エクイリアムの四半期報告

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended June 30, 2023


☐	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: 001-38692

EQUILLIUM, INC.

(Exact name of registrant as specified in its charter)


Delaware	82-1554746
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

2223 Avenida de la Playa, Suite 105, La Jolla, CA	92037
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: (858) 412-5302

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


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	EQ	The Nasdaq Global Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

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


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company filer	☒
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 Exchange Act). Yes ☐ No ☒

As of August 7, 2023, the registrant had 34,568,500 shares of common stock, par value $0.0001 per share, outstanding.

EQUILLIUM, INC.

TABLE OF CONTENTS


		Page No.
PART I	FINANCIAL INFORMATION	1
ITEM 1.	FINANCIAL STATEMENTS	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss	2
	Condensed Consolidated Statements of Stockholders' Equity	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Condensed Consolidated Financial Statements	5
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	19
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	28
ITEM 4.	CONTROLS AND PROCEDURES	28
PART II	OTHER INFORMATION	30
ITEM 1.	LEGAL PROCEEDINGS	30
ITEM 1A.	RISK FACTORS	30
ITEM 5.	OTHER INFORMATION	79
ITEM 6.	EXHIBITS	81
SIGNATURES		83

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Equillium, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and par value data)


	June 30, 2023			December 31, 2022
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	25,624		$	59,107
Short-term investments		22,754			11,916
Accounts receivable		3,743			2,838
Prepaid expenses and other current assets		5,235			2,874
Total current assets		57,356			76,735
Operating lease right-of-use assets		992			1,191
Property and equipment, net		329			391
Other assets		87			104
Total assets	$	58,764		$	78,421
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	3,026		$	3,977
Accrued expenses		7,537			7,239
Current portion of deferred revenue		14,239			14,700
Current portion of notes payable		-			5,714
Current portion of operating lease liabilities		416			408
Total current liabilities		25,218			32,038
Long-term notes payable		-			3,239
Long-term deferred revenue		5,956			10,378
Long-term operating lease liabilities		609			824
Total liabilities		31,783			46,479
Commitments and contingencies
Stockholders' equity:
Common stock, $0.0001 par value; 200,000,000 shares authorized as of June 30, 2023 and December 31, 2022; 34,568,500 and 34,414,149 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively		3			3
Additional paid-in capital		206,326			204,268
Accumulated other comprehensive income		340			76
Accumulated deficit		(179,688	)		(172,405	)
Total stockholders' equity		26,981			31,942
Total liabilities and stockholders' equity	$	58,764		$	78,421

See accompanying notes.

Equillium, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

(Unaudited)


	Three months Ended June 30,						Six months Ended June 30,
	2023			2022			2023			2022
Revenue	$	9,124		$	-		$	18,003		$	-
Operating expenses:
Research and development		9,610			9,488			18,882			20,251
Acquired in-process research and development		-			-			-			23,049
General and administrative		3,105			4,064			6,820			7,581
Total operating expenses		12,715			13,552			25,702			50,881
Loss from operations		(3,591	)		(13,552	)		(7,699	)		(50,881	)
Other income (expense), net:
Interest expense		(259	)		(259	)		(491	)		(515	)
Interest income		627			64			1,266			90
Other expense, net		(112	)		(382	)		(291	)		(240	)
Total other income (expense), net		256			(577	)		484			(665	)
Loss before income taxes		(3,335	)		(14,129	)		(7,215	)		(51,546	)
Income tax expense		8			-			68			-
Net loss	$	(3,343	)	$	(14,129	)	$	(7,283	)	$	(51,546	)
Other comprehensive income (loss), net:
Unrealized (loss) gain on available-for-sale securities, net		(36	)		(54	)		59			(234	)
Foreign currency translation gain		71			359			205			223
Total other comprehensive income (loss), net		35			305			264			(11	)
Comprehensive loss	$	(3,308	)	$	(13,824	)	$	(7,019	)	$	(51,557	)
Net loss per share, basic and diluted	$	(0.10	)	$	(0.41	)	$	(0.21	)	$	(1.56	)
Weighted-average number of common shares outstanding, basic and diluted		34,449,769			34,292,642			34,432,057			33,085,917

See accompanying notes.

Equillium, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share data)

(Unaudited)


					Additional		Accumulated Other						Total
	Common Stock				Paid-in		Comprehensive			Accumulated			Stockholders'
	Shares		Amount		Capital		Income (Loss)			Deficit			Equity
Balance at December 31, 2021		29,455,668	$	2	$	176,618	$	(138	)	$	(109,977	)	$	66,505
Issuance of common stock for Bioniz acquisition		4,820,230		1		22,541		-			-			22,542
Vesting of restricted stock liability		-		-		18		-			-			18
Stock-based compensation expense		-		-		1,298		-			-			1,298
Other comprehensive loss		-		-		-		(316	)		-			(316	)
Net loss		-		-		-		-			(37,417	)		(37,417	)
Balance at March 31, 2022		34,275,898	$	3	$	200,475	$	(454	)	$	(147,394	)	$	52,630
Issuance of common stock under employee stock purchase plan		76,186		-		141		-			-			141
Vesting of restricted stock liability		-		-		18		-			-			18
Stock-based compensation expense		-		-		1,302		-			-			1,302
Other comprehensive income		-		-		-		305			-			305
Net loss		-		-		-		-			(14,129	)		(14,129	)
Balance at June 30, 2022		34,352,084	$	3	$	201,936	$	(149	)	$	(161,523	)	$	40,267


