SEC Filing – Angion

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angn-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________________

FORM 10-Q

_____________________________________________


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

For the quarterly period ended March 31, 2022


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

For the transition period from to

Commission file number 001-39990

ANGION BIOMEDICA CORP

(Exact name of registrant as specified in its charter)


Delaware									11-3430072
(State or other jurisdiction of incorporation or organization)									(I.R.S. Employer Identification No.)

51 Charles Lindbergh Boulevard Uniondale, New York									11553
(Address of Principal Executive Offices)									(Zip Code)

(415) 655-4899

Registrant's telephone number, including area code

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 $0.01	ANGN	The Nasdaq Global Select 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 and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

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

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

The number of shares of the issuer’s common stock outstanding as of May 13, 2022 was 29,958,840.


TABLE OF CONTENTS

PART I FINANCIAL INFORMATION			Page
Item 1. Financial Statements			5
Condensed Consolidated Balance Sheets (unaudited)			5
Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited)			6
Condensed Consolidated Statements of Stockholders' Equity (Deficit) (unaudited)			7
Condensed Consolidated Statements of Cash Flows (unaudited)			8
Notes to Unaudited Interim Condensed Consolidated Financial Statements			9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			26
Item 3. Quantitative and Qualitative Disclosures			35
Item 4. Controls and Procedures			35
PART II OTHER INFORMATION
Item 1. Legal Proceedings			37
Item 1A. Risk Factors			37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			70
Item 3. Defaults Upon Senior Securities			70
Item 4. Mine Safety Disclosures			70
Item 5. Other Information			70
Item 6. Exhibits			71
Signatures			72

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Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Any statements contained in this Quarterly Report on Form 10-Q that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would,” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

•the potential benefits, activity, effectiveness and safety of our product candidates;

•the success and timing of our preclinical studies and clinical trials, including the timing and availability of data from such clinical trials;

•the primary endpoints to be utilized in our clinical trials;

•the scope, progress, expansion, and costs of developing and commercializing our product candidates;

•our dependence on existing and future collaborators for commercializing product candidates in the collaboration;

•our receipt and timing of any milestone payments or royalties under any existing or future research collaboration and license agreements or arrangements;

•the potential effects of the COVID-19 pandemic on our business and operations, results of operations and financial performance;

•the potential adverse effects of any regional armed conflicts on our business and operations, results of operations and financial performance;

•the size and growth of the potential markets for our product candidates and the ability to serve those markets;

•our expectations regarding our expenses and revenue, the sufficiency of our cash resources, and needs for additional financing;

•regulatory developments in the United States and other countries;

•the rate and degree of market acceptance of any future products;

•the implementation of our business model and strategic plans for our business and product candidates, including additional indications which we may pursue;

•our expectations regarding competition;

•our anticipated growth strategies;

•the performance of third-party manufacturers;

•our ability to establish and maintain development partnerships;

•our expectations regarding federal, state, and foreign regulatory requirements;

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

•the successful development for our sales and marketing capabilities;

•the hiring and retention of key scientific or management personnel; and

•the anticipated trends and challenges in our business and the market in which we operate.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We discuss these risks in greater detail in “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

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This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business and the markets for certain drugs, including data regarding the estimated size of those markets, their projected growth rates and the incidence of certain medical conditions. Information that is based on estimates, forecasts, projections or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by third parties, industry, medical and general publications, government data and similar sources. In some cases, we do not expressly refer to the sources from which this data is derived. In that regard, when we refer to one or more sources of this type of data in any paragraph, you should assume that other data of this type appearing in the same paragraph is derived from the same sources, unless otherwise expressly stated or the context otherwise requires.

Trademarks

This Quarterly Report on Form 10-Q includes trademarks, service marks and trade names owned by us or other companies. All trademarks, service marks and trade names included in this Quarterly Report on Form 10-Q are the property of their respective owners.

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Part I FINANCIAL INFORMATION

Item 1. Financial Statements

ANGION BIOMEDICA CORP.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(unaudited)


	March 31, 2022		December 31, 2021
Assets
Current assets
Cash and cash equivalents	$	73,002	$	88,756
Grants receivable	—		806
Prepaid expenses and other current assets	3,237		1,685
Total current assets	76,239		91,247
Property and equipment, net	419		451
Operating lease right-of-use assets	3,790		3,986
Investments in related parties	732		723
Other assets	78		106
Total assets	$	81,258	$	96,513
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	3,433	$	4,710
Accrued expenses	5,242		3,219
Operating lease liabilities, current	918		894
Financing obligation, current	60		58
Deferred revenue, current	653		2,301
Warrant liability	75		114
Total current liabilities	10,381		11,296
Operating lease liabilities, noncurrent	3,236		3,475
Financing obligation, noncurrent	219		235
Other liabilities, noncurrent	220		—


Total liabilities	14,056		15,006
Commitments and contingencies (Note 9)
Stockholders' equity


Common stock, $0.01 par value per share; 300,000,000 and 300,000,000 shares authorized, 29,959,425 and 29,959,060 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively	300		300

Additional paid-in capital	296,476		296,445
Accumulated other comprehensive loss	(199)		(103)
Accumulated deficit	(229,375)		(215,135)
Total stockholders' equity	67,202		81,507
Total liabilities and stockholders' equity	$	81,258	$	96,513

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

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ANGION BIOMEDICA CORP.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

(unaudited)


	Three Months Ended March 31,
	2022		2021
Revenue:
Contract revenue	$	1,648	$	371

Total revenue	1,648		371
Operating expenses:


Research and development	11,667		14,298
General and administrative	4,466		6,012
Total operating expenses	16,133		20,310
Loss from operations	(14,485)		(19,939)
Other income (expense)
Change in fair value of warrant liability	39		(3,519)
Change in fair value of convertible notes	—		(7,469)
Change in fair value of Series C convertible preferred stock	—		(3,592)

Foreign exchange transaction (loss) gain	111		(53)
Earnings from equity method investment	9		55
Interest income (expense), net	86		(2,170)
Total other income (expense)	245		(16,748)
Net loss	(14,240)		(36,687)
Other comprehensive income:
Foreign currency translation adjustment	(96)		46
Comprehensive loss	$	(14,336)	$	(36,641)
Net loss per common share, basic and diluted	$	(0.48)	$	(1.56)
Weighted average common shares outstanding, basic and diluted	29,959,251		23,443,851

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

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ANGION BIOMEDICA CORP.

Condensed Consolidated Statements of Stockholders' Equity (Deficit)

(in thousands, except share amounts)

(unaudited)


	Common Stock			Treasury Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount		Shares	Amount
Balance as of December 31, 2021	29,959,060	$	300	—	$	—	$	296,445	$	(103)	$	(215,135)	$	81,507


Issuance of common stock upon net settlement of restricted stock units and performance stock units	365	—		—	—		—		—		—		—
Stock-based compensation	—	—		—	—		31				—		31
Foreign currency translation adjustment	—	—		—	—		—		(96)		—		(96)
Net loss	—	—		—	—		—		—		(14,240)		(14,240)
Balance as of March 31, 2022	29,959,425	$	300	—	$	—	$	296,476	$	(199)	$	(229,375)	$	67,202


	Common Stock			Treasury Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders' Equity (Deficit)
	Shares	Amount		Shares	Amount
Balance as of December 31, 2020	15,632,809	$	156	(316,088)	$	(1,846)	$	72,136	$	(333)	$	(160,562)	$	(90,449)
Issuance of common stock upon initial public offering, net of issuance costs, discount, and commissions of $9.3 million	5,750,000	58		—	—		82,657		—		—		82,715
Issuance of common stock upon Concurrent Private Placement, net of issuance costs of $0.7 million	1,562,500	16		—	—		24,234		—		—		24,250
Conversion of convertible preferred stock into common stock upon initial public offering	2,234,640	22		—	—		35,732		—		—		35,754
Conversion of convertible notes into common stock upon initial public offering	3,636,189	36		—	—		58,143		—		—		58,179
Conversion of convertible notes prior to initial public offering	33,978	—		—	—		460		—		—		460
Net exercise of warrants upon initial public offering	844,335	9		—	—		13,500		—		—		13,509
Exercise of broker warrants	47,188	—		—	—		—		—		—		—
Exercise of warrants	107,038	1		—	—		679		—		—		680
Exercise of stock options	155	—		—	—		1		—		—		1
Issuance of common stock upon vesting of restricted stock units and performance stock units	204,774	2		—	—		11		—		—		13
Return of common stock to pay withholding taxes on restricted stock	—	—		(77,060)	(1,145)		—		—		—		(1,145)
Stock-based compensation	—	—		—	—		5,117		—		—		5,117
Foreign currency translation adjustment	—	—		—	—		—		46		—		46
Net loss	—	—		—	—		—		—		(36,687)		(36,687)
Balance as of March 31, 2021	30,053,606	$	300	(393,148)	$	(2,991)	$	292,670	$	(287)	$	(197,249)	$	92,443

