Atea Pharmaceuticals Inc

1. Organization

Business Overview

Atea Pharmaceuticals, Inc., together with its wholly owned subsidiary, Atea Pharmaceuticals Securities Corporation, is referred to herein on a consolidated basis as “Atea” or the “Company”.

The Company is a clinical-stage biopharmaceutical company focused on discovering, developing and commercializing oral antiviral therapeutics to improve the lives of patients suffering from serious viral infections. Currently, the Company is evaluating the combination of bemnifosbuvir, a nucleotide NS5B inhibitor, and ruzasvir, an NS5A inhibitor, for the treatment of hepatitis C virus (“HCV”) in a global Phase 2 clinical trial which is fully enrolled with 275 patients. The Company expects to report topline results from this study in the fourth quarter of 2024. If the Phase 2 clinical trial is successful, subject to discussion and alignment with regulatory authorities, the Company anticipates to initiate Phase 3 clinical development of this combination product candidate in 2025.

Liquidity and Capital Resources

As of September 30, 2024, the Company had $482.8 million in cash, cash equivalents and marketable securities, which the Company believes will be sufficient to fund its operations for a period through at least twelve months from the issuance date of these condensed consolidated financial statements.

In November 2021, the Company entered into an open market sales agreement (“Sales Agreement”) with Jefferies LLC (“Jefferies”), under which the Company may from time to time offer and sell shares of its common stock for an aggregate offering price of up to $200.0 million, through or to Jefferies, acting as sales agent or principal. The shares may be offered and sold under the Company’s shelf registration statement on Form S-3 and a related prospectus filed with the Securities and Exchange Commission (“SEC”) on November 24, 2021, as amended. The Company has agreed to pay Jefferies a commission of 3.0% of the aggregate gross proceeds from each sale of shares, reimburse legal fees and disbursements and provide Jefferies with customary indemnification and contribution rights. As of September 30, 2024, no shares have been issued under the Sales Agreement.

Risks and Uncertainties

The Company is subject to risks and uncertainties common to clinical-stage biopharmaceutical companies. These risks include, but are not limited to, potential failure of preclinical and clinical studies, uncertainties associated with research and development activities generally, competition from technical innovations of others, dependence upon key personnel, compliance with governmental regulations, the need to obtain marketing approval for any product candidate that the Company may develop, the need to gain broad acceptance among patients, payers and health care providers to successfully commercialize any product for which marketing approval is obtained and the need to secure and maintain adequate intellectual property protection for the Company’s proprietary technology and products. Further, the Company is currently dependent on third-party service providers for much of its preclinical research, clinical development and manufacturing activities. Product candidates currently under development, including most notably the combination of bemnifosbuvir and ruzasvir for the treatment of HCV, will require significant amounts of additional capital and additional research and development efforts, and all the Company’s product candidates will require regulatory approval, prior to commercialization. Even if the Company is able to generate revenues from the sale of its product candidates, if approved, it may not become profitable. If the Company fails to become profitable or is unable to sustain profitability on a continuing basis, then it may be unable to continue its operations at planned levels and be forced to reduce its operations.

The Company may seek additional capital through one or more of a combination of financing through the sale of additional equity securities, debt financing, or funding in connection with any new collaborative relationships it may enter into or other arrangements. There can be no assurance that the Company will be able to obtain such additional funding, on terms acceptable to the Company, on a timely basis or at all. The terms of any financing may adversely affect the holdings or the rights of the Company’s existing stockholders. Geopolitical events, including civil or political unrest and terrorism, have resulted in a significant disruption of global business and financial markets. In addition, recent or future market volatility, increased inflation and higher interest rates, if sustained, may increase the Company’s cost of financing and may restrict our access to potential sources of future liquidity.

2. Summary of Significant Accounting Policies

Basis of Presentation

The unaudited interim condensed consolidated financial statements of the Company included herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) as found in the Accounting Standards Codification (“ASC”), Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”) and the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report, as is permitted by such SEC rules and regulations. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 28, 2024.

Unaudited Interim Financial Information

The accompanying condensed consolidated balance sheet as of September 30, 2024, the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2024 and 2023, the condensed consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2024 and 2023, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2024 and 2023 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2024, the results of its operations for the three and nine months ended September 30, 2024 and 2023 and its cash flows for the nine months ended September 30, 2024 and 2023. The results for the three months ended September 30, 2024 are not necessarily indicative of results to be expected for the year ending December 31, 2024, or any other interim period.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and in these accompanying notes. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors and assumptions that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates, which include but are not limited to estimates of accrued research and development expenses, valuation of marketable securities, the valuation of stock-based awards, valuation of operating lease right-of-use assets and lease liabilities and income taxes. Changes in estimates are recorded in the period in which such changes become known.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Atea Pharmaceuticals, Inc. and its wholly-owned subsidiary, Atea Pharmaceuticals Securities Corporation. All intercompany amounts have been eliminated in consolidation.