					Additional		Accumulated Other					Total
	Common Stock				Paid-in		Comprehensive		Accumulated			Stockholders'
	Shares		Amount		Capital		Income		Deficit			Equity
Balance at December 31, 2022		34,414,149	$	3	$	204,268	$	76	$	(172,405	)	$	31,942
Stock-based compensation expense						1,038							1,038
Other comprehensive income								229					229
Net loss										(3,940	)		(3,940	)
Balance at March 31, 2023		34,414,149	$	3	$	205,306	$	305	$	(176,345	)	$	29,269
Issuance of common stock under employee stock purchase plan		154,351		-		86		-		-			86
Stock-based compensation expense		-		-		934		-		-			934
Other comprehensive income		-		-		-		35		-			35
Net loss		-		-		-		-		(3,343	)		(3,343	)
Balance at June 30, 2023		34,568,500	$	3	$	206,326	$	340	$	(179,688	)	$	26,981

See accompanying notes.

Equillium, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Six Months Ended June 30,			Six Months Ended June 30,
	2023			2022
Operating activities:
Net loss	$	(7,283	)	$	(51,546	)
Adjustments to reconcile net loss to cash used in operating activities:
Acquired in-process research and development		-			23,049
Depreciation and amortization		62			56
Stock-based compensation		1,972			2,600
Net unrealized loss on foreign currency transactions		270			245
Amortization of term loan discount and issuance costs		180			100
Amortization of investments, net		(597	)		73
Deferred revenue		(4,882	)		-
Changes in operating assets and liabilities:
Accounts receivable		(905	)		-
Prepaid expenses and other current assets		(2,421	)		(220	)
Accounts payable		(930	)		3,623
Accrued expenses		332			(1,447	)
Right-of-use assets and lease liabilities, net		(8	)		74
Net cash used in operating activities		(14,210	)		(23,393	)
Investing activities:
Purchases of property and equipment		-			(277	)
Purchases of short-term investments		(37,181	)		(14,962	)
Maturities of short-term investments		27,000			11,245
Cash acquired in Bioniz acquisition		-			700
Net cash used in investing activities		(10,181	)		(3,294	)
Financing activities:
Repayment of notes payable		(9,133	)		-
Proceeds from issuance of common stock under employee stock purchase plan		86			141
Net cash (used in) provided by financing activities		(9,047	)		141
Effect of exchange rate changes on cash and cash equivalents		(45	)		(12	)
Net decrease in cash and cash equivalents		(33,483	)		(26,558	)
Cash and cash equivalents at beginning of period		59,107			50,366
Cash and cash equivalents at end of period	$	25,624		$	23,808
Supplemental cash flow information:
Fair value of Bioniz assets acquired	$	-		$	23,049
Issuance of common stock for Bioniz acquisition		-			(22,542	)
Bioniz net liabilities assumed	$	-		$	507

See accompanying notes.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Organization and Accounting Pronouncements

Description of Business

Equillium, Inc. (the Company) was incorporated in the state of Delaware on March 16, 2017. The Company is a clinical-stage biotechnology company leveraging a deep understanding of immunobiology to develop novel therapeutics to treat severe autoimmune and inflammatory disorders with high unmet medical need. The Company’s strategy is focused on advancing the clinical development of its product candidates, including potentially pursuing additional indications and acquiring new product candidates and platforms to expand its pipeline. The Company intends to commercialize its product candidates either independently or through partnerships or otherwise monetize its pipeline through strategic transactions.

From inception through June 30, 2023, the Company has devoted substantially all of its efforts to organizing and staffing the Company, business planning, raising capital, in-licensing rights to itolizumab (EQ001), conducting non-clinical research, filing three Investigational New Drug applications (INDs), conducting clinical development of the Company’s product candidates, conducting business development activities such as the acquisition of Bioniz Therapeutics, Inc. (Bioniz), the Asset Purchase Agreement with Ono Pharmaceutical Co., Ltd. (Ono) and other transactions not completed, and the general and administrative activities associated with operating a public company. In addition, the Company has not generated revenues from product sales, milestone payments, or royalties, and the sales and income potential of its business is unproven.

