other proprietary protection in the United States and other countries for commercially important technology, inventions, and

know-how

related to our business, defend and enforce our patents, should they issue, preserve the confidentiality of our trade secrets, and operate without infringing the valid and enforceable patents and proprietary rights of third parties. We strive to protect and enhance the proprietary technologies that we believe are important to our business, including seeking patents intended to cover our products and compositions, their methods of use, and any other inventions that are important to the development of our business. We also rely on trade secrets to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection.

We do not currently have any issued patents covering our clinical-stage product candidate

YTX-7739

as a composition of matter. We cannot provide any assurances that any of our pending patent applications will mature into issued patents in any particular jurisdiction and, if they do, that such patents will include claims with a scope sufficient to protect our product candidates or otherwise provide any competitive advantage. The patent application and approval process is expensive, complex, and time-consuming. We may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output in time to obtain patent protection. If we are unable to obtain or maintain patent protection with respect to any of our proprietary products and technology we develop, our business, financial condition, results of operations, and prospects could be materially harmed.

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If the scope of any patent protection we obtain is not sufficiently broad, or if we lose any of our patent protection, our ability to prevent our competitors from commercializing similar or identical technology and product candidates would be adversely affected.

The patent positions of biotechnology and pharmaceutical companies, including our patent position, involve complex legal and factual questions, which in recent years have been the subject of much litigation, and, therefore, the issuance, scope, validity, enforceability, and commercial value of any patent claims that we may obtain cannot be predicted with certainty. No consistent policy regarding the breadth of claims allowed in biotechnology and pharmaceutical patents has emerged to date in the United States or in many foreign jurisdictions. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. The laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the United States, and we may encounter significant problems in protecting our proprietary rights in these countries.

Patent applications are generally maintained in confidence until publication. In the United States, for example, patent applications are typically maintained in secrecy for up to 18 months after their filing. Similarly, publication of discoveries in scientific or patent literature often lags behind actual discoveries. Consequently, we cannot be certain that we were the first to file patent applications on our product candidates. There is also no assurance that all of the potentially relevant prior art relating to our patents and patent applications has been found, which could be used by a third party to challenge the validity of our patents, should they issue, or prevent a patent from issuing from a pending patent application. Any of the foregoing could harm our competitive position, business, financial condition, results of operations, and prospects.

Moreover, our patents, if issued, may be challenged, deemed unenforceable, invalidated, or circumvented in the United States and abroad. U.S. patents and patent applications may also be subject to interference, derivation,

parte

reexamination, post-grant review, or

inter partes

review proceedings, supplemental examination and challenges in district court. Patents may also be subjected to opposition, post-grant review, or comparable proceedings lodged in various foreign, both national and regional, patent offices or courts. An adverse determination in any such proceeding could result in either loss of the patent or denial of the patent application, or loss or reduction in the scope of one or more of the claims of the patent or patent application, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. In addition, such proceedings may be costly. Thus, any patents, should they issue, that we may own or exclusively license may not provide any protection against competitors. Furthermore, an adverse decision in an interference proceeding can result in a third party receiving the patent right sought by us, which in turn could affect our ability to develop, market, or otherwise commercialize our product candidates.

Furthermore, though a patent, if it were to issue, is presumed valid and enforceable, our issuance is not conclusive as to our validity or our enforceability and it may not provide us with adequate proprietary protection or competitive advantages against competitors with similar products. Even if a patent issues and is held to be valid and enforceable, competitors may be able to design around or circumvent our patents, such as using

pre-existing

or newly developed technology or products in a

non-infringing

manner. Other parties may develop and obtain patent protection for more effective technologies, designs, or methods. If these developments were to occur, they could have a material adverse effect on our business, financial condition, results of operations, and prospects.

Our ability to enforce our patent rights depends on our ability to detect infringement. It is difficult to detect infringers who do not advertise the components that are used in their products. Moreover, it may be difficult or impossible to obtain evidence of infringement in a competitor’s or potential competitor’s product. Any litigation to enforce or defend our patent rights, even if we were to prevail, could be costly and time-consuming and would divert the attention of our management and key personnel from our business operations. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded if we were to prevail may not be commercially meaningful.

We will incur significant ongoing expenses in maintaining our patent portfolio. Should we lack the funds to maintain our patent portfolio or to enforce our rights against infringers, we could be adversely impacted.

We may in the future

co-own

patent rights relating to future product candidates and our discovery engine platform with third parties. Some of our

in-licensed

patent rights are, and may in the future be,

co-owned

with third parties. In addition, our licensors may

co-own

the patent rights us

in-licenses

with other third parties with whom we do not have a direct relationship. Our exclusive rights to certain of these patent rights are dependent, in part, on inter-institutional or other operating agreements between the joint owners of such patent rights, who are not parties to our license agreements. If our licensors do not have exclusive control of the grant of licenses under any such third-party

co-owners’

interest in such patent rights or we are otherwise unable to secure such exclusive rights, such

co-owners

may be able to license their rights to other third parties, including our competitors, and our competitors could market competing products and technology. In addition, we may need the cooperation of any such

co-owners

of our patent rights in order to enforce such patent rights against third parties, and such cooperation may not be provided to it. Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations, and prospects.

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Intellectual property rights do not necessarily address all potential threats.

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately protect our business or permit us to maintain our competitive advantage. For example, we do not know whether:

•

any of our pending patent applications, if issued, will include claims having a scope sufficient to protect our product candidates or any other products or product candidates;

•

any of our pending patent applications will issue as patents at all;

•

we will be able to successfully commercialize our product candidates, if approved, before our relevant patents expire;

•

we will be the first to make the inventions covered by each of our patents and pending patent applications;

•

we will be the first to file patent applications for these inventions;

•

others will not develop similar or alternative technologies that do not infringe our patents;

•

others will not use

pre-existing

technology to effectively compete against it;

•

any of our patents, if issued, will be found to ultimately be valid and enforceable;

•

any patents issued to us will provide a basis for an exclusive market for our commercially viable products, will provide us with any competitive advantages or will not be challenged by third parties;

•

we will develop additional proprietary technologies or product candidates that are separately patentable; or

•

that our commercial activities or products will not infringe upon the patents or proprietary rights of others.

Should any of these events occur, they could have a material adverse effect on our business, financial condition, results of operations and prospects.

If we fail to comply with our obligations in the agreements under which we license intellectual property rights from third parties or otherwise experience disruptions to our business relationships with our licensors, we could lose license rights that are important to our business.

We have entered into license agreements with third parties and may need to obtain additional licenses from others to advance our research or allow commercialization of product candidates we may develop or our discovery engine platform technology. It is possible that we may be unable to obtain additional licenses at a reasonable cost or on reasonable terms, if at all. In that event, we may be required to expend significant time and resources to redesign our technology, product candidates, or the methods for manufacturing them or to develop or license replacement technology, all of which may not be feasible on a technical or commercial basis. If we are unable to do so, we may be unable to develop or commercialize the affected product candidates or continue to utilize our existing discovery engine platform, which could harm our business, financial condition, results of operations, and prospects significantly. We cannot provide any assurances that third-party patents do not exist which might be enforced against our current technology, including our discovery engine platform technology, manufacturing methods, product candidates, or future methods or products resulting in either an injunction prohibiting our manufacture or future sales, or, with respect to our future sales, an obligation on our part to pay royalties and/or other forms of compensation to third parties, which could be significant.

In addition, each of our license agreements, and we expect our future agreements, will impose various development, diligence, commercialization, and other obligations on it. Certain of our license agreements also require us to meet development timelines, or to exercise commercially reasonable efforts to develop and commercialize licensed products, in order to maintain the licenses. In spite of our efforts, our licensors might conclude that we have materially breached our obligations under such license agreements and might therefore terminate the license agreements, thereby removing or limiting our ability to develop and commercialize products and technology covered by these license agreements. If these

in-licenses

are terminated, or if the underlying patents fail to provide the intended exclusivity, competitors or other third parties would have the freedom to seek regulatory approval of, and to market, products identical to our and we may be required to cease our development and commercialization of certain of our product candidates or of our current discovery engine platform technology. Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations, and prospects.

Moreover, disputes may arise regarding intellectual property subject to a licensing agreement, including:

•

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

•

the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;

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•

the sublicensing of patent and other rights under our collaborative development relationships;

•

our diligence obligations under the license agreement and what activities satisfy those diligence obligations;

•

the inventorship and ownership of inventions and

know-how

resulting from the joint creation or use of intellectual property by our licensors and us and our partners; and

•

the priority of invention of patented technology.

In addition, the agreements under which we currently license intellectual property or technology from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations, and prospects. Moreover, if disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates, which could have a material adverse effect on our business, financial conditions, results of operations, and prospects.

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

We may also rely on trade secrets to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. Additionally, we rely on unpatented

know-how,

continuing technological innovation to develop, strengthen, and maintain the proprietary and competitive position of our product candidates, which we seek to protect, in part, by confidentiality agreements with our employees and our collaborators and consultants. However, trade secrets are difficult to protect. For example, we may be required to share our trade secrets with third-party licensees, collaborators, consultants, contractors, or other advisors and we have limited control over the protection of trade secrets used by such third parties. Although we use reasonable efforts to protect our trade secrets, including by entering into confidentiality agreements, our employees, consultants, contractors, outside scientific collaborators, and other advisors may unintentionally or willfully disclose our trade secrets and proprietary information to competitors and we may not have adequate remedies for any such disclosure. Enforcing a claim that a third party illegally obtained and used, disclosed, or misappropriated any of our trade secrets is difficult, expensive, and time-consuming, and the outcome is unpredictable. Furthermore, we may not obtain these agreements in all circumstances, and the employees and consultants who are parties to these agreements may breach or violate the terms of these agreements, thus we may not have adequate remedies for any such breach or violation, and we could lose our trade secrets through such breaches or violations. In addition, trade secret laws in the United States vary, and some U.S. courts as well as courts outside the United States are sometimes less willing or unwilling to protect trade secrets. Moreover, it is possible that technology relevant to our business will be independently developed by a person that is not a party to such an agreement. Further, our trade secrets could otherwise become known or be independently discovered by our competitors or other third parties. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or trade secrets by consultants, vendors, former employees, and current employees. If our trade secrets or confidential or proprietary information is divulged to or acquired by third parties, including our competitors, our competitive position in the marketplace, business, financial condition, results of operations, and prospects may be materially adversely affected.

We may be sued for infringing the intellectual property rights of others, which may be costly and time-consuming and may prevent or delay our product development efforts and stop it from commercializing or increase the costs of commercializing our product candidates, if approved.

Our success will depend in part on our ability to operate without infringing, misappropriating, or otherwise violating the intellectual property and proprietary rights of third parties. We cannot assure you that our business, products, and methods do not or will not infringe the patents or other intellectual property rights of third parties. We may in the future become party to, or threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to our product candidates and technologies we use in our business.

The pharmaceutical industry is characterized by extensive litigation regarding patents and other intellectual property rights. Other parties may allege that our product candidates or the use of our technologies infringe or otherwise violates patent claims or other intellectual property rights held by them or that we are employing their proprietary technology without authorization. As we continue to develop and, if approved, commercialize our current product candidates and future product candidates, competitors may claim that our technology infringes their intellectual property rights as part of business strategies designed to impede our successful commercialization. There may be third-party patents or patent applications with claims to compositions, materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our product candidates. In particular, we are aware of an issued patent in each of the United States and Japan that expires in 2030 that covers one of our preclinical assets. We do not know if we will have reasonable defenses against a claim of infringement or if we will be able to obtain a license to such patent on commercially reasonable terms, if at all. As a result, we may not be able to commercialize such asset, if approved, prior to such patent’s expiration.

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We are also aware of U.S. and foreign patents and applications owned by a third party claiming certain compositions of matter and methods of use which we expect to expire in 2031. While we believe that we have reasonable defenses against a claim of infringement, including

non-infringement

and invalidity, there can be no assurance that we will prevail in any such action by the holder of these patents. In the event such patents were enforced against us and deemed to cover one or more of our products, and our defenses were unsuccessful, we would then need to obtain a license to these patents, which license may not be available on commercially reasonable terms, or at all. As a result, we may not be free to manufacture or market our products, including

YTX-7739,

if approved, prior to expiration of such patents.

Additionally, because patent applications can take many years to issue and may be confidential for 18 months or more after filing, and because patent claims can be revised before issuance, third parties may have currently pending patent applications which may later result in issued patents that our product candidates may infringe, or which such third parties claim are infringed by our technologies. If a patent holder believes one or more of our product candidates infringe its patent rights, the patent holder may sue us even if we have received patent protection for our technology. Moreover, we may face patent infringement claims from

non-practicing

entities that have no relevant drug revenue and against whom our own patent portfolio may thus have no deterrent effect.

The outcome of intellectual property litigation is subject to uncertainties that cannot be adequately quantified in advance. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we are sued for patent infringement, we would need to demonstrate that our product candidates, products or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid or unenforceable, and we may not be able to do this. Even if we are successful in these proceedings, we may incur substantial costs and the time and attention of our management and scientific personnel could be diverted in pursuing these proceedings, which could have a material adverse effect on our business and operating results. In addition, we may not have sufficient resources to bring these actions to a successful conclusion.