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

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ANGION BIOMEDICA CORP.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities:
Net loss	$	(14,240)	$	(36,687)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	32		6
Amortization of right-of-use assets	196		149
Amortization of debt issuance costs	—		1,884
Stock-based compensation	31		5,117

Change in fair value of convertible notes	—		7,469
Change in fair value of Series C convertible preferred stock	—		3,592
Change in fair value of warrant liability	(39)		3,519
Earnings from equity method investment	(9)		(67)
Distribution from equity investment	—		12
Changes in operating assets and liabilities:
Grants receivable	806		—
Prepaid expenses and other current assets	(1,515)		2,667
Other assets	28		(38)
Accounts payable	(1,323)		1,112
Accrued expenses	2,023		(769)
Lease liabilities	(215)		(146)

Deferred revenue	(1,648)		(371)
Other liabilities, noncurrent	220		—
Net cash used in operating activities	(15,653)		(12,551)
Cash flows from investing activities:
Purchases of fixed assets	—		(41)
Net cash used in investing activities	—		(41)
Cash flows from financing activities:
Net proceeds from issuance of common stock upon initial public offering and Concurrent Private Placement, net of discount and commissions	—		110,560
Payment of deferred offering costs	—		(1,665)

Taxes paid related to net share settlement upon vesting of restricted stock awards	—		(1,145)
Proceeds from RSU settlement	—		13
Payment of financing obligation	(14)		—
Exercise of warrants	—		680
Exercise of stock options	—		1
Net cash provided by (used in) financing activities	(14)		108,444
Effect of foreign currency on cash	(87)		(3)
Net increase (decrease) in cash and cash equivalents	(15,754)		95,849
Cash and cash equivalents at the beginning of the period	88,756		34,607
Cash and cash equivalents at the end of the period	$	73,002	$	130,456
Supplemental disclosure of noncash investing and financing activities:
Conversion of convertible notes into common stock upon initial public offering	$	—	$	58,179
Conversion of Series C preferred stock into common stock upon initial public offering	$	—	$	35,754
Net exercise of warrants upon initial public offering	$	—	$	13,509
Right-of-use assets obtained in exchange for operating lease liabilities	$	—	$	618
Conversion of convertible notes into common stock prior to initial public offering	$	—	$	460
Deferred offering costs in accrued expenses or accounts payable	$	—	$	1,408
Fixed assets purchased in accrued expenses or accounts payable	$	—	$	55

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

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ANGION BIOMEDICA CORP.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

Note 1—Description of the Business and Financial Condition

Angion Biomedica Corp. (“Angion” or, the “Company”) is a clinical biopharmaceutical company focused on the discovery, development and commercialization of novel small molecule therapeutics to address acute organ injuries and fibrotic diseases. The Company was incorporated in Delaware in 1998.

Initial Public Offering and the Concurrent Private Placement

On February 9, 2021, the Company’s registration statement on Form S-1 (File No. 333-252177) relating to its initial public offering (“IPO”) of common stock became effective. The IPO closed on February 9, 2021 at which time the Company issued 5,750,000 shares of its common stock at a price to the public of $16.00 per share, which included the full exercise by the underwriters of their option to purchase an additional 750,000 shares of common stock. In addition to the shares being sold in the IPO, the Company sold an additional 1,562,500 shares of its common stock at the public offering price of $16.00 per share to entities affiliated with Vifor International, Ltd., an existing stockholder (the “Concurrent Private Placement”) for gross proceeds of $25.0 million.

The IPO and Concurrent Private Placement generated aggregate net proceeds of approximately $107.0 million, after deducting the underwriting discounts and commissions, private placement fee and offering expenses payable by the Company.

In connection with the closing of the IPO, all outstanding shares of convertible preferred stock and outstanding convertible notes automatically converted into shares of common stock. Subsequent to the closing of the IPO, there were no shares of convertible preferred stock outstanding and there were no convertible notes outstanding. In connection with the closing of the IPO, the Company restated its Restated Certificate of Incorporation to change the authorized capital stock to 300,000,000 shares designated as common stock, and 10,000,000 shares designated as preferred stock, with a par value of $0.01 per share and $0.01 per share, respectively.

Reduction in Force

On January 4, 2022, the Company announced a reduction in force impacting somewhat less than half of its employees. The Company’s decision to engage in this reduction resulted from an assessment of its internal resources needs, given the results of the Phase 3 study of ANG-3777 in patients at risk for delayed graft function (DGF) would likely not support a regulatory approval in that population and the Phase 2 study in CSA-AKI would not support a Phase 3 trial in that indication. This reduction was a cost-cutting measure across the organization to support the Company’s 2022 primary focus on the clinical development of its investigational asset ANG-3070, a highly selective, oral tyrosine kinase receptor inhibitor in development as a treatment for fibrotic diseases, particularly in the kidney and lung, as well as advancing preclinical assets to IND-enabling studies. In connection with the reduction in force, the Company incurred termination costs, which include severance, benefits, and related costs of approximately $3.2 million, of which $2.7 million was research and development expense and $0.5 million was general and administrative expense. The Company paid $1.1 million during the three months ended March 31, 2022 and expects to pay the remaining $2.1 million, of which $1.9 million is included in accrued expenses, and $0.2 million is included in other liabilities, noncurrent, on or before September 2023.

Liquidity and Capital Resources

Since inception, the Company has devoted substantially all of its efforts and financial resources to conducting research and development activities, including drug discovery and pre-clinical studies and clinical trials, establishing and maintaining its intellectual property portfolio, organizing and staffing the Company, business planning, raising capital and providing general and administrative support for these operations. The Company has incurred losses from operations and negative cash flows from operating activities since inception and expects to continue to incur substantial losses for the next several years as it continues to fully develop and, if approved, commercialize its product candidates. As of March 31, 2022, the Company had $73.0 million in cash and cash equivalents and an accumulated deficit of $229.4 million.

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ANGION BIOMEDICA CORP.

Notes to Consolidated Financial Statements (Continued)

The planned expansion of the Company's clinical and discovery programs will require significant funds. Management expects to continue to incur significant expenses and to incur operating losses for the foreseeable future. The Company has evaluated and concluded there are no conditions or events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern for a period of one year following the date these condensed consolidated financial statements are issued and believes its existing cash and cash equivalents will be sufficient to meet the projected operating requirements well into 2023.

Note 2—Summary of Significant Accounting Policies

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”) and include the accounts of the Company, its wholly owned subsidiary, Angion Biomedica Europe Limited, which was dissolved on March 16, 2021, and its wholly owned subsidiary, Angion Pty Ltd., which was established on August 22, 2019. The Company established Angion Pty Ltd., an Australian subsidiary, for the purpose of qualifying for research credits for studies conducted in Australia. All significant intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts reported in our condensed consolidated financial statements and accompanying notes have been reclassified to conform to the current period presentation.

The Company’s remaining significant accounting policies are described in Note 2 to its consolidated financial statements for the year ended December 31, 2021, included in its Annual Report on Form 10-K. There have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2022.

Unaudited Interim Financial Information

The condensed consolidated financial statements of the Company included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The interim unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements as of and for the year ended December 31, 2021 and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s consolidated financial position, results of operations and comprehensive loss, and cash flows. The condensed consolidated balance sheet as of December 31, 2021 was derived from the audited financial statements as of that date. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this Quarterly Report, as is permitted by such rules and regulations. Accordingly, these condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K as filed with the SEC on March 30, 2022. The results for any interim period are not necessarily indicative of results for any future period.

Segments

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker (“CODM”) in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business as one operating segment.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, management evaluates its estimates, including those related to the useful lives of long-lived assets, the measurement of stock-based compensation, accruals for research and development activities, income taxes and revenue recognition. The Company bases its estimates on historical experience and on other relevant assumptions that are reasonable under the circumstances. Actual results could materially differ from those estimates.

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ANGION BIOMEDICA CORP.

Notes to Consolidated Financial Statements (Continued)

Concentrations of Credit Risk and Off-Balance Sheet Risk

Cash and cash equivalents are financial instruments potentially subject to concentrations of credit risk. The Company's cash and cash equivalents are deposited in accounts at large financial institutions, and amounts may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to significant risk on its cash balances due to the financial position of the depository institution in which those deposits are held.

Additionally, the Company established guidelines regarding approved investments and maturities of investments, which are designed to maintain safety and liquidity.

The Company maintains its cash equivalents in securities and money market funds with original maturities less than three months.

The Company has no financial instruments with off-balance sheet risk of loss.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. As of March 31, 2022 and December 31, 2021, the Company’s cash equivalents were held in institutions in the United States and include deposits in a money market fund which were unrestricted as to withdrawal or use.