Liquidity and Business Risks

As of June 30, 2023, the Company had $48.4 million in cash, cash equivalents and short-term investments. The Company has incurred significant operating losses and negative cash flows from operations. The Company expects to use its cash, cash equivalents, and short-term investments primarily for clinical development, non-clinical research, manufacturing and product supply, potential acquisition of new products, potential repurchases of shares of its common stock under its stock repurchase program, legal and other regulatory compliance, employee compensation and related expenses, insurance premiums, working capital and other general overhead costs. The Company does not expect to generate any revenues from product sales unless and until the Company successfully completes development and obtains regulatory approval of any of its product candidates, which is unlikely to happen within the next 12 months, if ever. Accordingly, until such time as the Company can generate significant revenue from sales of its product candidates, if ever, the Company expects to finance its cash needs through a combination of equity offerings, debt financings, and collaboration and license agreements, such as its Asset Purchase Agreement with Ono. However, the Company may not be able to secure additional financing or enter into such other arrangements in a timely manner or on favorable terms, if at all. As a result of the conflict between Russia and Ukraine, bank failures, inflationary pressures on the economy and monetary policy responses taken by government agencies and other macroeconomic factors, the global credit and financial markets have experienced extreme volatility, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth and uncertainty about economic stability. There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur. If equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult to obtain, more costly and/or more dilutive. The Company’s failure to raise capital or enter into such other arrangements when needed would have a negative impact on the Company’s financial condition and could force the Company to delay, reduce or terminate its research and development programs or other operations, or grant rights to develop and market product candidates that the Company would otherwise prefer to develop and market itself. Management believes that the Company’s cash, cash equivalents and short-term investments as of June 30, 2023, including after giving effect to the Company’s stock repurchase program, will be sufficient to fund operations for at least the next 12 months from the date this Quarterly Report on Form 10-Q is filed with the Securities and Exchange Commission (SEC).

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and the rules and regulations of the SEC related to a quarterly report on Form 10-Q. Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Updates (ASU) promulgated by the Financial Accounting Standards Board (FASB). Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations. The condensed consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results for the periods presented. All such adjustments are of a normal and recurring nature. The operating results presented in these condensed consolidated financial statements are not necessarily indicative of the results that may be expected for any future periods. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 23, 2023.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Foreign Currency Translation

The Company’s wholly-owned subsidiary in Australia uses its local currency as its functional currency. Assets and liabilities are translated into U.S. dollars at quarter-end exchange rates and revenues and expenses are translated at average exchange rates during the quarter and year-to-date periods. Foreign currency translation adjustments for the reported periods are included in accumulated other comprehensive income (loss), net in the Company’s condensed consolidated statements of comprehensive loss, and the cumulative effect is included in the stockholders’ equity section of the Company’s condensed consolidated balance sheets.

Recently Issued Accounting Pronouncements

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires an acquirer to recognize and measure contract assets and liabilities acquired in a business combination in accordance with Revenue from Contracts with Customers (Topic 606) rather than adjust them to fair value at the acquisition date. This accounting standards update will be effective for the Company beginning in the first quarter of fiscal 2024. The Company does not expect this accounting standards update to have a material impact on its consolidated financial statements.

No other new accounting pronouncements or legislation issued or effective as of June 30, 2023 have had, or are expected to have, a material impact on our consolidated financial statements.

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements requires the Company to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in the condensed consolidated financial statements and accompanying notes. Significant estimates in the Company’s condensed consolidated financial statements relate to accrued research and development expense, expected refunds from the Australian Taxation Office for eligible research and development activities, revenue recognition and the valuation of equity awards. Management evaluates its estimates on an ongoing basis. Although estimates are based on the Company’s historical experience, knowledge of current events, and actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions.

Concentration of Credit Risk and Off-Balance Sheet Risk

Financial instruments which potentially subject the Company to significant concentration of credit risk consist of cash and cash equivalents and short-term investments. The Company maintains deposits in federally insured financial institutions in which the majority of deposits are in excess of federally insured limits. The Company has not experienced any losses in such accounts, and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held. The Company’s investment policy includes guidelines for the quality of the related institutions and financial instruments and defines allowable investments that the Company may invest in, which the Company believes minimizes the exposure to concentration of credit risk.

Comprehensive Loss

The Company is required to report all components of comprehensive loss, including net loss, in the consolidated financial statements in the period in which they are recognized. Comprehensive loss is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources, including unrealized gains and losses on investments and foreign currency translation gains and losses. Other comprehensive income (loss), net includes unrealized gains or losses on short-term investments as well as foreign currency translation gains or losses.

Cash and Cash Equivalents

Cash and cash equivalents include cash in readily available checking and savings accounts, and money market funds. The Company considers all highly liquid investments with an original maturity of three months or less from the date of purchase to be cash equivalents. At June 30, 2023 and December 31, 2022, the Company's cash and cash equivalents were primarily comprised of money market funds.

Short-Term Investments

Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported in comprehensive loss. The amortized cost of available-for-sale debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion are included in interest income. Realized gains and losses and declines in value judged to be other-than-temporary, if any, on available-for-sale securities are included in other income or expense. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income.