Patent and other types of intellectual property litigation can involve complex factual and legal questions, and their outcome is uncertain. If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing and marketing our product candidates and technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were to obtain a license, it could be granted on

non-exclusive

terms, thereby providing our competitors and other third parties access to the same technologies licensed to it. In addition, if any such claim were successfully asserted against us and we could not obtain such a license, we may be forced to stop or delay developing, manufacturing, selling or otherwise commercializing our product candidates. Any claim relating to intellectual property infringement that is successfully asserted against we may require us to pay substantial damages, including treble damages and attorney’s fees if we are found to be willfully infringing another party’s patents, for past use of the asserted intellectual property and royalties and other consideration going forward if we are forced to take a license.

Even if we are successful in these proceedings, we may incur substantial costs and divert management time and attention in pursuing these proceedings, which could have a material adverse effect on it. There could also be public announcements of the results of the hearing, motions, or other interim proceedings or developments and if securities analysts or investors perceive those results to be negative, it could cause the price of shares of our common stock to decline. If we are unable to avoid infringing the patent rights of others, we may be required to seek a license, defend an infringement action, or challenge the validity of the patents in court, or redesign our products. Patent litigation is costly and time-consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, intellectual property litigation or claims could force us to do one or more of the following:

•

cease developing, selling or otherwise commercializing our product candidates;

•

pay substantial damages for past use of the asserted intellectual property;

•

obtain a license from the holder of the asserted intellectual property, which license may not be available on reasonable terms, if at all; and

•

in the case of trademark claims, redesign, or rename, some or all of our product candidates to avoid infringing the intellectual property rights of third parties, which may not be possible and, even if possible, could be costly and time-consuming.

Any of these risks coming to fruition could have a material adverse effect on our business, results of operations, financial condition, and prospects.

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We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.

We enter into confidentiality and intellectual property assignment agreements with our employees, consultants, outside scientific collaborators, sponsored researchers, and other advisors. These agreements generally provide that inventions conceived by the party in the course of rendering services to us will be our exclusive property. However, these agreements may not be honored and may not effectively assign intellectual property rights to us. The assignment of intellectual property rights under these agreements may not be automatic upon the creation of the intellectual property or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against it, to determine the ownership of what we regard as our intellectual property. For example, even if we have a consulting agreement in place with an academic advisor pursuant to which such academic advisor is required to assign any inventions developed in connection with providing services to it, such academic advisor may not have the right to assign such inventions to us, as it may conflict with his or her obligations to assign all such intellectual property to his or her employing institution.

Litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

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

non-compliance

with these requirements.

Periodic maintenance fees, renewal fees, annuity fees, and various other government fees on our owned and

in-licensed

patents and patent applications are or will be due to be paid to the U.S. Patent and Trademark Office (“USPTO”) in several stages and various government patent agencies outside of the United States over the lifetime of such patents and patent applications and any patent rights we may own or license in the future. We have systems in place to remind us to pay these fees, and we employ outside firms to remind us or our licensors to pay annuity fees due to foreign patent agencies on our foreign patents and pending foreign patent applications. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment, and other similar provisions over the lifetime of our owned patents and applications. In some cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors or other third parties might be able to enter the market earlier than would otherwise have been the case and this circumstance could have a material adverse effect on our business, financial condition, results of operations, and prospects.

We may be involved in lawsuits or other proceedings to protect or enforce our intellectual property, which could be expensive, time-consuming, and unsuccessful.

Even if our patent applications are issued, competitors and other third parties may infringe, misappropriate, or otherwise violate our patents and other intellectual property rights. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming and divert the attention of our management and key personnel from our business operations.

Furthermore, many of our adversaries in these proceedings may have the ability to dedicate substantially greater resources to prosecuting these legal actions than we can. Our ability to enforce our patent rights also depends on our ability to detect infringement. It is difficult to detect infringers who do not advertise the components that are used in their products. Moreover, it may be difficult or impossible to obtain evidence of infringement in a competitor’s or potential competitor’s product.

In an infringement proceeding, a court may disagree with our allegations and refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question, or may decide that a patent of ours is invalid, unenforceable or not infringed. An adverse result in any litigation, defense or post-grant proceedings could result in one or more of our patents being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing. If any of our patents, if and when issued, covering our product candidates are invalidated or found unenforceable, our financial position and results of operations would be materially and adversely impacted. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded if we were to prevail may not be commercially meaningful.

Interference proceedings provoked by third parties or brought by us may be necessary to determine the priority of inventions with respect to our patents or patent applications. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to us from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our involvement in litigation or interference proceedings may fail and, even if successful, may result in substantial costs, and distract our management and other employees. We may not be able to prevent infringement, misappropriation of, or other violations of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States.

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Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions, or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing, or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.

Issued patents covering our discovery engine platform and our product candidates could be found invalid or unenforceable if challenged.

If we initiated legal proceedings against a third party to enforce a patent, if and when issued, covering our discovery engine platform or one of our product candidates, the defendant could counterclaim that the patent covering our product candidate is invalid and/or unenforceable. The outcome of any such proceeding is generally unpredictable.

In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge include alleged failures to meet any of several statutory requirements, including lack of novelty, obviousness or

non-enablement.

Grounds for unenforceability assertions of a patent include allegations that someone connected with prosecution of the patent application that matured into the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution of the patent application. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include

re-examination,

inter partes

review, post grant review and equivalent proceedings in foreign jurisdictions, e.g., opposition proceedings. Such proceedings could result in revocation or amendment of our patents in such a way that they no longer cover our product candidates or competitive products. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to validity, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our product candidates. Such a loss of patent protection would have a material adverse impact on our business.

We may not seek to protect our intellectual property rights in all jurisdictions throughout the world and we may not be able to adequately enforce our intellectual property rights even in the jurisdictions where we seek protection.

Filing and prosecuting patent applications, and defending patents on our discovery engine platform and product candidates in all countries and jurisdictions throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States could be less extensive than those in the United States, assuming that rights are obtained in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. In addition, the statutory deadlines for pursuing patent protection in individual foreign jurisdictions are based on the priority date of each of our patent applications and we may not timely file foreign patent applications. For the patent families related to

YTX-7739,

as well as for many of the patent families that we own, the relevant statutory deadlines have not yet expired. Thus, for each of the patent families that we believe provides coverage for our lead product candidate, we will need to decide whether and where to pursue protection outside the United States.

Competitors may use our technologies in jurisdictions where we do not pursue and obtain patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Even if we pursue and obtain issued patents in particular jurisdictions, our patent claims or other intellectual property rights may not be effective or sufficient to prevent third parties from so competing.

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The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to biotechnology or pharmaceuticals. This could make it difficult for us to stop the infringement of our patents, if obtained, or the misappropriation of or marketing of competing products in violation of our other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. Patent protection must ultimately be sought on a

country-by-country

basis, which is an expensive and time-consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the benefit of patent protection in such countries.

Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly, could put our patent applications at risk of not issuing, and could provoke third parties to assert claims against it. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

If we do not obtain additional protection under the Hatch-Waxman Act and similar foreign legislation by extending the patent terms and obtaining data exclusivity for our product candidates, our business may be materially harmed.

Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from our earliest U.S.

non-provisional

filing date in our chain of priority. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering our product candidates are obtained, once the patent life has expired for a product candidate, we may be open to competition from competitive medications, including generic medications. Given the amount of time required for the development, testing, and regulatory review of new product candidates, patents protecting such product candidates might expire before or shortly after such product candidates are commercialized. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing product candidates similar or identical to ours.

Depending upon the timing, duration, and specifics of FDA marketing approval of our product candidates, one or more of the U.S. patents we own may be eligible for a limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Act. The Hatch-Waxman Act permits a patent term extension of up to five years as compensation for patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent may be extended and only those claims covering the approved drug, a method for using it, or a method for manufacturing it may be extended. However, we may not be granted an extension because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain a patent term extension or the term of any such extension is less than we request, the duration of patent protection we obtain for our product candidates may not provide us with any meaningful commercial or competitive advantage, our competitors may obtain approval of competing products earlier than they would otherwise be able to do so, and our ability to generate revenues could be materially adversely affected.

Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.

As is the case with other biotechnology companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biotechnology industry involve both technological and legal complexity, and is therefore costly, time-consuming, and inherently uncertain. In addition, the United States has recently enacted and is currently implementing wide-ranging patent reform legislation: the Leahy-Smith America Invents Act. The America Invents Act includes a number of significant changes to U.S. patent law. After March 2013, under the America Invents Act, the United States transitioned to a

first-inventor-to-file

system in which, assuming that other requirements for patentability are met, the

first-inventor-to-file

a patent application will be entitled to the patent on an invention regardless of whether a third party was the first to invent the claimed invention. The America Invents Act also includes provisions that affect the way patent applications will be prosecuted and that may also affect patent litigation. It is not yet clear what, if any, impact the America Invents Act will have on the operation of our business. However, the America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of any patents that may issue from our patent applications, all of which could have a material adverse effect on our business and financial condition.

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In addition, recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. The full impact of these decisions is not yet known. For example, on March 20, 2012, in

Mayo Collaborative Services, DBA Mayo Medical Laboratories, et al. v. Prometheus Laboratories, Inc.

, the Court held that several claims drawn to measuring drug metabolite levels from patient samples and correlating them to drug doses were not patentable subject matter. The decision appears to impact diagnostics patents that merely apply a law of nature via a series of routine steps and it has created uncertainty around the ability to obtain patent protection for certain inventions. Additionally, on June 13, 2013, in

Association for Molecular Pathology v. Myriad Genetics, Inc.

, the Court held that claims to isolated genomic DNA are not patentable, but claims to complementary DNA molecules are patent eligible because they are not a natural product. The effect of the decision on patents for other isolated natural products is uncertain. However, on March 4, 2014, the USPTO issued a memorandum to patent examiners providing guidance for examining claims that recite laws of nature, natural phenomena or natural products under the

Myriad

and

Prometheus

decisions. This guidance did not limit the application of

Myriad

to DNA but rather applied the decision to other natural products.

In addition to increasing uncertainty with regard to our ability to obtain future patents, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on these and other decisions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could weaken our ability to obtain new patents or to enforce any patents that may issue in the future.

We may be subject to damages resulting from claims that us or our employees, consultants, or advisors have wrongfully used or disclosed alleged trade secrets of their current or former employers.

Our employees have been previously employed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We also engage advisors and consultants who are concurrently employed at universities or who perform services for other entities.

Although we try to ensure that our employees, consultants, and advisors do not use the proprietary information or

know-how

of others in their work for it, and although we are not aware of any claims currently pending against it, we may be subject to claims that us or our employees, advisors, or consultants have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of a former employer or other third party. We have and may in the future also be subject to claims that an employee, advisor, or consultant performed work for us that conflicts with that person’s obligations to a third party, such as an employer, and thus, that the third party has an ownership interest in the intellectual property arising out of work performed for it. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management. If we fail in defending such claims, in addition to paying money claims, we may lose valuable intellectual property rights or personnel. A loss of key personnel or their work product could hamper or prevent our ability to commercialize our product candidates, which would materially adversely affect our commercial development efforts.

We may not be successful in obtaining, through acquisitions,

in-licenses

or otherwise, necessary rights to our discovery engine platform, product candidates or other technologies.

We currently have rights to intellectual property, through licenses from third parties, to identify and develop our discovery engine platform technology and product candidates. Many pharmaceutical companies, biotechnology companies, and academic institutions are competing with it in the field of neurodegeneration and discovery engine platform and may have patents and have filed and are likely filing patent applications potentially relevant to our business. In order to avoid infringing these third party patents, we may find it necessary or prudent to obtain licenses to such patents from such third party intellectual property holders. In addition, with respect to any patents we

co-own

with third parties, we may require licenses to such

co-owners’

interest to such patents. However, we may be unable to secure such licenses or otherwise acquire or

in-license

any compositions, methods of use, processes, or other intellectual property rights from third parties that we identify as necessary for our current or future product candidates and our discovery engine platform technology. The licensing or acquisition of third party intellectual property rights is a competitive area, and several more established companies may pursue strategies to license or acquire third party intellectual property rights that we may consider attractive or necessary. These established companies may have a competitive advantage over it due to their size, capital resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to it. We also may be unable to license or acquire third party intellectual property rights on terms that would allow us to make an appropriate return on our investment or at all. If we are unable to successfully obtain rights to required third party intellectual property rights or maintain the existing intellectual property rights we have, we may have to abandon development of the relevant program or product candidate, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

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

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

•

others may be able to make products that are similar to our product candidates or utilize similar technology but that are not covered by the claims of the patents that we license or may own;

•

we, or our current or future licensors or collaborators, might not have been the first to make the inventions covered by the issued patent or pending patent application that we license or own now or in the future;

•

we, or our current or future licensors or collaborators, might not have been the first to file patent applications covering certain of our or their inventions;

•

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

•

it is possible that our current or future pending owned or licensed patent applications will not lead to issued patents;

•

issued patents that we hold rights to may be held invalid or unenforceable, including as a result of legal challenges by our competitors or other third parties;

•

our competitors or other third parties might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;

•

we may not develop additional proprietary technologies that are patentable;

•

the patents of others may harm our business; and

•

we may choose not to file a patent in order to maintain certain trade secrets or

know-how,

and a third party may subsequently file a patent covering such intellectual property.