Fair Value Measurement

Certain assets and liabilities are carried at fair value under GAAP. Fair value is determined using the principles of ASC 820, Fair Value Measurement. Fair value is described as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes and defines the inputs to valuation techniques as follows:

Level 1: Observable inputs such as quoted prices in active markets.

Level 2: Inputs are observable for the asset or liability either directly or through corroboration with observable market data.

Level 3: Unobservable inputs.

The inputs used to measure the fair value of an asset or a liability are categorized within levels of the fair value hierarchy. The fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the measurement.

The Company's cash and cash equivalents, accounts payable and accrued expenses are carried at cost, which approximates fair value due to the short-term nature of these instruments.

Revenue

The Company does not have any products approved for sale and has not generated any revenue from product sales. The Company’s revenue to date has been primarily derived from government funding consisting of U.S. government grants and contracts and revenue under its license agreements.

Contract Revenue

The Company accounts for revenue earned from contracts with customers under Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”). Under ASC 606, the Company recognizes revenue when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements within the scope of ASC 606, the Company performs the following five steps:

(1) Identify the contract(s) with a customer;

(2) Identify the performance obligations in the contract;

(3) Determine the transaction price;

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ANGION BIOMEDICA CORP.

Notes to Consolidated Financial Statements (Continued)

(4) Allocate the transaction price to the performance obligations in the contract; and

(5) Recognize revenue when (or as) the Company satisfies a performance obligation.

At contract inception, the Company assesses the goods or services promised within each contract, whether each promised good or service is distinct, and determines those that are performance obligations. The Company then recognizes as revenue the amount of the transaction price allocated to the respective performance obligation when or as the performance obligation is satisfied.

The Company enters into agreements under which it may obtain upfront payments, milestone payments, royalty payments and other fees. Promises under these arrangements may include research licenses, research services, including selection campaign research services for certain replacement targets, the obligation to share information during the research and the participation of alliance managers and in joint research committees, joint patent committees and joint steering committees. The Company assesses these promises within the context of the agreements to determine the performance obligations.

Licenses of Intellectual Property: If a license to its intellectual property is determined to be distinct from the other promises or performance obligations identified in the arrangement, the Company recognizes revenue from non-refundable, upfront fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring proportional performance for purposes of recognizing revenue from non-refundable, upfront payments. The Company evaluates the measure of proportional performance each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Milestone payments: The Company evaluates the probability of whether regulatory and development milestones will be reached and estimates the amounts to be included in the transaction price using the most likely amount method. The Company evaluates factors such as the scientific, clinical, regulatory, commercial and other risks that must be overcome to achieve the particular milestone in making this assessment. If it is probable a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. At the end of each reporting period, the Company re-evaluates the probability of achievement of milestones and any related constraint, and if necessary, adjust the estimate of the overall transaction price.

Sales-based milestones and royalties: For sales-based royalties, including milestone payments based on the level of sales, the Company determines whether the sole or predominant item to which the royalties relate is a license. When the license is the sole or predominant item to which the sales-based royalty relates, the Company recognize revenue at the later of: (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any sales-based royalty revenue resulting from any license agreement.

Deferred revenue, which is a contract liability, represents amounts received by the Company for which the related revenues have not been recognized because one or more of the revenue recognition criteria have not been met. The current portion of deferred revenue represents the amount expected to be recognized within one year from the consolidated balance sheet date based on the estimated performance period of the underlying performance obligation. The noncurrent portion of deferred revenue represents amounts expected to be recognized after one year from the condensed consolidated balance sheet date through the end of the performance period of the performance obligation.

Grant Revenue

The Company concluded the Company's government grants are not within the scope of ASC Topic 606 as they do not meet the definition of a contract with a customer. The Company has concluded the grants meet the definition of a contribution and are non-reciprocal transactions, and has also concluded Subtopic 958-605, Not-for-Profit-Entities-Revenue Recognition, does not apply, as the Company is a business entity and the grants are with governmental agencies.

In the absence of applicable guidance under GAAP, the Company developed a policy recognizing grant revenue when the allowable costs are incurred and the right to payment is realized.

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ANGION BIOMEDICA CORP.

Notes to Consolidated Financial Statements (Continued)

The Company believes this policy is consistent with the overarching premise in ASC Topic 606, to ensure revenue recognition reflects the transfer of promised goods or services to customers in an amount reflecting the consideration the Company expects to be entitled to in exchange for those goods or services, even though there is no exchange as defined in ASC Topic 606. The Company believes the recognition of revenue as costs are incurred and amounts become realizable is analogous to the concept of transfer of control of a service over time under ASC Topic 606.

Research and Development

Research and development costs include, but are not limited to, payroll and personnel expenses, laboratory supplies, preclinical studies, compound manufacturing costs, consulting costs and allocated overhead, including rent, equipment, depreciation and utilities. Research and development costs may be offset by research and development refundable tax rebates received by our wholly-owned Australian subsidiary.

The Company has agreements with various Contract Research Organizations (“CROs") and third-party vendors. Research and development accruals of amounts due to the CRO are estimated based on the level of services performed, progress of the studies, including the phase or completion of events, and contracted costs. The estimated costs of research and development provided, but not yet invoiced, are included in accrued expenses on the condensed consolidated balance sheet. Payments made to CROs under such arrangements in advance of the performance of the related services are recorded as prepaid expenses and other current assets until the services are rendered. The Company makes judgments and estimates in determining the accrued expenses balance in each reporting period. As actual costs become known, the Company adjusts its accrued expenses. For the three months ended March 31, 2022 and 2021, the Company has not experienced any material differences between accrued costs and actual costs incurred.

Advertising Costs

Advertising costs are expensed as incurred. For the three months ended March 31, 2022 and 2021, advertising costs were not material.

Net Loss Per Share

Basic net loss per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted net loss per share excludes the potential impact of common stock options, warrants and unvested shares of restricted stock and restricted stock units because their effect would be anti-dilutive due to the Company's net loss. Since the Company had net losses for the three months ended March 31, 2022 and 2021, basic and diluted net loss per common share are the same.

Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments (ASU No. 2016-13), which requires an entity to utilize a new impairment model known as the current expected credit loss (“CECL”) model to estimate its lifetime “expected credit loss” and record an allowance that, when deducted from the amortized cost basis of the financial assets and certain other instruments, including but not limited to, available-for-sale debt securities. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down to the security. As an emerging growth company, ASU No. 2016-13 is effective for the Company for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact of the adoption of ASU No. 2016-13 on its condensed consolidated financial statements.

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ANGION BIOMEDICA CORP.

Notes to Consolidated Financial Statements (Continued)

Note 3—Revenue and Deferred Revenue

Contract Revenue

The Company’s contract revenue has been generated from payments received pursuant to a license agreement (the “Vifor License”) with Vifor International, Ltd. (“Vifor Pharma”), with headquarters located in Switzerland. The Company recognized revenue from upfront payments over the term of its estimated period of performance using a cost-based input method under Topic 606. The Company expects to continue recognizing revenue from upfront payments related to the Vifor License using the cost-based input method.

Vifor License Agreement

In November 2020, the Company entered into a license agreement with Vifor Pharma, granting Vifor Pharma global rights (excluding China, Taiwan, Hong Kong and Macau) to develop, manufacture and commercialize ANG-3777 in all therapeutic, prophylactic and diagnostic uses for renal indications, including forms of acute kidney injury (AKI), and congestive heart failure (collectively, the Renal Indications). Pursuant to the Vifor License, the Company received $60.0 million in upfront and equity payments, including $30.0 million in up-front cash received in November 2020, and a $30.0 million equity investment, $5.0 million of which was a convertible note that subsequently converted into common stock with the IPO and $25.0 million of which was received in the Concurrent Private Placement with the Company’s IPO. The Company is also eligible to receive post-approval milestones of up to approximately $260.0 million and sales-related milestones of up to $1.585 billion, providing a total potential deal value of up to $1.905 billion (subject to certain specified reductions and offsets), plus tiered royalties on net sales of ANG-3777 at royalty rates of up to 40%. Under the Vifor License, the Company is responsible for executing a pre-specified clinical development plan designed to obtain regulatory approvals of ANG-3777 for delayed graft function (DGF) and AKI associated with cardiac surgery involving cardiopulmonary bypass (CSA-AKI). Based on the ANG-3777 clinical trial data disclosed in the fourth quarter of 2021, the Company does not expect to receive any additional clinical, post-approval, or sales milestones, or royalties, as it does not intend to continue to pursue the clinical development plan for ANG-3777 set forth in the Vifor License.