Significant Accounting Policies

There were no changes in the Company’s significant accounting policies as described in the Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 28, 2024.

Recently Issued Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that the Company adopts as of the specified effective date. The Company does not believe that the adoption of recently issued standards have or may have a material impact on its condensed consolidated financial statements and disclosures.

3. Collaboration Agreement

In October 2020, the Company entered into a License Agreement (“Roche License Agreement”) with F. Hoffmann-LaRoche Ltd. and Genentech, Inc. (together, “Roche”) under which the Company granted an exclusive license for certain development and commercialization rights related to bemnifosbuvir outside of the United States (other than for certain HCV uses) to Roche.

In November 2021, Roche provided the Company with a notice of termination of the Roche License Agreement which became effective in February 2022. Upon termination, the rights and licenses granted by the Company to Roche under the Roche License Agreement were returned to the Company, resulting in the Company having all rights to continue the clinical development and future commercialization of bemnifosbuvir worldwide. Global development plan activities and related cost sharing between the parties continued through the effective date of the termination.

The activities to complete the global development plan were accounted for under ASC 808. Expenses incurred and reimbursements made or received from Roche were accounted for pursuant to ASC 730, Research and Development. As such, the Company was expensing costs as incurred, including any reimbursements made to Roche, and recognizing reimbursement received from Roche as a reduction of research and development expense through the effective date of the termination.

For the three months ended September 30, 2024 and 2023, the Company recorded net credits of $0 and $3,748, respectively, from Roche. For the nine months ended September 30, 2024 and 2023, the Company recorded net credits of $1,292 and $12,625, respectively, from Roche. The credits recorded represent changes in estimate as a result of close out activities and related reporting of amounts incurred by Roche associated with the global development plan. The close out activities were completed by Roche as of March 31, 2024. As a result, the Company did not record any net credits in the three months ended September 30, 2024 and does not expect to receive any related amounts from Roche in the future.

4. Marketable Securities

As of September 30, 2024, the Company held five securities that were in an unrealized loss position of $7 with an aggregate fair value of $16,157. The Company has the intent and ability to hold such securities until recovery. As a result, the Company didnot record any charges for credit-related impairments for its marketable debt securities for either the three or the nine months ended September 30, 2024.

None of the securities had remaining maturities longer than one year as of September 30, 2024.

The Company received proceeds of $462,177 and $527,664 from sales and maturities of marketable securities during the nine months ended September 30, 2024 and 2023, respectively.

5. Fair Value Measurements

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

The Company’s assets with fair value categorized as Level 1 within the fair value hierarchy include money market funds. Money market funds are publicly traded mutual funds and are presented as cash equivalents on the unaudited condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023.

The Company’s assets with fair value categorized as Level 2 within the fair value hierarchy include treasury obligations, government agency securities, asset-backed securities, commercial paper and corporate bonds with fair values determined by utilizing information from third party pricing sources for identical or similar assets and liabilities in active market.

There were no transfers between Level 1, Level 2 or Level 3 categories during the nine months ended September 30, 2024.

6. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

7. Common Stock

At September 30, 2024, the authorized capital of the Company included 300,000,000 shares of the Company’s common stock, of which 84,463,059 shares of the Company’s common stock were issued and outstanding. On all matters to be voted upon by the holders of the Company’s common stock, holders of the Company’s common stock are entitled to one vote per share. The holders of the Company’s common stock have no preemptive, redemption or conversion rights.

8. Stock-based Compensation

In October 2020, the Company’s shareholders approved the Company’s 2020 Incentive Award Plan (“2020 Plan”). The 2020 Plan initially provided for the issuance of up to 7,924,000 shares of the Company's common stock and for the grant of incentive stock options or other incentive awards to employees, officers, directors and consultants of the Company. The number of shares of the Company's common stock that may be issued under the 2020 Plan is also subject to increase on the first day of each calendar year equal to the lesser of i)5% of the aggregate number of shares of the Company's common stock outstanding on the final day of the immediately preceding calendar year or ii) such smaller number of shares as is determined by the board of directors. Through December 31, 2023, the shares available under the plan had increased by 12,450,364 shares since the inception of the 2020 Plan. In January 2024, the shares of the Company’s common stock available under the 2020 Plan increased by 4,171,775 shares. As of September 30, 2024,5,362,362 shares of the Company’s common stock were available for future issuance under the 2020 Plan.