Should any of these events occur, they could significantly harm our business and results of operations.

Risks Related to Our Indebtedness

Our level of indebtedness and debt service obligations could adversely affect our financial condition and may make it more difficult for us to fund our operations.

In December 2019, we entered into a loan and security agreement with Hercules Capital, Inc. (“Hercules”) (the “Term Loan”), which was most recently amended in April 2021. The Term Loan provides up to $30.0 million of debt financing and has interest-only payments through August 1, 2021, with the option to extend an additional six months upon the drawdown following occurrence of a development milestone and an equity event as defined in the agreement. Thereafter, we are obligated to make payments that will include equal installments of principal and interest through the maturity date of January 1, 2024. As of June 30, 2021, $15.0 million was outstanding under the Term Loan.

All obligations under the Term Loan are secured by substantially all of our existing property and assets, excluding our intellectual property. This indebtedness may create additional financing risk for us, particularly if our business or prevailing financial market conditions are not conducive to paying off or refinancing our outstanding debt obligations at maturity. This indebtedness could also have important negative consequences, including the fact that:

•

we will need to repay our indebtedness by making payments of interest and principal, which will reduce the amount of money available to finance our operations, our research and development efforts and other general corporate activities; and

•

our failure to comply with the restrictive covenants in the Term Loan could result in an event of default that, if not cured or waived, would accelerate our obligation to repay this indebtedness, and Hercules could seek to enforce our security interest in the assets securing such indebtedness.

To the extent that additional debt is added to our current debt levels, the risks described above could increase.

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We may not have cash available to us in an amount sufficient to enable us to make interest or principal payments on our indebtedness when due. If we do not make scheduled payments when due, or otherwise materially breaches or experiences an event of default under the Term Loan, Hercules could accelerate our total loan obligation or enforce our security interest against us.

Failure to satisfy our current and future debt obligations under the Term Loan could result in an event of default. In addition, other events, including certain events that are not entirely in our control, such as the occurrence of a material adverse event on our business, could cause an event of default to occur. As a result of the occurrence of an event of default, Hercules could accelerate all of the amounts due. In the event of an acceleration of amounts due under the Term Loan, we may not have sufficient funds or may be unable to arrange for additional financing to repay our indebtedness. In addition, Hercules could seek to enforce our security interests in the assets securing such indebtedness. If we are unable to pay amounts due to Hercules upon acceleration of the Term Loan or if Hercules enforces our security interest against our assets securing our indebtedness to Hercules, our ability to continue to operate our business may be jeopardized.

We are subject to certain restrictive covenants which, if breached, could result in the acceleration of our debt under the Term Loan and have a material adverse effect on our business and prospects.

The Term Loan imposes operating and other restrictions on us. Such restrictions will affect, and in many respects limit or prohibit, our ability and the ability of any future subsidiary to, among other things:

•

dispose of certain assets;

•

engage in mergers or acquisitions;

•

encumber our intellectual property;

•

incur indebtedness or liens;

•

pay dividends;

•

make certain investments; and

•

engage in certain other business transactions.

These restrictive covenants may prevent us from undertaking an action that we feel is in the best interests of our business. In addition, if we were to breach any of these restrictive covenants, Hercules could accelerate our indebtedness under the Term Loan or enforce our security interest against our assets, either of which would materially adversely affect our ability to continue to operate our business.

Risks Related to Our Business Operations, Employee Matters and Managing Growth

We will need to develop and expand our company, and we may encounter difficulties in managing this development and expansion, which could disrupt our operations.

In connection with becoming a public company, we expect to increase our number of employees and the scope of our operations. To manage our anticipated development and expansion, we must continue to implement and improve our managerial, operational, and financial systems, expand our facilities, and continue to recruit and train additional qualified personnel. Also, our management may need to divert a disproportionate amount of its attention away from its

day-to-day

activities and devote a substantial amount of time to managing these development activities. Due to our limited resources, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. This may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees, and reduced productivity among remaining employees. The physical expansion of our operations may lead to significant costs and may divert financial resources from other projects, such as the development of our product candidates. If our management is unable to effectively manage our expected development and expansion, our expenses may increase more than expected, our ability to generate or increase our revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize our product candidates, if approved, and compete effectively will depend, in part, on our ability to effectively manage the future development and expansion of our company.

Our future success depends on our ability to retain our management team and to attract, retain, and motivate qualified personnel.

Our ability to compete in the highly competitive biotechnology and biopharmaceuticals industries depends upon our ability to attract and retain highly qualified managerial, scientific, and medical personnel. In order to induce valuable employees to continue their employment with us, we have provided stock options that vest over time. The value to employees of stock options that vest over time is significantly affected by movements in our stock price that are beyond our control, and may at any time be insufficient to counteract more lucrative offers from other companies.

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We are highly dependent on our management, scientific and medical personnel, including our Chief Executive Officer, Richard Peters, M.D., Ph.D. Despite our efforts to retain valuable employees, members of our management, scientific, and development teams may terminate their employment with us on short notice. The loss of the services of any of our executive officers, including Dr. Peters, other key employees and other scientific and medical advisors, and an inability to find suitable replacements could result in delays in product development and harm our business. Pursuant to their employment arrangements, each of our executive officers, and other employees may voluntarily terminate their employment at any time, with or without notice. Our success also depends on our ability to continue to attract, retain, and motivate highly skilled junior,

mid-level,

and senior managers as well as junior,

mid-level,

and senior scientific and medical personnel.

We may not be able to attract or retain qualified management and scientific personnel in the future due to the intense competition for a limited number of qualified personnel among biopharmaceutical, biotechnology, pharmaceutical, and other businesses. Many of the other pharmaceutical companies that we compete against for qualified personnel have greater financial and other resources, different risk profiles, and a longer history in the industry than we do. They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high quality candidates than what we may be able to offer. We also experience competition for the hiring of scientific personnel from universities and research institutions. If we are unable to continue to attract and retain high quality personnel, the rate and success at which we can develop and commercialize product candidates will be limited.

We face potential product liability exposure, and, if claims are brought against us, we may incur substantial liability.

The use of our product candidates in clinical trials and the sale of our product candidates, if approved, exposes us to the risk of product liability claims. Product liability claims might be brought against us by patients, healthcare providers, or others selling or otherwise coming into contact with our product candidates. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, including as a result of interactions with alcohol or other drugs, negligence, strict liability, and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we become subject to product liability claims and cannot successfully defend itself against them, we could incur substantial liabilities. In addition, regardless of merit or eventual outcome, product liability claims may result in, among other things:

•

withdrawal of subjects from our clinical trials;

•

substantial monetary awards to patients or other claimants;

•

decreased demand for our product candidates or any future product candidates following marketing approval, if obtained;

•

damage to our reputation and exposure to adverse publicity;

•

increased FDA warnings on product labels;

•

litigation costs;

•

distraction of management’s attention from our primary business;

•

loss of revenue; and

•

the inability to successfully commercialize our product candidates or any future product candidates, if approved.

We maintain product liability insurance coverage for our clinical trials with a €5 million annual aggregate coverage limit. Nevertheless, our insurance coverage may be insufficient to reimburse us for any expenses or losses we may suffer. Moreover, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses, including if insurance coverage becomes increasingly expensive. If and when we obtain marketing approval for our product candidates, we intend to expand our insurance coverage to include the sale of commercial products; however, we may not be able to obtain this product liability insurance on commercially reasonable terms. Large judgments have been awarded in class action lawsuits based on drugs that had unanticipated side effects. The cost of any product liability litigation or other proceedings, even if resolved in our favor, could be substantial, particularly in light of the size of our business and financial resources. A product liability claim or series of claims brought against us could cause our stock price to decline and, if we are unsuccessful in defending such a claim or claims and the resulting judgments exceed our insurance coverage, our financial condition, business, and prospects could be materially adversely affected.

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We will incur increased costs as a result of operating as a public company, and our management team will be required to devote substantial time to new compliance initiatives.

As a public company, and particularly after we are no longer an “emerging growth company,” we will incur significant legal, accounting, and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and rules subsequently implemented by the SEC and The Nasdaq Stock Market have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly.

Pursuant to Section 404 of the Sarbanes-Oxley Act (“Section 404”), we will be required to furnish a report by our management on our internal control over financial reporting, which may include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. While we remain an “emerging growth company” or a “smaller reporting company” with less than $100 million in annual revenues, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants, and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented, and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that neither we nor our independent registered public accounting firm will be able to conclude within the prescribed timeframe that our internal control over financial reporting is effective as required by Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could result in sanctions or other penalties that would harm our business.

After the completion of the Merger, we became subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, and the rules and regulations of The Nasdaq Capital Market. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls over financial reporting. Commencing with our fiscal year ending the year that the Merger is completed, we must perform system and process design evaluation and testing of the effectiveness of our internal controls over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting in our Form

10-K

filing for that year, as required by Section 404 of the Sarbanes-Oxley Act. This will require that we incur substantial additional professional fees and internal costs to expand our accounting and finance functions and that we expend significant management efforts. Prior to the Merger, we had never been required to test our internal controls within a specified period and, as a result, we may experience difficulty in meeting these reporting requirements in a timely manner.

We may discover weaknesses in our system of internal financial and accounting controls and procedures that could result in a material misstatement of our financial statements. Our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.

If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintain proper and effective internal controls over financial reporting, we may not be able to produce timely and accurate financial statements. If that were to happen, our investors could lose confidence in our reported financial information, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities.

In order to satisfy our obligations as a public company, we will need to hire additional qualified accounting and financial personnel with appropriate public company experience.

As a newly public company, we will need to establish and maintain effective disclosure and financial controls and make changes in our corporate governance practices. We will need to hire additional accounting and financial personnel with appropriate public company experience and technical accounting knowledge, and it may be difficult to recruit and maintain such personnel. Even if we are able to hire appropriate personnel, our existing operating expenses and operations will be impacted by the direct costs of their employment and the indirect consequences related to the diversion of management resources from product development efforts.

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Changes in tax law could adversely affect our business and financial condition.

The rules dealing with U.S. federal, state, and local and

non-U.S.

taxation are constantly under review by persons involved in the legislative process, the Internal Revenue Service, the U.S. Treasury Department and other taxing authorities. Changes to tax laws or tax rulings, or changes in interpretations of existing laws (which changes may have retroactive application), could adversely affect us or holders of our common stock. These changes could subject us to additional income-based taxes and

non-income

taxes (such as payroll, sales, use, value-added, digital tax, net worth, property, and goods and services taxes), which in turn could materially affect our financial position and results of operations. Additionally, new, changed, modified, or newly interpreted or applied tax laws could increase our customers’ and our compliance, operating and other costs, as well as the costs of our products. In recent years, many such changes have been made, and changes are likely to continue to occur in the future. As we expand the scale of our business activities, any changes in the U.S. and

non-U.S.

taxation of such activities may increase our effective tax rate and harm our business, financial condition, and results of operations.

Our ability to use our net operating loss carryforwards and certain tax credit carryforwards may be subject to limitation.

As of December 31, 2020, we had federal and state net operating loss (“NOL”) carryforwards of $453.8 million and $429.9 million, respectively. Of the federal NOL carryforwards, $228.1 million begin to expire in 2026, and $225.7 million can be carried forward indefinitely. Under Section 382 of the Code changes in our ownership may limit the amount of our net operating loss carryforwards and research and development tax credit carryforwards that could be utilized annually to offset our future taxable income, if any. This limitation would generally apply in the event of a cumulative change in ownership of our company of more than 50% within a three-year period. Any such limitation may significantly reduce our ability to utilize our net operating loss carryforwards and research and development tax credit carryforwards before they expire. The completion of the Merger, together with private placements and other transactions that have occurred since our inception, may trigger such an ownership change pursuant to Section 382. Any such limitation, whether as the result of the Merger, prior private placements, sales of our common stock by our existing stockholders, or additional sales of our common stock by us after the Merger, could have a material adverse effect on our results of operations in future years. We have not yet completed a Section 382 analysis, and therefore, there can be no assurances that the NOL is already not limited

Under current law, federal NOLs incurred in tax years beginning after December 31, 2017 and before January 1, 2021 may be carried back to each of the five tax years preceding such loss, and NOLs arising in tax years beginning after December 31, 2020 may not be carried back. Moreover, federal NOLs generated in taxable years ending after December 31, 2017, may be carried forward indefinitely, but the deductibility of such federal NOLs may be limited to 80% of our taxable income annually for tax years beginning after December 31, 2020. NOLs generated prior to December 31, 2017, however, have a

20-year

carryforward period, but are not subject to the 80% limitation.