On October 26, 2021, the Company announced that its Phase 3 trial of ANG-3777 in DGF did not achieve its primary endpoint and the data from the Phase 3 trial was not expected to provide sufficient evidence to support an indication in the studied DGF population. On December 9, 2021, the Company announced its Phase 2 trial of ANG-3777 in CSA-AKI did not achieve its primary endpoint and the data from the Phase 2 trial was not expected to provide sufficient evidence to support a Phase 3 trial in the studied CSA-AKI population. Angion and Vifor continue to analyze data from the CSA-AKI trial. The Company does not intend to continue the clinical development plan for ANG-3777 set forth in the Vifor License, which had included a Phase 3 study in CSA-AKI and a Phase 4 confirmatory study in DGF. Based on the ANG-3777 clinical trial data disclosed in the fourth quarter of 2021, the Company does not expect to receive any additional clinical, post-approval, or sales milestones, or royalties, as it does not intend to continue to pursue the current clinical development plan for ANG-3777 set forth in the Vifor License. In 2022, the Company and Vifor Pharma continue to work to complete the planned analyses of the results of the clinical trials announced in the fourth quarter of 2021 and to discuss the future of the collaboration based upon such analyses.

Vifor Pharma may terminate the Vifor License at its sole discretion upon the earlier of (i) the acceptance for filing of an NDA covering products incorporating ANG-3777 filed with the FDA (after completion of the relevant Phase 3 clinical trial for such products), or (ii) the third anniversary of the effective date of the Vifor License. Both the Company and Vifor Pharma may terminate the Vifor License in its entirety if the other is in material breach of the Vifor License and has not cured the breach (if curable) within 60 days, or 90 days for incurable breach. In certain circumstances, in the event of the Company’s material breach of the Vifor License, Vifor Pharma may terminate the Vifor License with respect to certain major markets. In addition, both parties have the right to terminate the Vifor License upon insolvency of the other party.

The Company identified the following performance obligations in the Vifor License based upon the clinical development plan for ANG-3777: (1) the global license (excluding greater China), (2) the development services, including the clinical development services including a post-approval confirmatory study, the technical development services and regulatory services and (3) the required participation on Joint Committees for coordination and oversight. The Company determined that the license is not capable of being distinct due to the specialized nature of the development services to be provided by the Company, and, accordingly, this promise was combined with the development services and participation in the joint committees as one single performance obligation.

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ANGION BIOMEDICA CORP.

Notes to Consolidated Financial Statements (Continued)

In order to determine the transaction price, the Company evaluated all the payments to be received during the duration of the contract. Certain milestones and additional fees were considered variable consideration, which were not included in the transaction price at contract inception. The Company determined the transaction price at the inception of the Vifor License was $15.0 million, which represents 50% of the $30.0 million upfront payment due to the potential setoff defined in the contract. The Company will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.

Based on the ANG-3777 clinical trial data disclosed in the fourth quarter of 2021 and the Company’s decision to discontinue the current clinical development plan for ANG-3777 DGF as described above, the Company adjusted the transaction price to include an additional $15.0 million in previously constrained variable consideration. The Company also reassessed the performance period as the Company is currently closing out the planned analyses from both trials. The Company plans to fully conclude these analyses by the end of December 2022 and complete its performance obligation under the Vifor License. As a result, the Company revised the total estimated costs for completion of the performance obligation to reflect the winding down of ANG-3777-related studies by December 2022.

Using the cost-based input method, the Company recognizes revenue based on actual costs incurred as a percentage of total estimated costs as the Company completes its performance obligation. The cumulative effect of revisions to estimated costs to complete the Company’s performance obligation will be recorded in the period in which changes are identified and amounts can be reasonably estimated. These actual costs consist primarily of internal full time equivalent (FTE) efforts and third-party contract costs related to the Vifor License.

For the three months ended March 31, 2022 and 2021, the Company recognized contract revenue related to the Vifor License of $1.6 million and $0.4 million, respectively. As of March 31, 2022 and December 31, 2021, $0.7 million and $2.3 million, respectively, was recorded as deferred revenue, current, on the condensed consolidated balance sheets related to the Vifor License.

Note 4—Fair Value Measurements

The following tables present the Company's financial assets and liabilities measured at fair value on a recurring basis and their assigned levels within the fair value hierarchy (in thousands):


	March 31, 2022
	Level 1		Level 2		Level 3		Total
Money market funds(1)	$	70,843	$	—	$	—	$	70,843
Total assets	$	70,843	$	—	$	—	$	70,843
Warrant liabilities	$	—	$	—	$	75	$	75
Total liabilities	$	—	$	—	$	75	$	75


	December 31, 2021
	Level 1		Level 2		Level 3		Total
Money market funds(1)	$	87,252	$	—	$	—	$	87,252
Total assets	$	87,252	$	—	$	—	$	87,252
Warrant liabilities	—		—		114		114
Total liabilities	$	—	$	—	$	114	$	114

_________________

(1) Included in cash and cash equivalents on the condensed consolidated balance sheets. This balance includes cash requirements settled on a nightly basis.

There were no transfers made among the three levels in the fair value hierarchy during periods presented.

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ANGION BIOMEDICA CORP.

Notes to Consolidated Financial Statements (Continued)

The following table presents a summary of changes in the fair value of the Company’s common stock warrant liability (in thousands):


	March 31, 2022		December 31, 2021
Balance, beginning of the period	$	114	$	10,704
Net exercise of warrants	—		(13,509)
Change in fair value	(39)		2,919
Balance, end of the period	$	75	$	114

The fair value of the warrants issued by the Company has been estimated using a variant of the Black Scholes option pricing model. The underlying equity included in the Black Scholes option pricing model was valued based on the equity value implied from sales of preferred and common stock at each measurement date. The fair value of the warrants was impacted by the model selected as well as assumptions surrounding unobservable inputs including the underlying equity value, expected volatility of the underlying equity, risk free interest rate and the expected term.

The Company records the change in the fair value of common stock warrants in change in fair value of warrant liability in the condensed consolidated statements of operations.

The fair value of the common stock warrant liability was estimated using the following assumptions:


	March 31, 2022	December 31, 2021
Weighted average strike price	$7.60	$7.60
Contractual term (years)	6.4	6.7
Volatility (annual)	119.0%	124.0%
Risk-free rate	2.4%	1.4%
Dividend yield (per share)	0.0%	0.0%

Note 5—Balance Sheet Components

Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):


	March 31, 2022		December 31, 2021
Equipment	$	866	$	866
Furniture and fixtures	34		34
Leasehold improvements	68		68
Total property and equipment	968		968
Less: accumulated depreciation	(549)		(517)
Property and equipment, net	$	419	$	451

Depreciation expense for each of the three months ended March 31, 2022 and 2021 was immaterial.

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ANGION BIOMEDICA CORP.

Notes to Consolidated Financial Statements (Continued)

Prepaid and Other Current Assets

Prepaid and other current assets consisted of the following (in thousands):


	March 31, 2022		December 31, 2021
Angion Pty tax credit receivable	$	21	$	781

Prepaid insurance	2,625		275
Security deposit	131		131
Other	460		498
Total prepaid and other current assets	$	3,237	$	1,685

Accrued Expenses

Accrued expenses consisted of the following (in thousands):


	March 31, 2022		December 31, 2021
Accrued compensation	$	1,250	$	2,023
Accrued restructuring	1,899		—
Accrued direct research costs	1,642		764
Accrued operating expenses	451		432
Total accrued expenses	$	5,242	$	3,219

Note 6—Stockholders' Equity

Common Stock

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are not entitled to receive dividends, unless declared by the board of directors.

Note 7—Stock-Based Compensation

2015 Plan

In June 2019, the Company approved an Amended and Restated 2015 Equity Incentive Plan (the “2015 Plan”) permitting the granting of incentive stock options, non-statutory stock options, restricted stock and other stock-based awards. Following the effectiveness of the 2021 Equity Incentive Plan (“2021 Plan”), the Company ceased making grants under the 2015 Plan. However, the 2015 Plan continues to govern the terms and conditions of the outstanding awards granted under it. Shares of common stock subject to awards granted under the 2015 Plan that cease to be subject to such awards by forfeiture or otherwise after the termination of the 2015 Plan will be available for issuance under the 2021 Plan.

2021 Plan

On January 25, 2021, the Company's board of directors approved the 2021 Plan which permits the granting of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards to employees, directors, officers and consultants. On January 25, 2021, shares of common stock equal to 11% of the post-IPO capitalization were authorized for issuance under the 2021 Plan. The 2021 Plan provides that the number of shares reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2022, by the lesser of 5% of the Company’s common stock outstanding on the immediately preceding December 31, or such lesser number of shares as determined by the Company’s board of directors.

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ANGION BIOMEDICA CORP.