Accounts Receivable

Accounts receivable includes trade accounts receivables from the Ono Asset Purchase Agreement (see Note 8). Reimbursable costs that have not been invoiced as of the balance sheet date are recorded as unbilled accounts receivable. As of June 30, 2023 and December 31, 2022, the Company had unbilled accounts receivable totaling $3.7 million and $2.8 million, respectively, classified as accounts receivable on its consolidated balance sheet. The Company makes judgments as to its ability to collect outstanding receivables and provide an allowance for receivables when collection becomes doubtful. Allowance for credit risk for accounts receivable is established based on various factors including credit profiles of the Company’s customers, historical payments and current economic trends. The Company reviews its allowance for accounts receivable by assessing individual accounts receivable over a specific aging and amount. The estimate of expected credit losses is based on information about past events, current economic conditions, and forecasts of future economic conditions that affect the collectability. Accounts receivable is written-off on a case by case basis, net of any amounts that may be collected. As of June 30, 2023 and December 31, 2022, no credit losses have been recorded by the Company.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets primarily represent amounts related to estimated refunds from the Australian Tax Office for eligible research and development expenditures, clinical trial and preclinical research agreements, and director and officer insurance.

Property and Equipment

Property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets (generally three to five years).

Leases

The Company determines if an arrangement is a lease at inception. Lease right-of-use assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. For operating leases with an initial term greater than 12 months, the Company recognizes operating lease right-of-use assets and operating lease liabilities based on the present value of lease payments over the lease term at the commencement date. Operating lease right-of-use assets are comprised of the lease liability plus any lease payments made and excludes lease incentives. Lease terms include options to renew or terminate the lease when the Company is reasonably certain that the renewal option will be exercised or when it is reasonably certain that the termination option will not be exercised. For the Company's operating leases, if the interest rate used to determine the present value of future lease payments is not readily determinable, the Company estimates its incremental borrowing rate as the discount rate for the lease. The Company's incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in similar economic environments. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has elected the practical expedient to not separate lease and non-lease components.

Impairment of Long-Lived Assets

Long-lived assets consist primarily of property and equipment. An impairment loss is recorded if and when events and circumstances indicate that assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. While the Company’s current and historical operating losses and negative cash flows are indicators of impairment, management believes that future cash flows to be received support the carrying value of its long-lived assets and, accordingly, has not recognized any impairment losses since inception.

Accrued Research and Development Expense

The Company is required to estimate its expenses resulting from its obligations under contracts with vendors, consultants and contract research organizations, in connection with conducting research and development activities. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided under such contracts. The Company reflects research and development expenses in its condensed consolidated financial statements by matching those expenses with the period in which services and efforts are expended. The Company accounts for these expenses according to the progress of the preclinical or clinical study as measured by the timing of various aspects of the study or related activities. The Company determines accrual estimates through review of the underlying contracts along with preparation of financial models taking into account discussions with research and development personnel as to the progress of studies, or other services being conducted.

During the course of a study, the Company adjusts its rate of expense recognition if actual results differ from its estimates. The Company classifies its estimates for accrued research and development expenses as accrued expenses on the accompanying condensed consolidated balance sheet.

Australian Research and Development Tax Incentive

The Company is eligible under the Australian Research and Development Tax Incentive Program, or the Tax Incentive, to obtain a cash refund from the Australian Taxation Office for eligible research and development expenditures. To be eligible, the filing entity must have revenue of less than AUD $20.0 million during the reimbursable period and cannot be controlled by income tax exempt entities. The Tax Incentive is recognized as a reduction to research and development expense when there is reasonable assurance that the Tax Incentive will be received, the relevant expenditure has been incurred, and the amount can be reliably measured. The Company classifies its estimate for the Tax Incentive as prepaid expenses and other current assets on the accompanying consolidated balance sheet. As of June 30, 2023 and December 31, 2022, the Company recorded $2.2 million and $1.0 million within prepaid and other current assets attributed to the Tax Incentive, respectively.

Revenue Recognition

The Company recognizes revenue in a manner that depicts the transfer of control of a product or a service to a customer and reflects the amount of the consideration the Company is entitled to receive in exchange for such product or service. In doing so, the Company follows a five-step approach: (i) identify the contract with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when (or as) the customer obtains control of the product or service. The Company considers the terms of a contract and all relevant facts and circumstances when applying the revenue recognition standard. The Company applies the revenue recognition standard, including the use of any practical expedients, consistently to contracts with similar characteristics and in similar circumstances.

A customer is a party that has entered into a contract with the Company, where the purpose of the contract is to obtain a product or a service that is an output of the Company’s ordinary activities in exchange for consideration. To be considered a contract, (i) the contract must be approved (in writing, orally, or in accordance with other customary business practices), (ii) each party’s rights regarding the product or the service to be transferred can be identified, (iii) the payment terms for the product or the service to be transferred can be identified, (iv) the contract must have commercial substance (that is, the risk, timing or amount of future cash flows is expected to change as a result of the contract), and (v) it is probable that the Company will collect substantially all of the consideration to which it is entitled to receive in exchange for the transfer of the product or the service.