Furthermore, our ability to utilize NOLs is conditioned upon our maintaining profitability in the future and generating U.S. federal taxable income. Since we do not know whether or when we will generate the U.S. federal taxable income necessary to utilize our remaining NOLs, these NOL carryforwards generated prior to December 31, 2017 could expire unused. Notwithstanding the foregoing discussion of NOLs, we have recorded a full valuation allowance related to our NOLs due to the uncertainty of the ultimate realization of the future benefits of such NOLs.

We may acquire businesses or products, or form strategic alliances, in the future, and we may not realize the benefits of such acquisitions.

We may acquire additional businesses or products, form strategic alliances, or create joint ventures with third parties that we believe will complement or augment our existing business. If we acquire businesses with promising markets or technologies, we may not be able to realize the benefit of acquiring such businesses if we are unable to successfully integrate them with our existing operations and company culture. We may encounter numerous difficulties in developing, manufacturing, and marketing any new products resulting from a strategic alliance or acquisition that delay or prevent us from realizing their expected benefits or enhancing our business. We cannot provide assurance that, following any such acquisition, we will achieve the synergies expected in order to justify the transaction.

Proteostasis Therapeutics (“Proteostasis”) stockholders may not receive any payment on the CVRs and the CVRs may otherwise expire valueless.

Pursuant to the Contingent Value Rights Agreement,(“CVR Agreement”) for each share of Proteostasis common stock held, Proteostasis stockholders of record as of immediately prior to the effective time of the Merger (after giving effect to the exercise or settlement of any Proteostasis options or Proteostasis restricted stock units) received one contingent value right (“CVR”) entitling such holders to receive certain net proceeds, if any, derived from the grant, sale or transfer of rights to any of three specified counterparties of all or any part of Proteostasis’ intellectual property relating to its cystic fibrosis clinical programs (the “CF Assets”) completed prior to the effective time of the Merger or during the nine-month period after such effective time (a “CF Monetization”) (with any potential payment obligations continuing until the

10-year

anniversary of the closing of the Merger).

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A CF Monetization was not completed prior to the effective time of the Merger and each of the three specified counterparties has expressed that it is not interested in a transaction. The right of Proteostasis stockholders to receive any future payment for or derive any value from the CVRs is contingent solely upon our ability to monetize all or any part of the CF Assets through a CF Asset monetization within the time periods specified in the CVR Agreement and the consideration received being greater than the amounts permitted to be reimbursed to us under the CVR Agreement. If a CF Asset Monetization is not achieved within the time periods specified in the CVR Agreement or the consideration received is not greater than the amounts permitted to be reimbursed to Proteostasis, no payments will be made under the CVR Agreement, and the CVRs will expire valueless.

We have sole authority over whether and how to pursue the continued development of the CF Assets (if at all), and our only obligations will be to reasonably cooperate with the requests of the CVR Holders’ Representative to carry out the intent and purpose of the CVR Agreement and not to terminate or intentionally negatively impact the CF Assets during the nine-month period following the effective time of the Merger.

Furthermore, the CVRs will be unsecured obligations of the combined organization and all payments under the CVRs, all other obligations under the CVR Agreement and the CVRs and any rights or claims relating thereto will be subordinated in right of payment to the prior payment in full of all current or future senior obligations of the combined organization.

General Risk Factors

Unfavorable global economic conditions could adversely affect our business, financial condition, or results of operations.

Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. The recent global financial crisis caused extreme volatility and disruptions in the capital and credit markets. A severe or prolonged economic downturn, such as the recent global financial crisis, could result in a variety of risks to our business, including, weakened demand for our product candidates and our ability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy could also strain our suppliers, possibly resulting in supply disruption, or cause our customers to delay making payments for our services. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.

We, or the third parties upon whom we depend, may be adversely affected by earthquakes or other natural disasters and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.

Earthquakes or other natural disasters could severely disrupt our operations, and have a material adverse effect on our business, results of operations, financial condition, and prospects. If a natural disaster, power outage, or other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure, such as the manufacturing facilities of our third-party contract manufacturers and suppliers, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. The disaster recovery and business continuity plans we have in place may prove inadequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which, particularly when taken together with our lack of earthquake insurance, could have a material adverse effect on our business.

Our internal computer systems, or those of our third-party CROs or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our product candidates’ development programs.

Despite the implementation of security measures, our internal computer systems and those of our third-party CROs and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war, and telecommunication and electrical failures. While we have not experienced any such system failure, accident, or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our programs. For example, the loss of clinical study data for our product candidates could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach results in a loss of or damage to our data or applications or other data or applications relating to our technology or product candidates, or inappropriate disclosure of confidential or proprietary information, we could incur liabilities and the further development of our product candidates could be delayed.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Not applicable.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.

Furnish the exhibits required by Item 601 of Regulation

S-K

(§ 229.601 of this chapter).


Exhibit Number		Description

10.1		Sixth Amendment and Consent to Loan and Security Agreement dated as of April 13, 2021, by and among Yumanity, Inc., the lenders party thereto and Hercules Capital, Inc.

10.2		A. Verma Offer Letter (redacted)

10.3		D. Smith Offer Letter (redacted)

31.1*		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Quarterly Report on Form

10-Q

and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates it by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Company Name

Date: August 12, 2021	By:	/s/ Richard Peters
		Richard Peters
		President, Chief Executive Officer and Principal Executive Officer

Date: August 12, 2021	By:	/s/ Paulash Mohsen
		Paulash Mohsen
		Chief Business Officer and Principal Financial Officer

Exhibit 10.1

Execution Version

SIXTH AMENDMENT TO LOAN AND SECURITY AGREEMENT

THIS SIXTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this “Amendment”), effective as of April 13 2021 by and among YUMANITY , INC., a Delaware corporation (“Yumanity”, and together with each Subsidiary of Yumanity from time to time party hereto as a borrower, collectively, “Borrowers”, and each, a “Borrower”), the several banks and other financial institutions or entities from time to time parties to this Agreement (collectively, the “Lenders”, and each, a “Lender”) and HERCULES CAPITAL, INC., a Maryland corporation, in its capacity as administrative agent and collateral agent for the Lenders (in such capacity, “Agent”).

A. Borrowers, Lender and Agent are parties to a Loan and Security Agreement, dated as of December 20, 2019 as amended by that certain First Amendment to Loan and Security Agreement dated April 10, 2020, Second Amendment to Loan and Security Agreement dated April 24, 2020, Third Amendment to Loan and Security Agreement dated June 10, 2020, Fourth Amendment to Loan and Security Agreement dated December 22, 2020, and Fifth Amendment to Loan and Security Agreement dated March 29, 2021 (and so amended and as further amended, restated, supplemented or modified from time to time, the “Loan Agreement”).

B. Borrowers, Lenders and Agent desire to modify the terms of the Loan Agreement as set forth in Section 2 of this Amendment and on the terms and conditions set forth herein.

SECTION 1 Definitions; Interpretation.

(a) Terms Defined in Loan Agreement. All capitalized terms used in this Amendment (including in the recitals hereof) and not otherwise defined herein shall have the meanings assigned to them in the Loan Agreement.

(b) Rules of Construction. The rules of construction that appear in the Section 1.3 of the Loan Agreement shall be applicable to this Amendment and are incorporated herein by this reference.

SECTION 2 Amendments to the Loan Agreement.

(a) Subject to and upon the satisfaction of the conditions specified in Section 3 hereof, the Loan Agreement is hereby amended as follows:

(i) Section 2.2(a)(ii) of the Loan Agreement is hereby amended and restated in its entirety as follows:

“(ii) Tranche 2 Advance. Subject to the terms and conditions of this Agreement, beginning on the date the Performance Milestone is achieved and continuing through June 30, 2021, Borrowers may request, and the Lenders shall severally (and not jointly) make, an additional Term Loan Advance in a principal amount of Five Million Dollars ($5,000,000) (the “Tranche 2 Advance”).”

(ii) Section 2.6(b) of the Loan Agreement is hereby amended and restated in its entirety as follows:

“(b) On the earliest to occur of (i) the Term Loan Maturity Date, (ii) the date that Borrowers prepay the outstanding Secured Obligations (other than any inchoate indemnity obligations and any other obligations which, by their terms, are to survive the termination of this Agreement) in full, or (iii) the date that the Secured Obligations become due and payable (including without limitation, by acceleration of the Secured Obligations during an Event of Default pursuant to Section 10), Borrowers shall pay the Lenders a charge in the amount of $100,000, provided that in the event of a partial prepayment of the Term Loan, Borrowers shall pay, together with any such prepayment, a charge equal to (A) $100,000 multiplied by (B) a percentage determined by taking (x) the principal amount being prepaid and dividing by (y) the then aggregate principal amount of the Term Loan Advances outstanding immediately prior to such prepayment, and upon the repayment in full of all Secured Obligations (other than inchoate indemnity obligations and any other obligations which, by their terms, are to survive the termination of this Agreement), an amount equal to $100,000 less the aggregate amount of all charges paid in accordance with the foregoing in connection with all prior partial prepayments (such charges, collectively, the “End of Term Charge II” and, together with the “End of Term Charge I”, the “End of Term Charge”). Notwithstanding the required payment date of such End of Term Charge II, the End of Term Charge II shall be deemed earned by the Lenders as of the Third Amendment Effective Date. For the avoidance of doubt, if a payment hereunder becomes due and payable on a day that is not a Business Day, the due date thereof shall be the immediately following Business Day.”

(b) References Within Loan Agreement. Each reference in the Loan Agreement to “this Agreement” and the words “hereof,” “herein,” “hereunder,” or words of like import, shall mean and be a reference to the Loan Agreement as amended by this Amendment. This Amendment shall be a Loan Document.

SECTION 3 Conditions of Effectiveness. The effectiveness of Section 2 of this Amendment shall be subject to Agent’s receipt of the following documents, in form and substance satisfactory to Agent, or, as applicable, the following conditions being met (the date of satisfaction of all such conditions precedent, the “Sixth Amendment Effective Date”):

(a) this Amendment, executed by Borrowers; and

(b) payment of all of Agent’s reasonable documented out-of-pocket costs and expenses incurred through the date hereof in connection with any of the Loan Documents.

SECTION 4 Representations and Warranties. To induce Agent and Lenders to enter into this Amendment, Borrowers hereby confirm, as of the date hereof, (a) that the representations and warranties made by it in Section 5 of the Loan Agreement and in the other Loan Documents are true and correct in all material respects; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; (b) that there has not been and there does not exist a Material Adverse Effect, and (c) that no Event of Default has occurred and is continuing.

SECTION 5 Miscellaneous.

(a) Loan Documents Otherwise Not Affected; Reaffirmation. Except as expressly amended pursuant hereto or referenced herein, the Loan Agreement and the other Loan Documents shall remain unchanged and in full force and effect and are hereby ratified and confirmed in all respects. Any Lender’s and Agent’s execution and delivery of, or acceptance of, this Amendment shall not be deemed to create a course of dealing or otherwise create any express or implied duty by any of them to provide any other or further amendments, consents or waivers in the future. Borrowers hereby reaffirm the security interest granted pursuant to the Loan Documents and hereby reaffirm that such grant of security in the Collateral secures all Secured Obligations under the Loan Agreement and the other Loan Documents.

(b) Release. In consideration of the agreements of Agent and Lenders contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Borrower, on behalf of itself and its successors, assigns, and other legal representatives, hereby fully, absolutely, unconditionally and irrevocably releases, remises and forever discharges Agent and Lenders, and its successors and assigns, and its present and former shareholders, affiliates, subsidiaries divisions, predecessors, directors, officers, attorneys, employees, agents and other representatives (Agent, Lenders and all such other persons being hereinafter referred to collectively as the “Releasees” and individually as a “Releasee”), of and from all demands, actions, causes of action, suits, covenants, contracts, controversies, agreements, promises, sums of money, accounts, bills, reckonings, damages and any and all other claims, counterclaims, defenses, rights of set-off, demands and liabilities whatsoever of every name and nature, known or unknown, suspected or unsuspected, both at law and in equity, which a Borrower, or any of its successors, assigns, or other legal representatives may now or hereafter own, hold, have or claim to have against the Releasees or any of them for, upon, or by reason of any circumstance, action, cause or thing whatsoever which arises at any time on or prior to the day and date of this Amendment, including, without limitation, for or on account of, or in relation to, or in any way in connection with the Loan Agreement, or any of the other Loan Documents or transactions thereunder or related thereto. Each Borrower waives the provisions of California Civil Code section 1542, which states:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY.

Each Borrower understands, acknowledges and agrees that the release set forth above may be pleaded as a full and complete defense and may be used as a basis for an injunction against any action, suit or other proceeding which may be instituted, prosecuted or attempted in breach of the provisions of such release. Each Borrower agrees that no fact, event, circumstance, evidence or transaction which could now be asserted or which may hereafter be discovered shall affect in any manner the final, absolute and unconditional nature of the release set forth above. The provisions of this section shall survive payment in full of the Secured Obligations, full performance of all the terms of this Amendment and the other Loan Documents.

(c) Acknowledgement; Waiver. Agent acknowledges that it is not aware of any Event of Default existing as of the date of this Amendment.

(d) No Reliance. Each Borrower hereby acknowledges and confirms to Agent and Lenders that such Borrower is executing this Amendment on the basis of its own investigation and for its own reasons without reliance upon any agreement, representation, understanding or communication by or on behalf of any other Person.