Notes to Consolidated Financial Statements (Continued)

Stock Options

The fair value of each employee and non-employee stock option grant was estimated on the date of grant using the Black-Scholes option-pricing model based on the following assumptions:


	Three Months Ended March 31,
	2022	2021
Risk-free interest rate	1.7%	0.7%
Expected dividend yield	0.0%	0.0%
Expected term in years	5.9	6.0
Expected volatility	71.8%-72.5%	73.8%-86.8%

Each of these inputs is subjective and generally requires significant judgment.

Expected Term—The expected term represents the period the Company’s stock-based awards are expected to be outstanding and is determined using the simplified method, which is based on the mid-point between the contractual term and vesting period.

Volatility—The Company determines volatility based on the historical volatilities of comparable publicly traded life science companies over a period equal to the expected term because it does not have sufficient trading history for its common stock price. The comparable companies were chosen based on the similar size, stage in the life cycle, or area of specialty. The Company will continue to apply this process until a sufficient amount of historical information regarding volatility on its own stock becomes available.

Risk-Free Interest Rate—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.

Dividend Yield—The Company has never paid and has no plans to pay any dividends on its common stock. Therefore, the Company has used an expected dividend yield of zero.

Fair Value of Common Stock—For periods prior to the IPO, the Company determined the estimated fair value of its common stock using the Subject Company Transaction Method which includes the back-solve and scenario-based methods (Probability Weighted Expected Return Method) to arrive at estimated fair values. Subsequent to the IPO, the fair value was based on the closing price of the Company’s common stock on the grant date.

The following table summarizes information and activity related to the Company’s stock options:


	Number of Stock Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)	Total Intrinsic Value (in thousands)
Outstanding as of December 31, 2021	4,230,162	$	8.92	8.4	$	—
Options granted	2,188,700	1.93
Options forfeited	(391,106)	11.14
Options exercised	—	—
Options expired	(212,909)	9.26
Outstanding as of March 31, 2022	5,814,847	$	6.13	8.0	$	406
Options vested and exercisable	2,554,368	$	7.43	6.0	$	—

The aggregate intrinsic value in the above table is calculated as the difference between the estimated fair value of the Company's common stock price and the exercise price of the stock options. The weighted average grant date fair value per share for the stock option grants during the three months ended March 31, 2022 and 2021 was $1.19 and $8.86, respectively. As of March 31, 2022, the total unrecognized compensation related to unvested stock option awards granted was $5.9 million, which the Company expects to recognize over a weighted-average period of approximately 3.0 years.

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ANGION BIOMEDICA CORP.

Notes to Consolidated Financial Statements (Continued)

Restricted Stock Units (RSUs)

The following table summarizes information and activity related to the Company’s RSUs:


	Number of Restricted Stock Units	Weighted Average Grant Date Fair Value Per Share
Outstanding at December 31, 2021	17,504	$	9.51
Granted	—	$	—
Vested	(365)	$	9.51
Outstanding at March 31, 2022	17,139	$	9.51
Vested as of March 31, 2022	365	$	9.51

Performance-based Restricted Stock Units (PSUs)

The Company had 556,530 PSUs outstanding that were granted in June 2019. Vesting of the PSUs is dependent upon the satisfaction of both a service condition and a performance condition, an initial public offering or a change of control, as defined in the 2015 Plan. As the IPO occurred in February 2021, the performance condition was met and 185,510 PSUs vested and were released upon the closing of the IPO. Another 185,510 PSUs vested and were released in June 2021 upon the second anniversary of the grants. As of March 31, 2022, the Company had 185,510 PSUs outstanding.

Stock-based Compensation Expense

The following table summarizes total stock-based compensation expense recorded in the condensed consolidated statements of operations (in thousands):


	Three Months Ended March 31,
	2022		2021
Research and development	$	(448)	$	2,543
General and administrative	479		2,574
Total	$	31	$	5,117

The decrease in total stock-based compensation expense for the three months ended March 31, 2022 is primarily due to the reversal of expense upon the forfeiture of awards in connection with the reduction in force event that occurred on January 4, 2022. See Note 1 for additional information.

Employee Stock Purchase Plan

In January 2021, the board of directors of the Company approved the Employee Stock Purchase Plan (the “ESPP”). The ESPP was effective on the date immediately prior to the effectiveness of the Company's registration statement relating to the IPO. A total of 390,000 shares of common stock were initially reserved for issuance under the ESPP. The ESPP provides that the number of shares reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2022, by the lesser of 1% of the Company’s common stock outstanding on the immediately preceding December 31, or such lesser number of shares as determined by the Company’s board of directors. The offering period and purchase period will be determined by the board of directors. As of March 31, 2022, 390,000 shares under the ESPP remain available for purchase and no offerings have been authorized.

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ANGION BIOMEDICA CORP.

Notes to Consolidated Financial Statements (Continued)

Note 8—Warrants

As of March 31, 2022 and December 31, 2021, outstanding warrants to purchase the Company's common stock consisted of the following:


	Classification	Exercise Price		Expiration Date	March 31, 2022	December 31, 2021
Warrants issued with Conversion of Notes to Common Stock	Equity	$	8.03	8/31/23	232,287	232,287
Warrants issued with Units in the Equity Offering	Equity	$	8.03	8/31/23	875,034	875,034
Broker Warrants issued with Equity Offering	Equity	$	0.01	8/31/25	1,297	1,297
Consultant Warrants	Liability	$	7.60	8/31/28	39,505	39,505
Total Warrants					1,148,123	1,148,123

In accordance with ASC 815, the warrants classified as liabilities are recorded at fair value at the issuance date, with changes in the fair value recognized in the condensed consolidated statements of operations at the end of each reporting period. Refer to Note 4 for changes in the fair value recognized during the periods reported.

In accordance with ASC 815, the warrants classified as equity do not meet the definition of a derivative and are classified in stockholders' equity in the condensed consolidated balance sheets.

There was no warrant activity during the three months ended March 31, 2022.

Note 9—Commitments and Contingencies

Operating Leases

The Company leases office and laboratory space in Uniondale, New York from NovaPark, a related party, under an agreement classified as an operating lease expiring on June 20, 2026. The Company's lease does not require any contingent rental payments, impose any financial restrictions, or contain any residual value guarantees. Variable expenses generally represent the Company's share of the landlord's operating expenses, including management fees. The Company does not act as a lessor or have any leases classified as financing leases.

The Company leased office space in Fort Lee, New Jersey, comprising approximately 2,105 square feet for approximately $0.1 million per year, under a non-cancelable operating lease through March 31, 2022. However, this arrangement is excluded from the calculation of lease liabilities and right of use assets as its term is less than one year. The lease was subject to charges for common area maintenance and other costs. The Company did not renew the New Jersey lease and it expired on March 31, 2022.

In July 2020, the Company entered into a lease for office furniture in San Francisco, California set to expire in July 2025, with an immaterial annual lease payment.

In February 2021, the Company entered into a lease for clinical and regulatory space in Newton, Massachusetts (the “Newton lease”), comprising approximately 6,157 square feet for approximately $0.2 million per year, under a non-cancelable operating lease through June 30, 2024. Pursuant to the Newton lease, the Company had four months of free rent starting from February 15, 2021 to June 14, 2021. The Company has one option to extend the term of the lease for three years with nine months’ notice.

The following table summarizes the components of the Company's operating lease costs (in thousands):


	Three Months Ended March 31,
	2022		2021
Operating lease cost	$	413	$	273
Variable lease cost	52		130
Short-term lease cost	6		39
Total operating lease cost	$	471	$	442

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ANGION BIOMEDICA CORP.

Notes to Consolidated Financial Statements (Continued)

The following table summarizes quantitative information about the Company's operating leases (dollars in thousands):


	Three Months Ended March 31,
	2022			2021
Operating cash flows from operating leases	$	323		$	267
Right-of-use assets exchanged for operating lease liabilities	$	—		$	618
Weighted-average remaining lease term—operating leases (in years)	3.7			4.0
Weighted-average discount rate—operating leases	9.4		%	8.0		%

As of March 31, 2022, maturities of lease liabilities were as follows (in thousands):


Year Ended December 31,	Amounts
2022 (remaining nine months)	$	968
2023	1,305
2024	1,209
2025	1,104
2026	516

Total	5,102
Less present value discount	(948)
Operating lease liabilities	$	4,154

Financing obligation

In 2021, the Company entered into an immaterial sale and leaseback arrangement with a third-party financing institution as a financing mechanism to fund certain of its capital expenditures primarily related to operating equipment, whereby the physical asset is sold concurrent with an agreement to lease the asset back. The initial leaseback term is 42 months starting from November 2021. The arrangement includes a renewal option as well as a repurchase option at fair value with a cap at the end of the term. The arrangement does not qualify as an asset sale as control of the equipment did not transfer to the third party and is accounted for as a failed sale-leaseback. Therefore, the Company accounts for the arrangement as a financing transaction and records the proceeds received as a financing obligation. The leased assets are included in property and equipment, net on the condensed consolidated balance sheets and are subject to depreciation.