The 2020 Plan replaced and is the successor of the Company’s 2013 Equity Incentive Plan, as amended (“2013 Plan”). Upon any cancellation of outstanding option awards to purchase shares of the Company's common stock under the 2013 Plan, such shares will be made available for grant under the 2020 Plan.

Stock Options

The following table summarizes stock option activity for the nine months ended September 30, 2024.

During the three and nine months ended September 30, 2024 the Company granted 34,000 and 3,213,550 stock options with an aggregate grant date fair value of $83 and $9,622, respectively.

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

Stock options generally vest over a service period offour years after grant and have a contractual term often years. As of September 30, 2024, total unrecognized compensation expense related to stock option awards was $31,529, which amount is being recognized over a remaining weighted average period of 2.3 years.

Restricted Stock Units

During the nine months ended September 30, 2024, the Company granted 1,126,100 restricted stock units to employees and directors under the 2020 Plan with an aggregate grant date fair market value of $4,557.

The restricted stock unit awards vest inthree annual installments. Below is the activity related to restricted stock units for the nine months ended September 30, 2024.

As of September 30, 2024, total unrecognized compensation expense related to restricted stock units was $7,801, which amount is being recognized over a remaining weighted average period of 1.7 years.

Performance-based Restricted Stock Units

As of December 31, 2023 the Company had 724,970 performance-based restricted stock units (“2022 PSUs”) outstanding. The 2022 PSUs provide for a performance period from February 1, 2022 through January 31, 2025 to achieve up to six defined performance metrics. The percentage of 2022 PSUs eligible to vest will be determined based on the number of metrics achieved during the performance period and may range from 0% to 200%. The Company has not recognized any compensation expense through September 30, 2024, as achievement of the minimum performance criteria had not been deemed probable. The vesting of any eligible 2022 PSUs will occur in equal installments on January 31, 2025 and January 31, 2026.

During the nine months ended September 30, 2024, the Company granted 1,057,900 performance-based restricted stock units (“2024 PSUs”) to employees with an aggregate grant date fair value of $4,401. The 2024 PSUs provide for a performance period from February 1, 2024 through January 31, 2027 to achieve up to four defined metrics. The percentage of 2024 PSUs eligible to vest will be determined based on the number of metrics achieved during the performance period and may range from 0% to 200%. As of September 30, 2024 one metric was deemed probable of achievement resulting in expense recognition of 50% of the grant date value of the 2024 PSUs. Compensation expense is being recognized from the grant date through the final vest date of January 31, 2027. The Company recorded compensation expense of $185 and $488 for the three and nine months ended September 30, 2024.

The following table summarizes the activity related to performance-based restricted stock units for the nine months ended September 30, 2024.

Employee Stock Purchase Plan

In October 2020, the Company’s shareholders approved the Employee Stock Purchase Plan (“ESPP”), which became effective upon the closing of the Company’s initial public offering (“IPO”) in November 2020. The Company initially reserved a total of 1,187,000 shares of the Company’s common stock for issuance under the ESPP. The ESPP provides that the number of shares reserved and available for issuance under the ESPP will be increasedon January 1 of each calendar year by 1% of the number of shares of the Company’s common stock issued and outstanding on the immediately preceding December 31 or such lesser amount as specified by the board of directors. Through December 31, 2022, there was no increase in the number of shares reserved for issuance under the ESPP. In January 2023 and January 2024, the number of shares of the Company’scommon stock available for issuance under the ESPP was increased by 832,876 shares and 834,355 shares, respectively. As of September 30, 2024,2,631,642 shares of the Company’s common stock were available for issuance under the ESPP.

Under the ESPP, the Company issued 41,059 and 99,614 shares of the Company's common stock for proceeds of $117 and $267 during the three and nine months ended September 30, 2024.

Stock-based Compensation Expense

Stock-based compensation expense by award type included within the unaudited condensed consolidated statements of operations and comprehensive loss was as follows:

Stock-based compensation expense is classified as follows:

9. Net Loss Per Share

Basic and diluted earnings per share are calculated as follows:

The following shares were excluded from the computation of the net loss per share for the three and nine months ended September 30, 2024 and 2023, respectively, due to the net loss during the periods as their effect is antidilutive.

10. Leases

The Company has a non-cancelable operating lease agreement for its office space in Boston, Massachusetts at 225 Franklin Street ("225 Lease"). The 225 Lease commencement date was January 1, 2022 and the 225 Lease runs through December 31, 2026. The 225 Lease doesnot contain any options for renewal or extension.

The following assets and liabilities are recorded on the Company’s consolidated balance sheet as of September 30, 2024.