(e) Costs and Expenses. Each Borrower agrees to pay to Agent the date hereof the reasonable documented out-of-pocket costs and expenses of Agent and Lenders party hereto, and the reasonable documented out-of-pocket fees and disbursements of counsel to Agent and Lenders party hereto in connection with the negotiation, preparation, execution and delivery of this Amendment and any other documents to be delivered in connection herewith on the date hereof.

(f) Binding Effect. This Amendment binds and is for the benefit of the successors and permitted assigns of each party.

(g) Governing Law. This Amendment and the other Loan Documents shall be governed by, and construed and enforced in accordance with, the laws of the State of California, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction.

(h) Complete Agreement; Amendments. This Amendment and the Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements with respect to such subject matter. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Amendment and the Loan Documents merge into this Amendment and the Loan Documents.

(i) Severability of Provisions. Each provision of this Amendment is severable from every other provision in determining the enforceability of any provision.

(j) Counterparts. This Amendment may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, is an original, and all taken together, constitute one Amendment. Delivery of an executed counterpart of a signature page of this Amendment by facsimile, portable document format (.pdf) or other electronic transmission will be as effective as delivery of a manually executed counterpart hereof.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

[SIGNATURE PAGE TO SIXTH AMENDMENT TO LOAN AND SECURITY AGREEMENT]

IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment, as of the date first above written.


BORROWER:

YUMANITY, INC.

Signature:		/s/ Paulash Mohsen

Print Name:		Paulash Mohsen

Title:		Chief Business Officer

[SIGNATURE PAGE TO SIXTH AMENDMENT TO LOAN AND SECURITY AGREEMENT]


AGENT:

HERCULES CAPITAL, INC.

Signature:		/s/ Jennifer Choe

Print Name:		Jennifer Choe

Title:		Associate General Counsel


LENDERS:

HERCULES CAPITAL, INC.

Signature:		/s/ Jennifer Choe

Print Name:		Jennifer Choe

Title:		Associate General Counsel


HERCULES CAPITAL FUNDING TRUST 2019-1

Signature:		/s/ Jennifer Choe

Print Name:		Jennifer Choe

Title:		Associate General Counsel

Exhibit 10.2

Certain identified information identified with brackets (“[•••]”) has been excluded from this exhibit because it both (i) is not material and (ii) would be competitively harmful if publicly disclosed.

EXHIBIT 10.2 Employment Offer Letter A Verma (redacted)

Execution Copy

April 11, 2021

Ajay Verma, M.D., Ph.D.

[•••]

Re:

Employment Offer Letter

Dear Ajay:

On behalf of Yumanity Therapeutics, I am pleased to offer you employment by Yumanity Therapeutics or its subsidiaries (collectively, “Yumanity”) on the terms set forth in this letter (the “Offer Letter”). We hope that you choose to join the Yumanity team and look forward to a mutually beneficial relationship.

1. Position. Upon joining Yumanity, you will assume the role of Executive Vice President, Head of Research and Development reporting to the CEO. As you progress with Yumanity, your position and assignments may be subject to change, and we expect you to perform the duties and responsibilities that are associated with your position or otherwise as may be assigned to you. This is a full-time position. While you render services to Yumanity, we expect you to devote all of your professional and working time and energies to the business of Yumanity and not engage in any other employment, consulting or other business activity (whether full-time or part-time) without the prior written consent of Yumanity. You agree to abide by all employment polices instituted by Yumanity, as they may be amended from time to time. As stated below, your employment with Yumanity is “at-will,” meaning that your employment may be terminated for any reason, or for no reason, by Yumanity or you at any time.

2. Commencement Date. Subject to the terms hereof, your employment hereunder will commence on a date to be determined (the “Commencement Date”).

3. Compensation.

(a) Base Salary. In consideration for your services rendered to Yumanity, your base salary will be $430,000 per year, payable in accordance with Yumanity’s standard payroll schedule and subject to applicable deductions and withholdings. This position is exempt under the Fair Labor Standards Act, meaning that you are not entitled to overtime pay.

(b) Bonus. During the term of your employment with Yumanity, you will be considered for an annual incentive bonus (the “Annual Bonus”) with respect to each fiscal year of your employment with Yumanity, the amount, terms and conditions of such Annual Bonus (if any) to be determined at the discretion of the Board of Directors (the “Board”) of Yumanity or a committee thereof. Your target Annual Bonus will be up to 40% of your base salary. The actual Annual Bonus percentage is discretionary and will be subject to Yumanity’s assessment of your performance, as well as business conditions at Yumanity. The Annual Bonus also will be subject to your employment for the full period covered by the Annual Bonus, with any Annual Bonus earned in 2021 prorated from the Commencement Date, and approval by and adjustment at the discretion of the Board or a committee thereof and the terms of any applicable bonus plan. The Annual Bonus, if any, will be paid between January 1^st and March 15^th of the calendar year following the calendar year for which such Annual Bonus was earned. The payment of any Annual Bonus will be contingent upon you being employed by Yumanity as of the payment date of such Annual Bonus. Yumanity also may make adjustments in the targeted amount of your Annual Bonus.

(c) Stock Option Grant. In connection with the commencement of your employment, and subject to the approval of the Board or an authorized committee or delegate thereof, you will be granted options to purchase 84,000 shares of Yumanity Therapeutics, Inc. common stock (the “Stock Options”). You will be granted an additional 20,000 options as a performance grant based on accomplishing the following critical R&D milestones: 5,000 options for each of the potential two MRK milestones collected over the next 12 months and 10,000 options for accelerating the start of the Phase 2 proof-of-concept YTX-7739 trial to Q1 2022 (currently projected for Q2 2022). These options will not be granted if the milestones are not achieved (the “Performance Stock Options”). As approved by Yumanity, the Stock Options will be granted on the Commencement Date, and the Performance Stock Options on the respective date of milestone achievement (only if achieved) and the exercise price per share of the Stock Options will be the closing price of Yumanity’s common stock on the Nasdaq Stock Market on the date of grant. Twenty-five percent (25%) of the Stock Options will be vested upon the first anniversary of the commencement of your employment with Yumanity, with the remaining seventy-five percent (75%) vesting ratably each month over three (3) years, subject to your continued employment with Yumanity. All equity grants, including the Stock Options, shall be subject to, and granted in accordance with, the terms and conditions of Yumanity’s Equity Incentive Plan and standard grant agreement.

(d) Periodic Review and Adjustments. Notwithstanding the foregoing, all of your compensation terms will be subject to periodic review and may be modified by Yumanity from time to time in its discretion.

4. Reimbursement of Expenses. You will be entitled to prompt reimbursement for all ordinary and reasonable out-of-pocket business expenses which are, have been or are reasonably incurred by you in furtherance of Yumanity’s business and in accordance with Yumanity’s standard policies. All reimbursements provided under this Offer Letter will be made or provided in accordance with the requirements of Section 409A (“Section 409A”) of the Internal Revenue Code of 1986, as amended (the “Code”) including, where applicable, the requirement that (a) any reimbursement is for expenses incurred during your lifetime (or during a shorter period of time specified in this Offer Letter); (b) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for reimbursement in any other calendar year; (c) the reimbursement of an eligible expense will be made no later than the last day of the calendar year following the year in which the expense is incurred; and (d) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.

5. Employee Benefits. As a regular employee of Yumanity, you will be eligible to participate in a number of Yumanity-sponsored benefits provided to other Yumanity employees of similar rank and tenure, subject to the terms and conditions of such policies and programs. Except when prohibited by applicable law, Yumanity’s benefit plans and fringe benefits may be amended by Yumanity from time to time in its sole discretion, and the provision of such benefits does not change your status as an at-will employee. Your time off is not limited per year but must be scheduled to minimize disruption to Yumanity’s operations, pursuant to the terms and conditions of Yumanity policy and practices as applied to other Yumanity employees of similar rank and tenure. Paid time off is not accrued, earned, vested, or classified as a wage supplement, and thus, will not be paid out to you upon separation of employment, regardless of the reason for the separation.

6. Termination; Severance. Notwithstanding the at-will nature of the parties’ relationship, should Yumanity terminate your employment without “Cause” (described below) or should you resign your employment for “Good Reason” (described below), then you will be eligible for severance payments and benefits on the terms and conditions described below.

(a) Standard Severance. In the event that Yumanity terminates your employment without Cause or you resign from your employment for Good Reason, in either case in the absence of a “Change of Control” (as defined below), then, conditioned upon your execution and non-revocation of a separation agreement (the “Separation Agreement”) in a form satisfactory to Yumanity (which will contain, among other things, a full and general release of claims to Yumanity and its affiliates and their respective directors, officers, agents and employees; standard post-employment obligations; and, as applicable, a non-competition covenant that restricts certain competitive activities for a specified period of time) and your compliance with your Employee Confidentiality, Non-Competition, Non-Solicitation, and Intellectual Property Agreement or similar agreements with Yumanity (collectively, “Covenants Agreements”), you will be eligible for the following standard severance package:^1/

(i) Yumanity will continue to pay your base salary, at the rate in effect on the date of termination (or if the termination is for Good Reason due to a reduction in your base salary, at the rate in effect immediately prior to such reduction) for a period of nine (9) months (the “Standard Severance Period”); and

(ii) (x) if Yumanity is subject to the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) or similar state law, (y) the premium subsidy described below is not illegal or discriminatory under the Code, the Patient Protection and Affordable Care Act or the Health Care and Education Reconciliation Act, and (z) if you properly elect to receive benefits under COBRA, Yumanity will provide you with nine (9) months of your COBRA premiums at Yumanity’s normal rate of contribution for employees for your coverage at the level in effect immediately prior to your termination.

^1/

In the event of a resignation for any reason (including “Good Reason”) or a termination that qualifies as “Cause” hereunder (or, as applicable, “Cause” as defined in your Covenants Agreement) then the non-competition covenant will be contained in your Covenants Agreement, with which you will be expected to comply (the non-competition covenant will not be contained in the separation agreement). Please note that, as stated in your Covenants Agreement, in the event that you are eligible for garden leave or analogous payments in support of your non-competition obligations under your Covenants Agreement, then Yumanity reserves the right to offset any severance payments or benefits hereunder against garden leave or analogous payments, to the extent permitted by applicable law.

(b) Change of Control Severance. If within three (3) months prior to or twelve (12) months after a Change of Control, Yumanity terminates your employment without Cause or you resign from your employment for Good Reason, then, conditioned on your execution and non-revocation of the Separation Agreement and your compliance with your Covenants Agreement^2/, you will be eligible for the following change of control severance package:

(ii) (x) if Yumanity is subject to the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) or similar state law, (y) the premium subsidy described below is not illegal or discriminatory under the Code, the Patient Protection and Affordable Care Act or the Health Care and Education Reconciliation Act, and (z) if you properly elect to receive benefits under COBRA, Yumanity will provide you with your COBRA premiums at Yumanity’s normal rate of contribution for employees for your coverage at the level in effect immediately prior to your termination, through the COC Severance Period;

(iii) All of your granted time-based equity that remains unvested as of the termination date automatically will vest as of the date the Separation Agreement is signed and irrevocable, subject to the terms and conditions of the applicable Company equity plan and equity agreements signed by you pursuant thereto; and

(iv) The deadline for you to exercise any vested stock options will be extended to the COC Severance Period or, if earlier, the normal expiration date of such options, subject to the terms and conditions of the applicable Company equity plan and equity agreements signed by you pursuant thereto.

Please note that in the event that you are eligible for the severance payments and benefits described in this Section 6(b), then you will not be eligible for the severance payments and benefits described in Section 6(a).

(i) For purposes of this Offer Letter, “Cause” will mean any one or more of the following actions: (A) your material breach of the terms of your Offer Letter or the terms of your Covenants Agreements; (B) your material dishonesty, willful misconduct, gross negligence, or reckless conduct in each case, if such conduct is in connection with the performance of your services to Yumanity; (C) your commission of an act of fraud, theft, misappropriation or embezzlement; (D) your indictment of, or pleading nolo contendere to, any crime involving moral turpitude or any felony; or (E) your material violation of a Company policy that had been previously provided to you in writing, or your willful refusal to perform your lawful assigned duties to Yumanity (other than as a result of your mental or physical impairment). For purpose solely of this clause (E), “Cause” will only exist if: (1) Yumanity delivered to you a written description of the events or conditions giving rise to your termination for Cause; and (2) if curable, you have been given at least 30 days to cure such events or conditions and you fail to cure such events or conditions within such time period given.

(ii) For purposes of this Offer Letter, “Good Reason” will mean a Separation as a result of your resignation after one of the following conditions has come into existence without your consent: (A) a material reduction in your base salary; (B) a material diminution of your authority, duties, or responsibilities; (C) a material breach by Yumanity of this Offer Letter, or any equity agreement signed by you; or (D) a relocation of your principal workplace by more than 50 miles. A resignation for Good Reason pursuant to any of the clauses described above will not be deemed to have occurred unless: (1) you give Yumanity written notice of the condition constituting Good Reason within 30 days after the initial existence of the condition, (2) if curable, the condition is not cured by Yumanity within 30 days of its receipt of such notice, and (3) your termination of employment occurs within 65 days following Yumanity’s receipt of your notice described in (1).