The following table summarizes quantitative information about the Company's financing obligation for the three months ended March 31, 2022 (dollars in thousands):


Cash flow information:
Payments of financing obligation
Operating cash flows from financing obligation	$	10
Financing cash flows from financing obligation	$	14
Other information:
Weighted-average remaining lease term (in years)	3.0
Weighted-average discount rate (in percent)	1.1		%
Carrying value of leased asset included in Property and Equipment, net	$	254
Depreciation associated with the leased asset	$	15

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ANGION BIOMEDICA CORP.

Notes to Consolidated Financial Statements (Continued)

As of March 31, 2022, maturities of financing obligation were as follows (in thousands):


Year Ended December 31,	Amounts
2022 (remaining nine months)	$	71
2023	94
2024	94
2025	31


Total	290
Less present value discount	(11)
Financing obligation	$	279

Litigation

The Company is not a party to any material legal proceedings and is not aware of any pending or threatened claims. From time to time, the Company may be subject to various legal proceedings and claims that arise in the ordinary course of its business activities.

Indemnification

The Company enters into standard indemnification arrangements in the ordinary course of business. Pursuant to these arrangements, the Company indemnifies, holds harmless and agrees to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third party with respect to its technology. The term of these indemnification agreements is generally perpetual any time after the execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these arrangements is not determinable. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes the fair value of these agreements is minimal.

Note 10—Income Taxes

The Company’s income tax provision was immaterial and the effective tax rate was 0% in each of the three months ended March 31, 2022 and 2021. The difference between the Company's effective tax rate of 0% and the U.S. federal statutory tax rate of 21% is primarily due to net operating losses in this period which are offset by the corresponding valuation allowance. The Company has provided a full valuation allowance against its net deferred tax assets as it is more likely than not such assets would not be realized.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income in which those temporary differences become deductible. Based on the available objective evidence, management believes it is more likely than not the net deferred tax assets at March 31, 2022 will not be realizable. Accordingly, management has maintained a full valuation allowance against its net deferred tax assets at March 31, 2022. Each reporting period, management evaluates the need for a valuation allowance on the Company’s deferred tax assets by jurisdiction and adjust the Company’s estimates as more information becomes available.

The Company is required to recognize the financial statement effects of a tax position when it is more likely than not, based on the technical merits, the position will be sustained upon examination. Tax years starting from 2015 and forward are subject to examination by the U.S. federal and state tax authorities. These years are open due to net operating losses and tax credits remain unutilized from such years. The Company's policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense. As of March 31, 2022, there were no accruals for interest and penalties related to uncertain tax positions.

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ANGION BIOMEDICA CORP.

Notes to Consolidated Financial Statements (Continued)

Note 11—Employee Benefit Plan

Employee Benefit Plan

The Company sponsors a retirement savings plan intended to qualify for favorable tax treatment under Section 401(a) of the Code, and contains a cash or deferred feature intended to meet the requirements of Section 401(k) of the Code. Participants may make pre-tax and certain after-tax (Roth) salary deferral contributions to the plan from their eligible earnings up to the statutorily prescribed annual limit under the Code. Participants who are 50 years of age or older may contribute additional amounts based on the statutory limits for catch-up contributions. Participant contributions are held in trust as required by law. No minimum benefit is provided under the plan. An employee’s interest in his or her salary deferral contributions is 100% vested when contributed. Contributions, subject to established limits, are matched at a dollar for dollar rate up to 3% of an individual’s earnings and fifty cents on the dollar on the next 4-5% of earnings.

Note 12—Net Loss Per Share

The following table sets forth the computation of the Company’s basic and diluted net loss per share attributable to common stockholders, which excludes shares which are legally outstanding but subject to repurchase by the Company (in thousands, except share and per share data):


	Three Months Ended March 31,
	2022		2021
Numerator
Net loss attributable to common stockholders	$	(14,240)	$	(36,687)
Denominator:
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted	29,959,251		23,443,851
Net loss per share attributable to common stockholders, basic and diluted	$	(0.48)	$	(1.56)

The table below provides potentially dilutive securities not included in the calculation of the diluted net loss per share because to do so would be anti-dilutive:


	Three Months Ended March 31,
	2022	2021
Shares issuable upon exercise of stock options	5,814,847	4,428,897
Shares issuable upon the exercise of warrants	1,148,123	1,171,614
Unvested shares under restricted stock unit grants	202,650	37,440
Unvested shares under restricted stock grants	—	10,938
Total	7,165,620	5,648,889

Note 13—Related Party Transactions

On February 25, 2022, the Company entered into a Separation Agreement with Itzhak D. Goldberg, M.D., who formerly served as Executive Chairman and Chief Scientific Officer and currently serves as a director and Chairman Emeritus on the Company’s board of directors. Pursuant to the terms of the Separation Agreement, Dr. Goldberg will receive severance benefits of approximately $1.1 million. Under the 2015 Plan and 2021 Plan, Dr. Goldberg will continue to vest his PSUs and stock options and exercisability of his options, so long as he remains in continuous service with the Company as a director on the board of directors or otherwise.

On March 1, 2022, the Company entered into a Separation Agreement with Elisha Goldberg, former employee and son of Itzhak D. Goldberg, M.D. Pursuant to the terms of the Separation Agreement, Mr. Goldberg will receive severance benefits of approximately $0.5 million. Mr. Goldberg will also have the right to exercise any vested stock options he may have received under the 2015 Plan or 2021 Plan until December 31, 2022, which extended the exercise period by 11 months.

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ANGION BIOMEDICA CORP.

Notes to Consolidated Financial Statements (Continued)

Ohr Investment

In a series of investments in November 2013 and July 2017, the Company invested a total of $150,000 to acquire a membership interest in Ohr Cosmetics, LLC (“Ohr”), an affiliated company.

The Company owns, and the family of the Company's Chairman Emeritus owns, approximately 2.4% and 81.3%, respectively, of the membership interests in Ohr. The Chairman Emeritus' son is the manager of Ohr.

In November 2013, the Company granted Ohr an exclusive worldwide license, with the right to sublicense, under the Company's patent rights covering one of the Company's CYP26 inhibitors, ANG-3522, for the use in treating conditions of the skin or hair. Sublicensees may not grant further sublicenses under the Company's patent rights other than to affiliates of such sublicensees and entities with which sublicensees are collaborating for the research, development, manufacture and commercialization of the products. Ohr will pay the Company a royalty at a rate in the low single digits on gross revenue of products incorporating ANG-3522, and milestone payments potentially totaling up to $9.0 million based on achievement of sales milestones. Royalties and milestone payments will be paid until the later of 15 years from the first commercial sale of a licensed product or the last to expire licensed patent rights. The royalty rate is subject to adjustments under certain circumstances. The Company believes the Ohr License was made on terms no less favorable to the Company than those the Company could obtain from unaffiliated third parties.

No revenue from this license agreement was recognized for the periods presented.

NovaPark Investment and Lease

As of March 31, 2022, the Company had a 10% interest in NovaPark. Members of the Company's Chairman Emeritus’ immediate family own a majority of the membership interests of NovaPark. The Company accounts for its aggregate 10% investment in NovaPark under the equity method.

The following table provides the activity for the NovaPark investment for the three months ended March 31, 2022, and 2021 (in thousands):


	Three Months Ended March 31,
	2022		2021
Beginning balance	$	723	$	672
Earnings from equity method investment	9		67
Distribution from NovaPark	—		(12)
Ending balance	$	732	$	727

The Company rents office and laboratory space in Uniondale, New York from NovaPark under a lease expiring June 20, 2026. The Company recorded rent expense for fixed lease payments of $0.3 million in each of the three months ended March 31, 2022 and 2021. The Company recorded rent expense for variable expenses related to the lease of $0.1 million for the three months ended March 31, 2022 and 2021. See Note 9.

Convertible Notes

In connection with the IPO in February 2021, Victor Ganzi, Gilbert Omenn and Karen Wilson, directors of the Company, and Raj Venkatesan, brother of the Chief Executive Officer and director of the Company, converted all their outstanding convertible notes into an aggregate of 149,500 shares of common stock with a conversion price of $11.57. As of March 31, 2022, there were no convertible notes outstanding.

Series C Convertible Preferred Stock

In connection with the IPO in February 2021, Jay Venkatesan, M.D., the Chief Executive Officer and director of the Company converted all his outstanding preferred stock into an aggregate of 165,094 shares of common stock with a conversion price of $11.57 per share. As of March 31, 2022, there were no shares of convertible preferred stock outstanding.

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ANGION BIOMEDICA CORP.

Notes to Consolidated Financial Statements (Continued)

Consultant Fees

Angion paid consulting fees under an agreement with the wife of the Company’s Chairman Emeritus for Company management services. Consultant fees paid to the wife were immaterial in each of the three months ended March 31, 2022 and 2021. This consultant agreement was terminated in February 2022.