A performance obligation is defined as a promise to transfer a product or a service to a customer. The Company identifies each promise to transfer a product or a service (or a bundle of products or services, or a series of products and services that are substantially the same and have the same pattern of transfer) that is distinct. A product or a service is distinct if both (i) the customer can benefit from the product or the service either on its own or together with other resources that are readily available to the customer and (ii) the Company’s promise to transfer the product or the service to the customer is separately identifiable from other promises in the contract. Each distinct promise to transfer a product or a service is a unit of accounting for revenue recognition. If a promise to transfer a product or a service is not separately identifiable from other promises in the contract, such promises should be combined into a single performance obligation.

The transaction price is the amount of consideration the Company is entitled to receive in exchange for the transfer of control of a product or a service to a customer. To determine the transaction price, the Company considers the existence of any significant financing component, the effects of any variable elements, noncash considerations and consideration payable to the customer. If a significant financing component exists, the transaction price is adjusted for the time value of money. If an element of variability exists, the Company must estimate the consideration it expects to receive and uses that amount as the basis for recognizing revenue as the product or the service is transferred to the customer. There are two methods for determining the amount of variable consideration: (i) the expected value method, which is the sum of probability-weighted amounts in a range of possible consideration amounts, and (ii) the mostly likely amount method, which identifies the single most likely amount in a range of possible consideration amounts.

If a contract has multiple performance obligations, the Company allocates the transaction price to each distinct performance obligation in an amount that reflects the consideration the Company is entitled to receive in exchange for satisfying each distinct performance obligation. For each distinct performance obligation, revenue is recognized when (or as) the Company transfers control of the product or the service applicable to such performance obligation.

In those instances where the Company first receives consideration in advance of satisfying its performance obligation, the Company classifies such consideration as deferred revenue until (or as) the Company satisfies such performance obligation. In those instances where the Company first satisfies its performance obligation prior to its receipt of consideration, the consideration is recorded as accounts receivable.

The Company expenses incremental costs of obtaining and fulfilling a contract as and when incurred if the expected amortization period of the asset that would be recognized is one year or less, or if the amount of the asset is immaterial. Otherwise, such costs are capitalized as contract assets if they are incremental to the contract and amortized to expense proportionate to revenue recognition of the underlying contract.

Contract Assets

The Company does not have material amounts of contract assets since revenue is recognized as control of goods is transferred or as services are performed. There are a small number of research and development services that may occur over a period of time, but that period of time is generally very short in duration. Any contract assets that may arise are recorded in accounts receivable in the Company’s consolidated balance sheet net of an allowance for credit losses.

Contract Liabilities

The Company’s contract liabilities consist of advance payments and deferred revenue. The Company classifies advance payments and deferred revenue as current or noncurrent based on the timing of when it expects to recognize revenue. Generally, all contract liabilities are expected to be recognized within one year and are included in deferred revenue in the Company’s consolidated balance sheet. The noncurrent portion of deferred revenue is included and separately disclosed in the Company’s consolidated balance sheet.

Acquired In-Process Research and Development Expense

The Company has acquired, and may continue to acquire, the rights to develop new product candidates. Payments to acquire a new product candidate, as well as future milestone payments associated with asset acquisitions in which contingent payments are resolved are immediately expensed as acquired in-process research and development provided that the product candidate has not achieved regulatory approval for marketing and, absent obtaining such approval, has no alternative future use.

Research and Development

Research and development expenses include salaries and related overhead expenses, non-cash stock-based compensation expense, external research and development expenses incurred under arrangements with third parties, costs of services performed by consultants and contract research organizations, and regulatory costs including those related to preparing and filing INDs with the FDA. Research and development costs are expensed as incurred.

Patent Costs

The Company expenses all costs as incurred in connection with patent applications (including direct application fees, and the legal and consulting expenses related to making such applications) and such costs are included in general and administrative expenses in the consolidated statement of operations.

Stock-Based Compensation

The Company measures employee and non-employee stock-based awards, including stock options and stock purchase rights, at grant-date fair value and records compensation expense on a straight-line basis over the vesting period of the award. The Company uses the Black-Scholes option pricing model to value its stock option awards. Estimating the fair value of stock option awards requires management to apply judgment and make estimates of certain assumptions, including the volatility of the Company’s common stock, the expected term of the Company’s stock options, the expected dividend yield and the fair value of the Company’s common stock on the measurement date. As a result, if factors change and management uses different assumptions, stock-based compensation expense could be materially different for future awards.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the consolidated financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company recognizes deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If management determines that the Company would be able to realize its deferred tax assets in the future in excess of their net recorded amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

Pursuant to the Internal Revenue Code of 1986, as amended (IRC), specifically Sections 382 and 383, the Company’s ability to use tax attribute carryforwards to offset future taxable income is limited if the Company experiences a cumulative change in ownership of more than 50% within a three-year testing period. The Company completed an ownership change analysis through June 30, 2023 pursuant to IRC Section 382 and determined that the Company’s ability to offset taxable income in 2023 is not expected to be impacted by ownership changes occurring prior to that date. If ownership changes within the meaning of IRC Section 382 occur in the future, the amount of remaining tax attribute carryforwards available to offset future taxable income and income tax expense in future years may be significantly restricted or eliminated, including those acquired through Bioniz. Further, the Company's deferred tax assets associated with such tax attributes could be significantly reduced or eliminated upon realization of an ownership change within the meaning of IRC Section 382. If eliminated, the related asset would be removed from the deferred tax asset schedule, with a corresponding reduction in the valuation allowance. Additionally, limitations on the utilization of the Company's tax attribute carryforwards can increase the amount of taxable income and current income tax expense recognized. Due to the existence of the valuation allowance, ownership change limitations that are not significant may not impact the Company's effective tax rate.