^2/	See Note 1.

(iii) For purposes of this Letter, “Change of Control” will mean: (A) any “Person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “Beneficial Owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Yumanity representing 50% or more of the total voting power represented by Yumanity’s then outstanding voting securities (excluding for this purpose any such voting securities held by Yumanity or its Affiliates or by any employee benefit plan of Yumanity) pursuant to a transaction or a series of related transactions which the Board does not approve; or (B) a merger or consolidation of Yumanity whether or not approved by the Board, other than a merger or consolidation which would result in the voting securities of Yumanity outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or the parent of such corporation) more than 50% of the total voting power represented by the voting securities of Yumanity or such surviving entity or parent of such corporation, as the case may be, outstanding immediately after such merger or consolidation; or (C) the sale or disposition by Yumanity of all or substantially all of Yumanity’s assets in a transaction requiring stockholder approval. “Change of Control” will be interpreted, if applicable, in a manner, and limited to the extent necessary, so that it will not cause adverse tax consequences under Section 409A of the Code.

(iv) For purposes of this Offer Letter, “Separation” means a “separation from service,” as defined in the regulations under Section 409A of the Code.

(d) Payment Timing. Provided that you meet the conditions for severance payments and benefits described in Sections 6(a) or 6(b), as applicable, any severance payments paid according to terms herein will commence or be made within 60 days after the date of termination, provided that: (i) if the 60-day period begins in one calendar year and ends in a second calendar year, the severance payments will begin to be paid in the second calendar year by the last day of such 60-day period; and (ii) the initial payment will include a catch-up payment to cover amounts retroactive to the day immediately following the date of termination.

(e) Exclusions. Should you voluntarily terminate your employment without Good Reason or should your employment be terminated for Cause (whether before or after a Change of Control), then you will not be eligible for any severance payments or benefits described herein. In the event that you are eligible for severance payments or benefits under any other employment, severance or separation agreement or policy, or any provisions thereof, this Offer Letter replaces and supersedes such agreement or policy (or any provisions thereof) and you will not receive any payments or benefits under such agreement or policy (or any provisions thereof).

7. Forfeiture/Clawback. Please note that the compensation described in this Offer Letter will be subject to any forfeiture or clawback policy established by Yumanity generally for executives from time to time.

8. Confidentiality, Non-Competition, Non-Solicitation, and Intellectual Property Agreement. As part of your employment with Yumanity, you have and will be exposed to, and provided with, valuable confidential and/or trade secret information concerning Yumanity and its present and prospective clients. Like all Yumanity employees, you will be required, as a condition of your employment with Yumanity, to sign Yumanity’s standard Employee Confidentiality, Non-Competition, Non-Solicitation, and Intellectual Property Agreement, a copy of which is attached hereto as Exhibit A and the terms of which are incorporated into this Offer Letter.

9. Representation Regarding Other Obligations. This offer is conditioned on your representation that you are not subject to any confidentiality, non-competition agreement or any other similar type of restriction that may affect your ability to devote full time and attention to your work at Yumanity. If you have entered into any agreement that may restrict your activities on behalf of Yumanity, please provide me with a copy of the agreement as soon as possible. Please understand that Yumanity does not want you to disclose any confidential information belonging to a previous employer or to incorporate the proprietary information of any previous employer into Yumanity’s proprietary information and expects that you will abide by restrictive covenants to prior employers.

10. Return of Property and Records. Upon the termination of your employment hereunder for any reason, you will: (a) return to Yumanity all Yumanity confidential information and copies thereof (regardless of how such confidential information or copies are maintained) in your possession; and (b) deliver to Yumanity any property of Yumanity which may be in your possession, including, but not limited to, cell phones, smart phones, laptops, products, materials, memoranda, notes, records, reports or other documents or photocopies of the same.

11. Work Authorization; Background Check. Notwithstanding anything to the contrary herein, your employment with Yumanity is conditioned on: (a) satisfactory completion of reference and background checks; and (b) your submission of satisfactory proof of your legal authorization to work in the United States. Coincident with starting your employment with Yumanity, you will be expected to sign an I-9 form verifying that you are legally authorized to work in the United States. Attached as Exhibit B is a copy of the I-9 form. Please bring the appropriate document(s) listed on that form with you when you report for work. Yumanity will not be able to employ you if you fail to comply with these requirements.

12. Employment Relationship. Subject to Section 6, your employment with Yumanity will be “at will,” meaning that either you or Yumanity may terminate your employment at any time and for any reason, with or without cause. Any contrary representations that may have been made to you are superseded by this Offer Letter. This is the full and complete agreement between you and Yumanity on this term. Although your job duties, title, compensation and benefits, as well as Yumanity’s personnel policies and procedures, may change from time to time, the “at will” nature of your employment may only be changed in an express written agreement signed by you and a duly authorized officer of Yumanity (other than you).

13. Tax Matters.

(a) All forms of compensation referred to in this Offer Letter are subject to reduction to reflect applicable withholding and payroll taxes and other deductions required by law. You are encouraged to obtain your own tax advice regarding your compensation from Yumanity. Yumanity does not guarantee the tax treatment or tax consequences associated with any payment or benefit arising under this Offer Letter, including but not limited to consequences related to Section 409A of the Code. You agree that Yumanity does not have a duty to design its compensation policies in a manner that minimizes your tax liabilities, and you will not make any claim against Yumanity or its Board related to tax liabilities arising from your compensation.

(b) This Offer Letter will be interpreted and at all times administered in a manner that avoids the inclusion of compensation in income under Section 409A of the Code. Any provision inconsistent with Section 409A of the Code will be read out of the Offer Letter. For purposes of clarification, this paragraph will be a rule of construction and interpretation and nothing in this paragraph will cause a forfeiture of benefits on the part of you. It is intended that each installment of the payments and benefits provided under this Offer Letter will be treated as a separate “payment” for purposes of Section 409A of the Code. Neither Yumanity nor you will have the right to accelerate or defer the delivery of any such payments or benefits, except to the extent specifically permitted or required by Section 409A of the Code.

(c) Notwithstanding any other provision of this Offer Letter to the contrary, if any amount (including imputed income) to be paid to you pursuant to this Offer Letter as a result of your termination of employment is “deferred compensation” subject to Section 409A of the Code, and if you are a “Specified Employee” under Section 409A of the Code as of the date of your termination of employment, then, to the extent necessary to avoid the imposition of excise taxes or other penalties under Section 409A of the Code, the payment of benefits, if any, scheduled to be paid by Yumanity to you hereunder during the first 6-month period following the date of a termination of employment hereunder will not be paid until the date which is the first business day after 6 months have elapsed since your termination of employment. Any deferred compensation payments delayed in accordance with the terms of this paragraph will be paid in a lump sum after 6-months have elapsed since your termination of employment. Any other payments will be made according to the schedule provided for herein.

(d) If any of the benefits set forth in this Offer Letter are “deferred compensation” under Section 409A of the Code, any termination of employment triggering payment of such benefits must constitute a “separation from service” under Section 409A of the Code before distribution of such benefits can commence. To the extent that the termination of your employment does not constitute a “separation from service” under Section 409A of the Code (as the result of further services that are reasonably anticipated to be provided by you to Yumanity at the time your employment terminates), any benefits payable under this Offer Letter that constitute “deferred compensation” under Section 409A of the Code will be delayed until after the date of a subsequent event constituting a “separation from service” under Section 409A of the Code. For purposes of clarification, this paragraph will not cause any forfeiture of benefits on your part, but will only act as a delay until such time as a “separation from service” occurs.

(e) If any payment or benefit you would receive under this Offer Letter, when combined with any other payment or benefit you receive pursuant to a Change of Control (for purposes of this paragraph, a “Payment”) would: (i) constitute a “parachute payment” within the meaning of Section 280G the Code; and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then such Payment will be either: (1) the full amount of such Payment; or (2) such lesser amount as would result in no portion of the Payment being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state and local employments taxes, income taxes and the Excise Tax, results in your receipt, on an after-tax basis, of the greater amount of the Payment notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. With respect to subsection (2), if there is more than one method of reducing the payment as would result in no portion of the Payment being subject to the Excise Tax, then you will determine which method will be followed, provided that if you fail to make such determination within 30 days after Yumanity has sent you written notice of the need for such reduction, Yumanity may determine the amount of such reduction in its sole discretion.

14. Interpretation, Amendment and Assignment. This Offer Letter, together with any agreements specifically referred to herein, constitute the complete agreement between you and Yumanity, contain all of the terms of your employment with Yumanity and supersede any prior agreements, representations or understandings (whether written, oral or implied) between you and Yumanity. This Offer Letter may not be amended or modified, except by an express written agreement signed by both you and a duly authorized officer of Yumanity (other than you). Yumanity may assign its rights and obligations hereunder to any person or entity that succeeds to all or substantially all of Yumanity’s business. You may not assign your rights and obligations hereunder without the prior written consent of Yumanity.

15. Choice of Law and Forum Selection. The terms of this Offer Letter and the resolution of any disputes as to the meaning, effect, performance or validity of this Offer Letter or arising out of, related to, or in any way connected with, this Offer Letter, your employment with Yumanity or any other relationship between you and Yumanity (the “Disputes”) will be governed by Massachusetts law, excluding laws relating to conflicts or choice of law. You and Yumanity submit to the exclusive personal jurisdiction of the federal and state courts located in Boston, Massachusetts, in connection with any Dispute or any claim related to any Dispute. You and Yumanity waive and forever renounce your right to a trial before a civil jury.

We hope that you will accept our offer to join Yumanity. You may indicate your agreement with these terms and accept this offer by signing and dating both the enclosed duplicate original of this Offer Letter and the enclosed Employee Confidentiality, Non-Competition, Non-Solicitation and Intellectual Property Agreement, and returning them to me.

[Signature Page Follows]


Very truly yours,

YUMANITY THERAPEUTICS

By:		/s/ Ellen K. Forest
Name:		Ellen K. Forest
Title:		Chief Human Resources Officer

I have read and accept this employment offer:

/s/ Ajay Verma

Signature of Employee

Dated: April 11, 2021

Attachments


Exhibit A:		Employee Confidentiality, Non-Competition, Non-Solicitation and Intellectual Property Agreement

Exhibit B:		Form I-9

Exhibit A

April 11, 2021

Ajay Verma, M.D., Ph.D.

(via email: [•••])

Re: Confidentiality, Non-Competition, Non-Solicitation and Intellectual Property Agreement

Dear Ajay:

This letter agreement (the “Agreement”) is to confirm our understanding with respect to: (a) your agreement to protect and preserve confidential and proprietary information of Yumanity Therapeutics or any present or future parent, subsidiary or affiliate thereof (collectively, the “Company”); (b) your agreement not to compete with the Company; (c) your agreement not to solicit or otherwise interfere with any of the Company’s customers or employees; and (d) your agreement with respect to the ownership of inventions, ideas, copyrights and patents which may be used in the business of the Company. As a condition of your employment with the Company, and in consideration of the mutual promises and covenants contained in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, you agree as follows:

1.	Confidentiality.

(a) Definition of Confidential Information. For purposes of this Agreement, “Confidential Information” means trade secrets and confidential and proprietary information of the Company, or any information provided to you or the Company under an obligation of confidentiality to a third party, or any confidential, trade secret, or proprietary information acquired by the Company from others with whom the Company or any affiliate has a business relationship, whether in written, oral, electronic or other form, including, but not limited to, technical data and specifications, business and financial information, product and marketing plans, customer and client information, customer and client lists, customer, client and vendor identities and characteristics, agreements, marketing knowledge and information, sales figures, pricing information, marketing plans, business plans, strategy forecasts, financial information, budgets, software, projections and procedures, the confidential evaluation of (and confidential use or non-use by the Company or any affiliate of) technical or business information in the public domain, Developments (as defined in Section 3), and any other scientific, technical or trade secrets of the Company or of any third party provided to you or the Company under a condition of confidentiality, provided that Confidential Information shall not include information that is in the public domain other than through any fault or act by you.^3/

^3/

The term “trade secrets,” as used in this Agreement, shall be given its broadest possible interpretation under the law of the Commonwealth of Massachusetts and shall include, without limitation, any specified or specifiable information, whether or not fixed in tangible form or embodied in any tangible thing, including but not limited to a formula, pattern, compilation, program, device, method, technique, process, business strategy, customer list, invention, or scientific, technical, financial or customer data.

(b) Protection and Non-Disclosure of Confidential Information. You expressly acknowledge and agree that all Confidential Information is and shall remain the sole property of the Company or the third party to whom the Company owes an obligation of confidentiality and that you shall hold it in strictest confidence. You shall at all times, both during the period you are performing services for the Company and after the termination of such services for any reason or for no reason, maintain in confidence and shall not, without the prior written consent of the Company, use (except in the course of performance of your duties for the Company or by court order), disclose, or give to others any Confidential Information.