Other

Dr. Michael Yamin, a former member of the board of directors of the Company, is a Scientific Advisor for Pearl Cohen Zedek Latzer Baratz LLP (Pearl Cohen). During the three months ended March 31, 2022 and 2021, the Company paid Pearl Cohen an immaterial amount in legal fees, respectively.

In January 2018, the Company also entered into a consulting agreement with Dr. Yamin pursuant to which he agreed to provide consulting services to the Company in the areas of biomedical research and development. Consultant fees paid to Dr. Yamin were immaterial in in each of the three months ended March 31, 2022 and 2021. Dr. Yamin resigned from the Company's board of directors in March 2020. Dr. Yamin's resignation was not due to any disagreement with the Company, the board or management of the Company.

Note 14—Subsequent Event

On May 12, 2022, the Company was notified by the U.S. Food and Drug Administration (FDA) of the acceptance of an Investigational New Drug (IND) application supporting the clinical development of ANG-3070 in idiopathic pulmonary fibrosis (IPF) and clearance to begin a Phase 1b study of ANG-3070 in patients with IPF. Topline data from this Phase 1b study are expected in 2022.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2021. In addition to the historical financial information, this discussion contains forward-looking statements involving risks, assumptions and uncertainties, such as statements of our plans, objectives, expectations, intentions, forecasts and projections. Our actual results and the timing of selected events could differ materially from those discussed in these forward-looking statements as a result of several factors, including those set forth under the section of this Quarterly Report on Form 10-Q titled “Risk Factors,” which you should carefully to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section titled “Forward-Looking Statements” at the beginning of this report.

Overview

We are a clinical-stage biopharmaceutical company focused on the discovery, development, and commercialization of novel small molecule therapeutics to address chronic and progressive fibrotic diseases. Our goal is to transform the treatment paradigm for patients suffering from these potentially life-threatening conditions for which there are no approved medicines or where existing approved medicines have limitations. Our lead product candidate, ANG-3070, is a highly selective oral tyrosine kinase receptor inhibitor (TKI) in development as a treatment for fibrotic diseases, particularly in the kidney and lung. Enrollment is ongoing in “JUNIPER,” a dose-finding Phase 2 trial of ANG-3070 in primary proteinuric kidney diseases (PPKD) and we expect to file an IND in idiopathic pulmonary fibrosis (IPF) by the end of 2022. We are also continuing to develop our preclinical programs. Our ROCK2 program is targeted towards the treatment of fibrotic diseases. Our CYP11B2 program is targeted towards diseases related to aldosterone synthase dysregulation.

Prior to January 2022, our lead product was ANG-3777, a hepatocyte growth factor (HGF) mimetic we were evaluating in multiple indications of acute organ injury, including delayed graft function (DGF) and for the treatment of AKI associated with cardiac surgery involving cardiopulmonary bypass (CSA-AKI). In 2021, we also studied ANG-3777 in patients with severe COVID-19 related pneumonia at high risk for acute respiratory distress syndrome (ARDS). On October 26, 2021, we announced the Phase 3 trial of ANG-3777 in DGF did not achieve its primary endpoint and the data were not expected to be sufficient evidence to support an indication in the studied DGF population. On December 9, 2021, we announced the Phase 2 trial of ANG-3777 in CSA-AKI did not achieve its primary endpoint. We do not intend to continue the clinical development plan for ANG-3777 set forth in the Vifor License, which had included a Phase 3 study in CSA-AKI and a Phase 4 confirmatory study in donor kidney transplant patients who were at risk for developing DGF, given we do not believe the earlier Phase 2 and Phase 3 clinical trial results in the respective indications support a regulatory approval. We have no funds budgeted for additional clinical trials for ANG-3777.

On May 12, 2022, we were notified by the U.S. Food and Drug Administration (FDA) of the acceptance of an Investigational New Drug (IND) application supporting the clinical development of ANG-3070 in idiopathic pulmonary fibrosis (IPF) and clearance to begin a Phase 1b study of ANG-3070 in patients with IPF. Topline data from this Phase 1b study are expected in 2022.

We do not have any products approved for sale and have not generated any revenue from product sales since our inception and do not expect to generate revenue from product sales unless we successfully develop, and we or our collaborators, commercialize our product candidates, which we do not expect to occur for several years, if ever. Our net losses were $14.2 million and $36.7 million for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, we had an accumulated deficit of $229.4 million. We expect to continue to incur net losses for the foreseeable future. As we seek to advance ANG-3070 in clinical trials and our other product candidates through preclinical development, our expenses and operating losses may increase over time.

In addition, if we seek regulatory approval for any of our wholly-owned product candidates or those for which we retain the right to commercialize in the future, we would need to incur additional expenses as we expand our clinical, regulatory, quality, manufacturing and commercialization capabilities, incur significant commercialization expenses for marketing, sales, manufacturing and distribution if we obtain marketing approval for such product candidates.

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We rely on third parties in the conduct of our preclinical studies and clinical trials and for manufacturing and supply of our product candidates. We have no internal manufacturing capabilities, and we expect to continue to rely on third parties, many of whom are single-source suppliers, for our preclinical study and clinical trial materials. In addition, we do not yet have a marketing or sales organization or commercial infrastructure. Accordingly, we will incur significant expenses to develop a marketing and sales organization and commercial infrastructure in advance of generating any product sales of wholly-owned product candidates or those for which we retain the right to commercialize.

Furthermore, we will need to make continued investment in development studies, registration activities and the development of commercial support functions including quality assurance and safety pharmacovigilance before we will be in a position to sell any of our product candidates, if approved.

The Initial Public Offering and Concurrent Private Placement

The Initial Public Offering (“IPO”) and Concurrent Private Placement, which both closed on February 9, 2021, generated aggregate net proceeds of approximately $107.0 million, after deducting the underwriting discounts and commissions, private placement fee and offering expenses payable by us.

Reduction in Force

On January 4, 2022, we announced a reduction in force impacting less than half of our employees. Our decision to engage in this reduction resulted from an assessment of our internal resources needs, given the results of the Phase 3 study of ANG-3777 in patients at risk for DGF would likely not support a regulatory approval in that population and the Phase 2 study in CSA-AKI would not support a Phase 3 trial in that indication. This reduction was a cost-cutting measure across the organization to support our 2022 primary focus on the clinical development of our investigational asset ANG-3070, a highly selective, oral tyrosine kinase receptor inhibitor in development as a treatment for fibrotic diseases, particularly in the kidney and lung, as well as advancing preclinical assets to IND-enabling studies. In connection with the reduction in force, we incurred termination costs, which include severance, benefits and related costs, of approximately $3.2 million, of which $1.1 million were paid during the three months ended March 31, 2022. We expect to pay the remaining $2.1 million on or before September 2023.

COVID-19 Update

The COVID-19 pandemic has placed strains on the providers of healthcare services, including the healthcare institutions where we conduct our clinical trials. These strains have resulted in institutions prohibiting the initiation of new clinical trials and enrollment in existing trials and restricting the on-site monitoring of clinical trials. We also follow FDA guidance on clinical trial conduct during the COVID-19 pandemic, including the remote monitoring of clinical data.

The global pandemic of COVID-19 continues to rapidly evolve. The extent to which COVID-19 may continue impact our business, including our clinical trials, and financial condition will depend on future developments, which are highly uncertain due to the continuing emergence of new variants and cannot be predicted with confidence, such as the ultimate duration of the pandemic and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.

At this time, we do not expect any disruption in our supply chain of drugs necessary to conduct our clinical trials, and we believe we will be able to supply the drug needs of our clinical trials in 2022. However, we are continuing to evaluate our clinical supply chain in light of the COVID-19 pandemic.

License, Collaboration and Grant Agreements

License Agreement with Vifor Pharma

In November 2020, we granted Vifor Pharma, an exclusive, global (excluding Greater China), royalty-bearing license, for the commercialization of ANG-3777 in all Renal Indications, beginning with DGF and CSA-AKI. The Vifor License also grants Vifor Pharma exclusive rights, with a right to sublicense subject to our consent for certain specified conditions, to develop and manufacture ANG-3777 for commercialization in Renal Indications worldwide (excluding Greater China) in cooperation with us or independently. We retain the right to develop and commercialize combination therapy products combining ANG-3777 with our other proprietary molecules, subject to Vifor Pharma's right of first negotiation with respect to global (excluding Greater China) rights to such combination therapy products in the Renal Indications.

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Pursuant to the Vifor License and specifically based upon the clinical development plan for ANG-3777 set forth in the Vifor License, we are entitled to receive $80 million in upfront and near-term clinical milestone payments, including $30 million in up-front cash received in November 2020, and a $30 million equity investment comprising a $5 million convertible note subsequently converting into common stock with the IPO and $25 million of which was received in the Concurrent Private Placement with our IPO.