The Tax Cuts and Jobs Act of 2017 amended IRC Section 174 to eliminate the immediate expensing of research and experimental (R&E) expenditures for amounts paid or incurred in tax years beginning after December 31, 2021. The rules of IRC Section 174, as amended, require taxpayers to charge their R&E expenditures and software development costs (collectively, R&E expenditures) to a capital account. Capitalized costs are required to be amortized over five or fifteen years for research performed within the United States or foreign jurisdictions, respectively. As a result of these law changes, the Company is forecasting an immaterial amount of federal taxable income after the utilization of its federal tax attribute carryforwards.

The Company records uncertain tax positions on the basis of a two-step process whereby (1) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more- likely-than-not recognition threshold, management recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense. Any accrued interest and penalties are included within the related tax liability.

Net Loss per Share

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and common share equivalents outstanding for the period. Common stock equivalents are only included when their effect is dilutive. The Company’s potentially dilutive securities include outstanding options under the Company’s equity incentive plan and outstanding warrants to purchase common stock, each of which have been excluded from the computation of diluted net loss per share as they would be anti-dilutive to the net loss per share. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position.

Potentially dilutive securities not included in the calculation of diluted net loss per share attributable to common stockholders because to do so would be anti-dilutive are as follows (in common stock equivalent shares):


	Six Months Ended June 30,
	2023		2022
Common stock options		7,317,199		5,303,825
Common stock warrants		1,366,141		1,366,141
Total		8,683,340		6,669,966

3. Fair Value of Financial Instruments

The following tables summarize the Company’s assets that require fair value measurements on a recurring basis and their respective input levels based on the fair value hierarchy (in thousands):


			Fair Value Measurements Using
			Quoted Prices in		Significant		Significant
			Active Markets		Other		Unobservable
			for Identical		Observable		Inputs
	June 30, 2023		Assets (Level 1)		Inputs (Level 2)		(Level 3)
Short-term investments:
U.S. treasury securities	$	22,754	$	22,754	$	-	$	-
Total	$	22,754	$	22,754	$	-	$	-

			Fair Value Measurements Using
			Quoted Prices in		Significant		Significant
			Active Markets		Other		Unobservable
			for Identical		Observable		Inputs
	December 31, 2022		Assets (Level 1)		Inputs (Level 2)		(Level 3)
Short-term investments:
U.S. treasury securities	$	11,916	$	11,916	$	-	$	-
Total	$	11,916	$	11,916	$	-	$	-

U.S. treasury securities and certificates of deposit are valued using Level 1 inputs. Level 1 securities are valued at unadjusted quoted prices in active markets that are observable at the measurement date for identical, unrestricted assets or liabilities. Fair values determined by Level 2 inputs, which utilize data points that are observable such as quoted prices, interest rates and yield curves, require the exercise of judgment and use of estimates, that if changed, could significantly affect the Company’s financial position and results of operations. Investments in agency securities are valued using Level 2 inputs. Level 2 securities are initially valued at the transaction price and subsequently valued and reported utilizing inputs other than quoted prices that are observable either directly or indirectly, such as quotes from third-party pricing vendors.

The carrying amounts of the Company’s financial instruments, including cash, cash equivalents, prepaid and other current assets, accounts payable, and accrued liabilities, approximate fair value due to their short maturities. The carrying amount of the Company’s notes payable of $9.0 million at December 31, 2022 approximated its fair value as the terms of the notes are consistent with the market terms of transactions with similar profiles (Level 2 inputs). None of the Company’s non-financial assets or liabilities are recorded at fair value on a non-recurring basis.

The Company did not hold any Level 1, 2 or 3 financial liabilities that are recorded at fair value on a recurring basis as of June 30, 2023 or December 31, 2022.

4. Certain Financial Statement Caption Information

Short-Term Investments

The following table summarizes the Company’s short-term investments (in thousands):


	Maturity	Amortized		Unrealized		Unrealized			Estimated
	(in years)	Cost		Gains		Losses			Fair Value
June 30, 2023
U.S. treasury securities	1 or less	$	22,784	$	1	$	(31	)	$	22,754
Total		$	22,784	$	1	$	(31	)	$	22,754
December 31, 2022
U.S. treasury securities	1 or less	$	12,006		-		(90	)	$	11,916
Total		$	12,006	$	-	$	(90	)	$	11,916

All of the Company’s available-for-sale securities are available to the Company for use in its current operations. As a result, the Company categorizes all of these securities as current assets even though the stated maturity of some individual securities may be one year or more beyond the balance sheet date. All of the Company’s securities have a maturity within two years of the balance sheet date.