(c) Notification to Company. In the event you are questioned by anyone not employed by the Company or by an employee of or a consultant to the Company not authorized to receive Confidential Information, in regard to any Confidential Information or concerning any fact or circumstance relating thereto, you shall promptly notify the Company.

(d) Return of Confidential Information. Upon the termination of your services to the Company for any reason or for no reason, or if the Company otherwise requests, you will: (i) return to the Company all tangible Confidential Information and copies thereof (regardless how such Confidential Information or copies are maintained), and (ii) deliver to the Company any property of the Company which may be in your possession, including, but not limited to, products, materials, memoranda, notes, records, reports, or other documents or photocopies of the same.

(e) No Impact on Other Obligations. The terms of this Section 1 are in addition to, and not in lieu of, any statutory or other contractual or legal obligation that you may have relating to the protection of the Company’s Confidential Information. The terms of this Section 1 shall survive indefinitely any termination of your provision of services to the Company for any reason or for no reason.

(f) Notice Pursuant to Defend Trade Secrets Act. Notwithstanding any provision of this Agreement prohibiting the disclosure of Developments (as defined in Section 2) or other Confidential Information, you understand that you may not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a Company trade secret that: (i) is made (A) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney; and (B) solely for the purpose of reporting or investigating a suspected violation of law; or (ii) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. In addition, if you file a lawsuit or other court proceeding against the Company for retaliating against you for reporting a suspected violation of law, you may disclose the Company trade secret to the attorney representing you and use the Company trade secret in the court proceeding, if you file any document containing the Company trade secret under seal and do not disclose the trade secret, except pursuant to court order.

2.	Prohibited Competition and Solicitation.

(a) Acknowledgements and Agreements Regarding Competition. You expressly acknowledge that: (i) there are competitive and proprietary aspects of the business of the Company; (ii) during the course of your performing services for the Company, the Company shall furnish, disclose or make available to you Confidential Information (as defined in Section 1) and may provide you with unique and specialized training; (iii) such Confidential Information and training have been developed and shall be developed by the Company through the expenditure of substantial time, effort and money, and could be used by you to compete with the Company; (iv) if you become employed or affiliated with any competitor of the Company in violation of your obligations in this Agreement, it is inevitable that you would disclose the Confidential Information to such competitor and would use such Confidential Information, knowingly or unknowingly, on behalf of such competitor; (v) in the course of your employment, you shall be introduced to vendors, suppliers, customers, consultants, contractors, employees and others with important relationships to the Company, and any and all “goodwill” created through such introductions belongs exclusively to the Company, including, but not limited to, any goodwill created as a result of direct or indirect contacts or relationships between you and any vendors, suppliers or customers of the Company.

(b) Definitions.

(i) “Competing.” For the purposes of this Agreement, a business shall be deemed to be “Competing” with the Company if the business performs or is planning to perform any of the same or similar services, manufacturing, research, or development provided by the Company during the last two years of your employment by the Company; or is a business in which you could reasonably be expected to use or disclose Confidential Information.

(ii) “Non-Competition Period.” For the purposes of this Agreement, the term “Non-Competition Period” is defined as the one (1) year period following the termination of your employment with the Company for Cause (as that term is defined under your employment agreement, or, if not defined in an employment agreement, as that term is defined under Massachusetts law) or your resignation of your employment with the Company for any reason.

(iii) “Non-Solicitation Period.” For the purposes of this Agreement, the term “Non-Solicitation Period” is defined as the two (2) year period following the termination of your employment with the Company for any reason or for no reason, whether voluntary or involuntary.

(iv) “Restricted Territory.” For the purposes of this Agreement, the term “Restricted Territory” is defined as any regional area or territory in which you performed services on behalf of the Company or had a material presence or influence in the two years immediately preceding the termination of your employment with the Company, or in which the Company engaged in any business activity or was actively planning to engage in any business activity at any time during your employment with the Company.

(c) Non-Competition Restriction. During the period in which you are employed by the Company and for the Non-Competition Period, you shall not engage in the following activities either through or on behalf of yourself, a third party or another person/entity, whether directly or indirectly, either as principal, partner, stockholder, officer, director, member, employee, consultant, agent, representative or in any other capacity, own, manage, operate or control, or be concerned, connected or employed by, or otherwise associate in any manner with, engage in, or have a financial interest in, any business which is directly or indirectly Competing with the business of the Company within the Restricted Territory (each, a “Restricted Activity”). For the avoidance of doubt, this Section 2(c) shall not apply to you in the event your employment is terminated without Cause or if the Company elects to waive this Section 2(c) in accordance with Section 2(c)(ii) below.

(i) Garden Leave. In consideration of your agreement not to compete during the Non-Competition Period as set forth above in Section 2(c), and so long as you comply with the obligations under Section 2(c), the Company shall pay you an amount equal to fifty percent (50%) of your highest annualized base salary in the two years immediately preceding the commencement of the Non-Competition Period, to be paid in accordance with the Company’s normal payroll practices. For the purposes of this subsection 2(c)(i), “highest annualized base salary” shall mean the highest averaged amount of compensation paid to you for any twelve month period during the two year period immediately preceding commencement of the Non-Competition Period, but shall not include any other form of compensation, including but not limited to, commissions, bonuses, reimbursement of expenses, travel discounts or other fringe benefits. The Company reserves the right to apply any severance payments made to you by the Company, or a portion thereof, against the installment payments under this Section 2(c)(i).

(ii) Waiver of Non-Competition Period. The Company, in its sole discretion, may elect at any time prior to the commencement of the Non-Competition Period, or on such later date to the extent permitted by applicable law, to waive the restrictions set forth in Section 2(c), which such waiver shall automatically terminate Company’s obligations to compensate you under Section 2(c)(i) above. In such event, you shall have no further obligation under Section 2(c) above. Such waiver shall be provided in writing by the Company pursuant to Section 7(j) below. Such waiver shall have no effect on your obligations under the remainder of this Agreement, which shall continue in full force and effect in all respects. You acknowledge and agree that nothing in this Section 2(c)(ii) gives you an election as to compliance with Section 2(c).

(iii) Remedies Upon Breach. You acknowledge and agree that if you breach any of your obligations under Section 2(c) of this Agreement at any time during the Non-Competition Period, then, in addition to any other remedies that the Company may have against you, including but not limited to injunctive relief, the Company shall immediately cease any and all payments to you pursuant to Section 2(c)(i) and you shall be obligated to immediately return any and all payments previously made by the Company pursuant to Section 2(c)(i).

(iv) Notice of Subsequent Employment or Engagement. You agree that at any point prior to the commencement of the Non-Competition Period, in the event that you are considering an opportunity that would require you to engage in a Restricted Activity (including, but not limited to, an offer of employment), you shall notify the Chief Human Resources Officer at the Company in writing of such opportunity. You acknowledge and agree that your acceptance of the payments under Section 2(c)(i) shall be an express representation to the Company that you are in compliance with this Section 2(c)(iv).

(v) Material Breach. You acknowledge and agree that a breach of any provision of this Section 2(c) is a material breach of this Agreement.

(d) Non-Solicitation Restriction.

(i) Customers. During the period in which you are employed by the Company and for the Non-Solicitation Period, you shall not engage in the following activities either through or on behalf of yourself, a third party or another person/entity, whether directly or indirectly: (A) solicit, divert or appropriate, or attempt to solicit, divert or appropriate, any so called “corporate partner” or “collaborator” or any customer, client, vendor, supplier, or patron of the Company, or any prospective so called “corporate partner” or “collaborator” or any prospective customer, client, vendor, supplier, or patron to which the Company has developed or made a collaboration, joint venture or sales presentation (or similar offering of services); or (B) interfere with, or attempt to interfere with, the relations between the Company and any customer, client, vendor, supplier, patron, or so-called “corporate partner” or “collaborator” to the Company.

(ii) Employees. During the period in which you are employed by the Company and for the Non-Solicitation Period, you shall not engage in the following activities either through or on behalf of yourself, a third party or another person/entity, whether directly or indirectly: (A) solicit, entice or persuade, or attempt to solicit, entice or persuade, any other employees of or consultants to the Company to leave the services of the Company or any such parent, subsidiary or affiliate for any reason; or (B) employ, cause to be employed, or solicit the employment or services of any employee of or consultant to the Company while any such person is providing services to the Company or within one (1) year after any such person ceases providing services to the Company.

(e) Tolling. You acknowledge and agree that the Non-Solicitation Period shall be tolled and shall not run, during any period in which you are in violation of the terms herein.

3.	Developments.

(a) Prior Developments. You have attached hereto, as Exhibit A, a list describing all discoveries, ideas, inventions, improvements, enhancements, processes, methods, techniques, developments, software, and works of authorship, whether patentable or not, which were created, made, conceived or reduced to practice by you prior to your employment with the Company and which are owned by you, which relate directly or indirectly to the current or anticipated future business of the Company, and which are not assigned to the Company hereunder (collectively, “Prior Developments”); or, if no such list is attached, you represent that there are no Prior Developments. You agree that you have not and shall not incorporate any Prior Developments into any Company product, material, process or service without prior written consent of an officer of the Company. If you do incorporate any Prior Development into any Company product, material, process or service, you hereby grant to the Company a non-exclusive, worldwide, perpetual, transferable, irrevocable, royalty-free, fully-paid right and license to make, have made, use, offer for sale, sell, import, reproduce, modify, prepare derivative works, display, perform, transmit, distribute and otherwise exploit such Prior Development and to practice any method related thereto.

(b) Developments. All ideas, discoveries, creations, manuscripts and properties, innovations, improvements, know-how, inventions, designs, developments, apparatus, techniques, methods, formulae, data, protocols, writings, specifications, sound recordings, and pictorial and graphical representations, (collectively, “Developments”) which relate to the business of the Company or a Company affiliate, whether patentable, copyrightable or not, which you may conceive, reduce to practice or develop during your employment with the Company, whether alone or in conjunction with another or others, and whether at the request or upon the suggestion of the Company or otherwise, shall be and are the sole and exclusive property of the Company. You acknowledge that each original work of authorship which was made by you (solely or jointly with others) within the scope of and during the period of your employment with the Company and which is protectable by copyright is a “work made for hire,” as that term is defined in the United States Copyright Act. You agree to assign and do hereby assign to the Company (or any person or entity designated by the Company) all your right, title and interest in and to all Developments (other than Prior Developments listed on Exhibit A, if any) and all related patents, patent applications, copyrights and copyright applications. However, this Section 3(b) shall not apply to Developments which do not relate to the business or research and development conducted or planned to be conducted by the Company at the time such Development is created, made, conceived or reduced to practice and which were made and conceived by you outside of the scope of employment and not using the Company’s tools, devices, equipment or Confidential Information. You also hereby waive all claims to moral rights in any Developments.

(c) Cooperation. You agree to cooperate fully with the Company, both during and after your employment with the Company, with respect to the procurement, maintenance and enforcement of copyrights, patents and other intellectual property rights (both in the United States and foreign countries) relating to Developments. You shall sign all papers, including, without limitation, copyright applications, patent applications, declarations, oaths, formal assignments, assignments of priority rights, and powers of attorney, which the Company may deem necessary or desirable in order to protect its rights and interests in any Development. You further agree that if the Company is unable, after reasonable effort, to secure you signature on any such papers, any executive officer of the Company shall be entitled to execute any such papers as your agent and your attorney-in-fact, and you hereby irrevocably designate and appoint each executive officer of the Company as your agent and attorney-in-fact to execute any such papers on your behalf, and to take any and all actions as the Company may deem necessary or desirable in order to protect its rights and interests in any Development, under the conditions described in this sentence.

4.	Disclosure to Future Employers.

You shall provide, and the Company, in its discretion, may similarly provide, a copy of this Agreement or specific covenants herein to any business or enterprise which you may directly or indirectly own, manage, operate, finance, join, control or in which you may participate in the ownership, management, operation, financing, or control, or with which you may be connected as an officer, director, employee, partner, principal, agent, representative, consultant or otherwise.

5.	Your Representations and Warranties.

You hereby represent and warrant that: (a) you have no commitments, agreements or legal obligations that are inconsistent with this Agreement or that restrict your ability to be employed by or perform other services for the Company; and (b) the Company has advised you that at no time should you divulge to or use for the benefit of the Company any trade secret or confidential or proprietary information of any previous employer or other third party, and that you have not divulged or used and shall not divulge or use any such information for the benefit of the Company. You expressly acknowledge and agree that you shall indemnify and hold the Company harmless against loss, damage, liability or expense arising from any claim based upon circumstances alleged to be inconsistent with the representations and warranties above.

6.	Provisions Necessary and Reasonable; Injunctive Relief.

(a) Reasonableness of Restrictions. You acknowledge and agree that the provisions of Sections 1, 2 and 3 of this Agreement are necessary and reasonable to protect the Company’s Confidential Information, property rights, trade secrets, goodwill and business interests. You further acknowledge and agree that the types of employment which are prohibited by Section 2 are narrow and reasonable in relation to the skills which represent your principal salable asset both to the Company and to your other prospective employers, and that the specific but broad temporal and geographical scope of Section 2 is reasonable and fair in light of the Company’s need to market its services and develop and sell its products in a large geographic area in order to maintain a sufficient customer base and in light of your material presence or influence in the Restricted Territory during the last two years of your employment with the Company.