We are also eligible to receive post-approval milestones of up to approximately $260 million and sales-related milestones of up to $1.585 billion, providing a total potential deal value of up to $1.925 billion (subject to certain specified reductions and offsets), plus tiered royalties on net sales of ANG-3777 at royalty rates of up to 40%. Under the Vifor License, we are responsible for executing a pre-specified clinical development plan designed to obtain regulatory approvals of ANG-3777 for DGF and CSA-AKI. For the three months ended March 31, 2022 and 2021, we recognized license revenue related to the Vifor License of $1.6 million and $0.4 million, respectively. As of March 31, 2022 and December 31, 2021, we recorded $0.7 million and $2.3 million, respectively, as deferred revenue, current on the condensed consolidated balance sheet related to the Vifor License.

On October 26, 2021, we announced the Phase 3 trial of ANG-3777 in DGF did not achieve its primary endpoint and the data were not expected to be sufficient evidence to support an indication in the studied DGF population. On December 14, 2021, we announced the Phase 2 trial of ANG-3777 in CSA-AKI did not achieve its primary endpoint. The Vifor License includes additional milestone and royalty objectives related to the clinical development plan for ANG-3777, which had included a Phase 3 study for CSA-AKI and a Phase 4 confirmatory study in DGF. We do not expect to receive any clinical, post-approval, or sales milestones, or royalties, as we do not intend to continue to pursue the current clinical development plan for ANG-3777. In 2022, we and Vifor Pharma continue to work to complete the planned analyses of the results of the clinical trials announced in the fourth quarter of 2021 and to discuss the future of the collaboration based upon such analyses.

Components of Results of Operations

The following discussion summarizes the key factors our management believes are necessary for an understanding of our financial statements.

Revenue

We do not have any products approved for sale and have not generated any revenue from product sales. Our revenue to date primarily has been derived from government funding consisting of U.S. government grants and contracts, and revenue under our license agreements, specifically the Vifor License.

Grant Revenue

Our grants and contracts reimburse us for direct and indirect costs relating to the grant projects and also provide us with a pre-negotiated profit margin on total direct and indirect costs of the grant award, excluding subcontractor costs, after giving effect to directly attributable costs and allowable overhead costs. Funds received from grants and contracts are generally deemed to be earned and recognized as revenue as allowable costs are incurred during the grant or contract period and the right to payment is realized.

Contract Revenue

Our license agreements comprise elements of upfront license fees, milestone payments based on development and royalties based on net product sales. The timing of our operating cash flows may vary significantly from the recognition of the related revenue. Income from upfront payments is recognized when we satisfy the performance obligations in the contract, which can result in recognition at either a point in time or over the period of continued involvement. Other revenue, such as milestone payments, are recognized when achieved.

Our revenue to date has been generated from payments received pursuant to the Vifor License Agreement. We recognize revenue from upfront payments over the term of our estimated period of performance using a cost-based input method under Topic 606, Revenue from Contracts with Customers.

In addition to receiving an upfront payment, we may also be entitled to milestones and other contingent payments upon achieving predefined objectives. If a milestone is considered probable of being reached, and if it is probable that a significant revenue reversal would not occur, the associated milestone amount would also be included in the transaction price. We expect any license revenue we generate from any future collaboration partners, will fluctuate in the future as a result of the timing and amount of upfront, milestones and other collaboration agreement payments and other factors.

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Operating Expenses

Cost of Grant Revenue

Our cost of grant revenue primarily relates to personnel-related costs and expenses for grant projects.

Research and Development Expenses

To date, our research and development expenses have primarily related to discovery efforts and preclinical and clinical development of our product candidates. We recognize research and development expenses as they are incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.

Our research and development expenses consist primarily of:

▪personnel costs, including salaries, payroll taxes, employee benefits and stock-based compensation, for personnel in research and development functions;

▪costs associated with medical affairs activities;

▪fees paid to consultants, clinical testing sites and contract research organizations (CROs), including in connection with our preclinical studies and clinical trials, and other related clinical trial fees, such as for investigator grants, patient screening, laboratory work, clinical trial database management, clinical trial material management and statistical compilation, analysis and reporting;

▪contracted research and license agreement fees with no alternative future use;

▪costs related to acquiring, manufacturing and maintaining clinical trial materials and laboratory supplies;

▪depreciation of equipment and facilities;

▪legal expenses related to clinical trial agreements and material transfer agreements; and

▪costs related to preparation of regulatory submissions and compliance with regulatory requirements.

Other than with respect to reimbursable expenses required to be recorded under our government grants and contracts, we do not allocate our expenses by product candidates. A significant amount of our direct research and development expenses include payroll and other personnel expenses for our departments supporting multiple product candidate research and development programs and, other than as specified above, we do not record research and development expenses by product. However, research and development expenses were primarily driven by expenses relating to the development of ANG-3070 and ANG-3777 during the three months ended March 31, 2022, and the development of ANG-3777 during the three months ended March 31, 2021. Of our total research and development expenses for the three months ended March 31, 2022 and 2021, 59% and 54%, respectively, of such expenses were from external third-party sources and the remaining 41% and 46%, respectively, were from internal sources.

We expect our research and development expenses to be slightly lower in the near term even though we will continue the development of our product candidates and continue to invest in research and development activities. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time consuming, and successful development of our product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs of the efforts necessary to complete the remainder of the development of any of our clinical or preclinical product candidates or the period, if any, in which material net cash inflows from these product candidates may commence. This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:

▪the scope, rate of progress and expense of our ongoing, as well as any additional, clinical trials and other research and development activities;

▪future preclinical and clinical trial results;

▪obtaining market access and reimbursement approvals; and

▪the timing and receipt of any regulatory approvals.

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A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct preclinical or clinical trials beyond those we currently anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in enrollment in any of our preclinical or clinical trials, we could be required to expend significant additional financial resources and time on the completion of our clinical development programs.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel-related expenses, such as salaries, payroll taxes, employee benefits and stock-based compensation, for personnel in executive, operational, finance and human resources functions. Other significant general and administrative expenses include facilities costs, insurance costs, and accounting and legal services and expenses associated with obtaining and maintaining patents. A portion of the general and administrative expenses are reimbursed through the overhead rates contained in our grants with the U.S. Government.

We expect our general and administrative expenses to be generally consistent in the near term to support our continued research and development activities. We also expect to generally maintain our current level of expenses associated with operating as a public company, including expenses related to audit, legal, regulatory, and tax-related services associated with maintaining compliance with the rules and regulations of the SEC and standards applicable to companies listed on a national securities exchange, insurance expenses, investor relations activities and other administrative and professional services.

Other Income (Expense)

Convertible Notes Recorded at Fair Value

We elected the fair value option for recognition of our convertible notes. Our convertible notes were subject to re-measurement each reporting period with gains and losses reported through our condensed consolidated statements of operations. All of our convertible notes were converted into shares of our common stock upon the closing of our IPO.

Liability Classified Series C Convertible Preferred Stock Recorded at Fair Value

Our Series C convertible preferred stock included settlement features resulting in classification as a liability. The initial carrying value of the Series C convertible preferred stock was accreted to the settlement value, the fair value of the securities to be issued upon the conversion of the Series C Preferred Stock. The discount to the settlement value was accreted to interest expense using the effective interest method. During 2020, certain of the convertible notes were exchanged for Series C convertible preferred stock. As the exchange was accounted for as a modification, the Series C convertible preferred stock exchanged for the convertible notes (the Exchanged Series C Shares) was recorded at fair value. The Exchanged Series C Shares were subject to re-measurement each reporting period with gains and losses reported through our condensed consolidated statements of operations. All shares of our Series C convertible preferred stock converted into common stock upon the closing of our IPO.

Warrant Liability

We have accounted for certain of our freestanding warrants to purchase shares of our common stock as liabilities measured at fair value, in accordance with ASC 815, Derivatives and Hedging. The warrants are subject to re-measurement at each reporting period with gains and losses reported through our condensed consolidated statements of operations.

Foreign Exchange Transaction Gain

Foreign currency transaction gains, primarily related to intercompany loans, are recorded as a component of other income (expense) in our condensed consolidated statements of operations.

Earnings in Equity Method Investment

Earnings in equity method investment represents our 10% interest in NovaPark accounted for under the equity method.

Interest Income

Interest income consists of interest earned on our cash and cash equivalents.

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Results of Operations

Comparison of the Three Months Ended March 31, 2022 and 2021

The following table summarizes our results of operations for the periods indicated:


	Three Months Ended March 31,
	2022		2021		$ Change			% Change

	(In thousands, except percentages)
Revenue:
Contract revenue	$	1,648	$	371	$	1,277		344%
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