There were no impairments considered other-than-temporary during the periods presented, as it is management’s intention and ability to hold the securities until a recovery of the cost basis or recovery of fair value. Unrealized gains and losses are included in accumulated other comprehensive loss.

Accrued Expenses

Accrued expenses consisted of the following (in thousands):


	June 30,		December 31,
	2023		2022
Clinical development	$	4,397	$	3,253
Accrued payroll and other employee benefits		1,841		2,975
Other accruals		661		472
Non-clinical research		638		465
Accrued interest		-		74
Total accrued expenses	$	7,537	$	7,239

5. Acquisition

On February 14, 2022, the Company entered into an Agreement and Plan of Merger with Project JetFuel Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of the Company (Merger Sub), Bioniz and Kevin Green, solely in his capacity as representative of the securityholders of Bioniz (the Securityholders’ Representative). As consideration for the acquisition of Bioniz, the Company agreed to (a) issue up to an aggregate of 5,699,492 shares of the Company’s common stock (Merger Shares), and (b) make contingent payments up to an aggregate of $57.5 million based on the achievement of certain regulatory events for the Bioniz product candidates commencing on first U.S. approval, and up to an aggregate of $250 million based on the achievement of certain commercialization events for product candidate BNZ-1 (now referred to as EQ101) as set forth in the Merger Agreement. The Merger Shares may be adjusted downward after the closing, pursuant to procedures set forth in the Merger Agreement, including with respect to indemnification claims and in connection with the finalization of transaction expenses, debt, net exercise taxes and working capital amounts at closing.

At closing, the Company delivered to the transfer agent 4,820,230 shares of its common stock for issuance to former stockholders of Bioniz per the terms of the Merger Agreement. Up to an additional 879,252 shares of the Company's common stock, pending any adjustments per the terms of the Merger Agreement, will be issued to former stockholders of Bioniz 18 months after closing. The acquisition of Bioniz expanded the Company's pipeline of novel immunomodulatory drug candidates, adding two first-in-class clinical stage assets, BNZ-1 and BNZ-2, now referred to as EQ101 and EQ102, respectively, and a proprietary product discovery platform.

The Company determined the acquisition constituted an acquisition of assets instead of a business combination as substantially all of the fair value of the gross assets acquired was concentrated in a group of similar identifiable assets, and therefore, the acquisition was not considered a business. As the Company is recording the transaction as an asset acquisition under ASC 805, the contingent payments will be recognized upon achievement and at that time will be expensed to in-process research and development. Transaction costs of approximately $0.4 million associated with the acquisition were included in the Company’s research and development expense during the six months ended June 30, 2022. No transaction costs were included for the three months ended June 30, 2022.

A summary of the purchase price allocation is as follows (in thousands):


	Amount
Assets acquired:
Cash	$	700
Prepaid expenses and other current assets		28
Fixed assets		6
Total assets acquired		734
Liabilities assumed:
Accounts payable		265
Accrued expenses		976
Total liabilities assumed		1,241
Net liabilities acquired	$	507
Issuance of common stock for Bioniz acquisition		22,542
Acquired in-process research and development	$	23,049

6. Notes Payable

On September 30, 2019 (the Effective Date), the Company entered into a Loan and Security Agreement (the Loan Agreement) with two lenders (the Lenders) pursuant to which the Company borrowed $10.0 million from the Lenders (the Term Loan), which represented the maximum amount the Company was permitted to borrow under the terms of the Loan Agreement.

The Term Loan was set to mature on June 1, 2024 (the Maturity Date) and was initially being repaid through interest-only payments, which originally extended through June 30, 2021, followed by 36 equal monthly payments of principal and interest. The Term Loan interest was at a floating per annum rate equal to the greater of (i) 8.25% and (ii) the sum of (a) the prime rate reported in The Wall Street Journal on the last business day of the month that immediately preceded the month in which the interest was being accrued, plus (b) 3.00%.

On April 23, 2021, the Loan Agreement was amended to (i) change the final payment percentage from 4.5% to 5.0% and (ii) extend the interest-only payment period based on achieving the following milestones: (a) the Company achieving positive data in the Company's Phase 1b aGVHD trial of itolizumab (EQ001) supporting a formal decision to advance into Phase 2 or Phase 3 development, and as confirmed by the Company's Board of Directors in written board minutes (the Interest-Only Extension Milestone) and (b) the Company initiating a pivotal Phase 3 aGVHD trial (the Interest-Only Extension II Milestone). In May 2021, the Company achieved the Interest-Only Extension Milestone, and in March 2022, the Company obtained confirmation from the Lenders that the Interest-Only Extension II Milestone had been achieved, which extended the interest-only payments through September 30, 2022, followed by 24 equal monthly principal payments and interest.

In February 2022, the Company entered into a Third Amendment to the Loan Agreement (the Third Amendment) which added Bioniz as a secured party to the loan.