Future minimum payments under the 225 Lease, currently the Company’s only operating lease as of September 30, 2024 were as follows.

For each of the three months ended September 30, 2024 and 2023, the Company recorded operating lease costs of $162, relating to its operating lease agreements. For each of the nine months ended September 30, 2024 and 2023, the Company recorded operating lease costs of $485, relating to its operating lease agreements.

11. Income Taxes

The Company recorded income tax expense of $226 and $221 for the three months ended September 30, 2024 and 2023, respectively. The Company recorded income tax expense of $700 and $669 for the nine months ended September 30, 2024 and 2023, respectively.

The Company maintained a full valuation allowance through September 30, 2024 due to uncertainty regarding its ability to utilize deferred tax assets.

12. Commitments and Contingencies

License Agreement

In December 2021, the Company entered into a license agreement (“Merck License Agreement”) with MSD International GmbH, an affiliate of Merck & Co, Inc. (“Merck”) for the development, manufacture and commercialization of ruzasvir. Ruzasvir is the NS5A inhibitor the Company is developing in combination with bemnifosbuvir for the treatment of HCV.

Pursuant to the terms of the Merck License Agreement, the Company obtained from Merck a worldwide exclusive (subject to certain reserved rights to conduct internal research) and, sublicensable license under certain Merck patents and know-how to research, develop, manufacture, have manufactured, use, import, export, sell, offer for sale, and otherwise commercialize ruzasvir or products containing ruzasvir (each a “Product”) for all therapeutic or prophylactic uses in humans.

Inaddition to a non-refundable upfront payment that the Company made in February 2022, the Company will be required to pay Merck milestone payments upon its achievement of certain development, regulatory and sales-based milestones. Additionally, the Company will pay Merck tiered royalties based on annual net sales of Products ranging from high single digits to mid-teens percentages. The Company’s royalty payment obligations will continue until the later of (i) the expiration of the last to expire valid claim of a licensed Merck patent claiming such Product and (ii) a period of years after the first commercial sale of such Product in such country. The Company may terminate the Merck License Agreement for convenience upon prior written notice. The first potential milestone in the amount of $5.0 million would be payable upon the commencement of the HCV Phase 3 clinical trial that the Company is currently planning.

Contingent Consulting Fee

The Company has an agreement with a consultant that requires payment of a success fee calculated as a percentage of certain product sales, subject to a cumulative maximum payout of $5.0 million. This success payment is contingent upon the occurrence of future events and the timing and likelihood of such payment is neither probable nor estimable.

Indemnification

The Company enters into certain types of contracts that contingently require the Company to indemnify various parties against claims from third parties. These contracts primarily relate to (i) the Company’s bylaws, under which the Company must indemnify directors and executive officers, and may indemnify other officers and employees, for liabilities arising out of their relationship with the Company, (ii) contracts under which the Company must indemnify directors and certain officers and consultants for liabilities arising out of their relationship with the Company, and (iii) procurement, service or license agreements under which the Company may be required to indemnify vendors, service providers or licensees for certain claims, including claims that may be brought against such third parties arising from the Company’s acts or omissions with respect to the Company’s products, technology, intellectual property or services.

From time to time, the Company may receive indemnification claims under these contracts in the normal course of business. In the event that one or more of these matters were to result in a claim against the Company, an adverse outcome, including a judgment or settlement, may cause a material adverse effect on the Company’s future business, operating results or financial condition. It is not possible to determine the maximum potential amount payable under these contracts since the Company has no history of prior indemnification claims and the unique facts and circumstances involved in each particular claim will be determinative.

13. Benefit Plan

The Company’s defined contribution plan under Section 401(k) of the Internal Revenue Code (“401(k) Plan”) covers substantially all employees who meet minimum age and service requirements. Under the terms of the 401(k) Plan, the Company records matching contributions up to 4% of the participant’s eligible compensation. During the three months ended September 30, 2024 and 2023, the Company recognized expense of $149 and $105, respectively, relating to matching contributions to the 401(k) Plan. During the nine months ended September 30, 2024 and 2023, the Company recognized expense of $711 and $642, respectively, relating to matching contributions to the 401(k) Plan.

14. Related Party Transactions

The Company is party to a consulting agreement with an entity controlled by one of its directors. The agreement provides for an annual retainer of $110. The Company recognized expense in the amount of $27 and $81 for each of the three and nine month periods ended September 30, 2024 and 2023, respectively.

In June 2022, the Company entered into a consulting agreement with one of its directors. No expense was recognized in connection with this agreement for the three and nine months ended September 30, 2024 or 2023.