(b) Injunctive Relief. You hereby expressly acknowledge that any breach or threatened breach of any of the terms of Sections 1, 2 or 3 of this Agreement shall result in substantial, continuing and irreparable injury to the Company. Therefore, in addition to any other remedy available to the Company, the Company shall be entitled to injunctive or other equitable relief by a court of appropriate jurisdiction in the event of any breach or threatened breach of the terms of Sections 1, 2 or 3 of this Agreement, without posting any bond or security, and without affecting the Company’s right to seek and obtain damages or other equitable relief.

8.	General.

(a) Notices. All notices, requests, consents and other communications hereunder shall be in writing, shall be addressed to the receiving party’s address set forth above or to such other address as a party may designate by notice hereunder, and shall be either (i) delivered by hand, (ii) sent by overnight courier, (iii) sent by registered mail, return receipt requested, postage prepaid, or (iv) sent by email. All notices, requests, consents and other communications hereunder shall be deemed to have been given either (A) if by hand, at the time of the delivery thereof to the receiving party at the address of such party set forth above, (B) if by overnight courier, on the next business day following the day such notice is delivered to the courier service, (C) if by registered mail, on the fifth business day following the day such mailing is made, or (D) if by email, upon confirmation of receipt from the receiving party.

(b) Entire Agreement. This Agreement embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof. No statement, representation, warranty, covenant or agreement of any kind not expressly set forth in this Agreement shall affect, or be used to interpret, change or restrict, the express terms and provisions of this Agreement.

(c) Modifications and Amendments. The terms and provisions of this Agreement may be modified or amended only by written agreement executed by the parties hereto.

(d) Assignment. The Company may assign its rights and obligations hereunder to any person or entity that succeeds to all or substantially all of the Company’s business or that aspect of the Company’s business in which you are principally involved. You may not assign your rights and obligations under this Agreement without the prior written consent of the Company and any such attempted assignment by you without the prior written consent of the Company shall be void. You acknowledge and agree that if you should transfer between or among any affiliates of the Company, wherever situated, or be promoted or reassigned to functions other than your present functions, all terms of this Agreement shall continue to apply with full force.

(e) Benefit. All statements, representations, warranties, covenants and agreements in this Agreement shall be binding on the parties hereto and shall inure to the benefit of the respective successors and permitted assigns of each party hereto. Nothing in this Agreement shall be construed to create any rights or obligations except between the Company and you, and no person or entity other than the Company shall be regarded as a third-party beneficiary of this Agreement.

(f) Governing Law; Jurisdiction; Venue; Waiver of Jury Trial. This Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the law of the Commonwealth of Massachusetts, without giving effect to conflict of law principles thereof, and specifically excluding any conflict or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction. Any legal action or proceeding with respect to this Agreement shall be brought in Suffolk County Superior Court, Business Litigation Session, Boston, Massachusetts. By execution and delivery of this Agreement, each of the parties hereto accepts for itself and in respect of its property, generally and unconditionally, the exclusive jurisdiction of the aforesaid courts. ANY ACTION, DEMAND, CLAIM OR COUNTERCLAIM ARISING UNDER OR RELATING TO THIS AGREEMENT SHALL BE RESOLVED BY A JUDGE ALONE AND EACH OF THE COMPANY AND YOU WAIVE ANY RIGHT TO A JURY TRIAL THEREOF.

(g) Severability and Blue Pencil. The parties intend this Agreement to be enforced as written. However, (i) if any portion or provision of this Agreement is to any extent declared illegal or unenforceable by a duly authorized court having jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law; and (ii) if any provision, or part thereof, is held to be unenforceable because of the duration of such provision or the geographic area covered thereby, the court making such determination shall have the power to reduce the duration and/or geographic area of such provision, and/or to delete specific words and phrases (“blue-penciling”), and in its reduced or blue-penciled form such provision shall then be enforceable and shall be enforced.

(h) Survival of Acknowledgements and Agreements. Your acknowledgements and agreements set forth in Sections 1, 2 and 3 shall survive the termination of your provision of services to the Company for any reason or for no reason, pursuant to the terms and conditions herein.

(i) Headings and Captions. The headings and captions of the various subdivisions of this Agreement are for convenience of reference only and shall in no way modify or affect the meaning or construction of any of the terms or provisions hereof.

(j) No Waiver of Rights, Powers and Remedies. The terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by a written document executed by the party entitled to the benefits of such terms or provisions. No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar. Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent. No failure or delay by a party hereto in exercising any right, power or remedy under this Agreement, and no course of dealing between the parties hereto, shall operate as a waiver of any such right, power or remedy of the party. No single or partial exercise of any right, power or remedy under this Agreement by a party hereto, nor any abandonment or discontinuance of steps to enforce any such right, power or remedy, shall preclude such party from any other or further exercise thereof or the exercise of any other right, power or remedy hereunder. The election of any remedy by a party hereto shall not constitute a waiver of the right of such party to pursue other available remedies.

(k) Expenses. Should any party breach this Agreement, in addition to all other remedies available at law or in equity, such party shall pay all of the other party’s costs and expenses resulting therefrom and/or incurred in enforcing this Agreement, including legal fees and expenses.

(l) Counterparts. This Agreement may be executed in two or more counterparts, and by different parties hereto on separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

(m) Acknowledgment; Opportunity to Review. You hereby acknowledge that you have had at minimum ten (10) business days to review the terms and conditions set forth in this Agreement, including the obligations and agreements under Section 2(c), and that you have had the opportunity to consult with counsel of your own choosing regarding such terms. You further acknowledge that you fully understand the terms of this Agreement and have voluntarily executed this Agreement.

If the foregoing accurately sets forth our agreement, please so indicate by signing and returning to us the enclosed copy of this Agreement.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF the Parties have signed this Confidentiality, Non-Competition, Non-Solicitation and Intellectual Property Agreement as of the date signed below.


COMPANY:

YUMANITY THERAPEUTICS

By:		/s/ Ellen K. Forest
		Name: Ellen K. Forest
		Title: Chief Human Resources Officer

Acknowledge and Agreed:

/s/ Ajay Verma
Name: Ajay Verma, M.D., Ph.D.

Date: April 11, 2021

Address: [•••]

EXHIBIT A

LIST OF PRIOR DEVELOPMENTS AND ORIGINAL WORKS OF AUTHORSHIP


Title		Date		Identifying Number or Brief Description

EXHIBIT 10.3

EXHIBIT 10.3 Employment Offer Letter D Smith (redacted)

Execution Copy

May 14, 2021

Mr. Devin W. Smith

(via email: [•••])

Re:

Employment Offer Letter

Dear Devin:

1. Position. Upon joining Yumanity, you will assume the role of Senior Vice President and General Counsel reporting to the CEO. As you progress with Yumanity, your position and assignments may be subject to change, and we expect you to perform the duties and responsibilities that are associated with your position or otherwise as may be assigned to you. This is a full-time position. While you render services to Yumanity, we expect you to devote all of your professional and working time and energies to the business of Yumanity and not engage in any other employment, consulting or other business activity (whether full-time or part-time) without the prior written consent of Yumanity. You agree to abide by all employment polices instituted by Yumanity, as they may be amended from time to time. As stated below, your employment with Yumanity is “at-will,” meaning that your employment may be terminated for any reason, or for no reason, by Yumanity or you at any time.

2. Commencement Date. Subject to the terms hereof, your employment hereunder will commence on June 14, 2021 (the “Commencement Date”).

3. Compensation.

(a) Base Salary. In consideration for your services rendered to Yumanity, your base salary will be $350,000 per year, payable in accordance with Yumanity’s standard payroll schedule and subject to applicable deductions and withholdings. This position is exempt under the Fair Labor Standards Act, meaning that you are not entitled to overtime pay.

(c) Stock Option Grant. You will be eligible to participate in the Company’s equity incentive plan, subject to approval by the Board or Compensation Committee. As a material inducement to becoming an employee of the Company, and subject to approval by the Board or Compensation Committee, the Company will grant you an option to purchase 58,400 shares of the Company’s common stock (“New Hire Award”). The New Hire Award shall vest over four years, with twenty-five percent of the New Hire Award vesting on the one-year anniversary of your start date and the remaining shares vesting in thirty-six equal monthly installments following the one-year anniversary of your start date, subject to your continued employment with the Company. The New Hire Award shall be granted in the form of a non-qualified stock option as an inducement grant consistent with the requirements of Nasdaq Stock Market Rule 5635(c)(4) instead of pursuant to the Company’s existing equity plan. The New Hire Award will be governed by the terms and conditions of an award agreement.

(d) Retention Bonus. Yumanity will pay you a retention bonus in the amount of $88,000, minus applicable deductions and withholdings (the “Retention Bonus”). One quarter of the Retention Bonus (i.e., $22,000) will be paid on the first payroll date following the 6 ,12, 18, and 24 month anniversary of the Commencement Date. You must be employed by Yumanity on the payment date of such Retention Bonus payments in order to be eligible for such Retention Bonus payment.

(e) Periodic Review and Adjustments. Notwithstanding the foregoing, all of your compensation terms will be subject to periodic review and may be modified by Yumanity from time to time in its discretion.

^1/

(ii) (x) if Yumanity is subject to the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) or similar state law, (y) the premium subsidy described below is not illegal or discriminatory under the Code, the Patient Protection and Affordable Care Act or the Health Care and Education Reconciliation Act, and (z) if you properly elect to receive benefits under COBRA, Yumanity will provide you with your COBRA premiums at Yumanity’s normal rate of contribution for employees for your coverage at the level in effect immediately prior to your termination, through the COC Severance Period;

(iii) All of your granted equity that remains unvested as of the termination date automatically will vest as of the date the Separation Agreement is signed and irrevocable, subject to the terms and conditions of the applicable Company equity plan and equity agreements signed by you pursuant thereto; and

(c)

Definitions.

^2/	See Note 1.

(iv) For purposes of this Offer Letter, “Separation” means a “separation from service,” as defined in the regulations under Section 409A of the Code.

13. Tax Matters.

[Signature Page Follows]


Very truly yours,

YUMANITY THERAPEUTICS

By:		/s/ Ellen K. Forest
Name:		Ellen K. Forest
Title:		Chief Human Resources Officer

I have read and accept this employment offer:

/s/ Devin Smith

Signature of Employee

Dated: / May 14, 2021/

Attachments


Exhibit A:		Employee Confidentiality, Non-Competition, Non-Solicitation and Intellectual Property Agreement

Exhibit B:		Form I-9

Exhibit A

May 14, 2021

Mr. Devin W. Smith

(via email: [•••])

Re: Confidentiality, Non-Competition, Non-Solicitation and Intellectual Property Agreement

Dear Devin:

1.	Confidentiality.

^3/

2.	Prohibited Competition and Solicitation.

(b) Definitions.

(v) Material Breach. You acknowledge and agree that a breach of any provision of this Section 2(c) is a material breach of this Agreement.

(d) Non-Solicitation Restriction.

(e) Tolling. You acknowledge and agree that the Non-Solicitation Period shall be tolled and shall not run, during any period in which you are in violation of the terms herein.

3.	Developments.

4.	Disclosure to Future Employers.

5.	Your Representations and Warranties.

6.	Provisions Necessary and Reasonable; Injunctive Relief.

8.	General.

(c) Modifications and Amendments. The terms and provisions of this Agreement may be modified or amended only by written agreement executed by the parties hereto.

If the foregoing accurately sets forth our agreement, please so indicate by signing and returning to us the enclosed copy of this Agreement.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF the Parties have signed this Confidentiality, Non-Competition, Non-Solicitation and Intellectual Property Agreement as of the date signed below.


COMPANY:

YUMANITY THERAPEUTICS

By:	/s/ Ellen K. Forest
	Name:	Ellen K. Forest
	Title:	Chief Human Resources Officer


Acknowledge and Agreed:

/s/ Devin Smith
Name: Devin W. Smith

Date: May 14, 2021

Address: [•••]

EXHIBIT A

LIST OF PRIOR DEVELOPMENTS AND ORIGINAL WORKS OF AUTHORSHIP


Title		Date		Identifying Number or Brief Description

Exhibit 31.1

Certification Pursuant to Rule 13a-14(a)/15d-14(a)

of the Securities Exchange Act of 1934

I, Richard Peters, M.D, Ph.D., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Yumanity Therapeutics, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Exhibit 31.2

Certification Pursuant to Rule 13a-14(a)/15d-14(a)

of the Securities Exchange Act of 1934

I, Paulash Mohsen, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Yumanity Therapeutics, Inc.;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Exhibit 32.1

Certification Pursuant to

18 U.S.C. Section 1350

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Yumanity Therapeutics, Inc. (the “Company”) for the period ending June 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company hereby certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to the best of his knowledge:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date: August 12, 2021						/s/ Richard Peters
						Richard Peters
						President and Chief Executive Officer (Principal Executive Officer)

Date: August 12, 2021						/s/ Paulash Mohsen
						Paulash Mohsen
						Chief Business Officer (Principal Financial Officer)