Under the Loan Agreement, the Company was required to make a final payment of 5.00% of the original principal amount of the Term Loan drawn payable on the earlier of (i) the Maturity Date, (ii) the acceleration of the Term Loan in the event of a default, or (iii) the prepayment of the Term Loan (the Final Payment). The Company could prepay all, but not less than all, of the Term Loan upon 30 days’ advance written notice to the lender, provided that the Company was obligated to pay a prepayment fee equal to (i) 3.00% of the principal amount of the Term Loan prepaid on or before the first anniversary of the applicable funding date, (ii) 2.00% of the principal amount of the Term Loan prepaid between the first and second anniversary of the funding date, and (iii) 1.00% of the principal amount of the Term Loan prepaid thereafter, and prior to the Maturity Date (each, a Prepayment Fee).

In connection with entering into the Loan Agreement, the Company issued to the Lenders warrants exercisable for 80,428 shares of the Company’s common stock (the Warrants). The Warrants are exercisable in whole or in part, immediately, and have a per share exercise price of $3.73, which was the closing price of the Company’s common stock reported on the Nasdaq Global Market on the day prior to the Effective Date. The Warrants will terminate on the earlier of September 30, 2029 or the closing of certain merger or consolidation transactions.

On May 25, 2023, the Company prepaid in full all amounts due and owing under, and terminated, the Loan Agreement. In connection with the prepayment and termination of the Loan Agreement, the Company paid a total of approximately $6.8 million, which consisted of (i) the remaining principal amount and interest outstanding of approximately $6.2 million as of the date of the repayment, (ii) a Prepayment Fee of approximately $62,000, (iii) the Final Payment of approximately $0.5 million, and (iv) the remainder for transaction expenses. As of June 30, 2023, the Company had no further obligations under the Loan Agreement.

The aggregate carrying amounts of the Term Loans were comprised of the following (in thousands):


	June 30,		December 31,
	2023		2022
Principal	$	-	$	8,571
Add: accreted liability for final payment fee		-		430
Less: unamortized discount		-		(48	)
Total	$	-	$	8,953

7. Leases

The Company’s leases relate primarily to office and laboratory facilities located in La Jolla and previously in South San Francisco, California. The Company’s lease of office space in South San Francisco expired in February 2023 and the Company did not renew that lease. The Company’s lease of laboratory space in La Jolla expires in 2025, and the Company's leases of office space in La Jolla expire in 2027. The terms of the Company’s non-cancelable operating lease arrangements typically contain fixed lease payment which increases over the term of the lease at fixed rates, and include rent holidays and provide for additional renewal periods. Lease expense is recognized over the term of the lease on a straight-line basis. All of the Company’s leases are classified as operating leases. The Company has determined that periods covered by options to extend the Company’s leases are excluded from the lease term as the Company is not reasonably certain the Company will exercise such options. Operating lease expense, including expenses related to short-term leases, was $0.1 million and $0.3 million for the three and six months ended June 30, 2023, respectively, and $0.2 million and $0.3 million for the three and six months ended June 30, 2022, respectively.

The Company records its right-of-use (ROU) assets within other assets (long term) and its operating lease liabilities within other current and long-term liabilities.

Additional information related to the Company’s leases as of and for the six months ended June 30, 2023, is as follows (in thousands, except lease term and discount rate):


	June 30, 2023
Balance sheet information
Right-of-use assets	$	992
Lease liabilities, current	$	416
Lease liabilities, non-current		609
Total lease liabilities	$	1,025
Other information
Weighted average remaining lease term	2.67 years
Weighted average discount rate		8.25	%
Supplemental cash flow information
Operating cash flows from operating leases	$	260
Right-of-use assets obtained in exchange for lease obligations	$	—

Maturities of lease liabilities as of June 30, 2023 were as follows (in thousands):


Year ending December 31,
2023 (remaining six months)	$	240
2024		492
2025		219
2026		169
2027		28
Total undiscounted lease payments		1,148
Less: imputed interest		(123	)
Total lease liabilities	$	1,025

As of June 30, 2023, the Company does not have any leases that have not yet commenced that create significant rights and obligations.

8. Partnerships

Asset Purchase Agreement with Ono Pharmaceutical Co., Ltd.

On December 5, 2022, the Company and Ono, a Japan kabushiki kaisha, entered into an Asset Purchase Agreement pursuant to which the Company granted Ono the exclusive right, but not the obligation, to acquire the Company’s rights to itolizumab (the Option).

These rights include all therapeutic indications and the rights to commercialize itolizumab in the United States, Canada, Australia, and New Zealand. In exchange for the Option, Ono paid the Company a one-time, upfront payment of an amount equal to JPY 3.5 billion, or $26.4 million.

If Ono exercises the Option, Ono will pay the Company a one-time payment of an amount equal to JPY 5.0 billion, or approximately $34.8 million based on the currency exchange rate quoted by MUFG Bank, Ltd. on August 3, 2023. The Company is also eligible to receive up to $101.4 million upon the achievement of certain development and commercialization milestones.

The Company is responsible for conducting all research and development of itolizumab, which will be funded by Ono on a quarterly basis from July 1, 2022, through the option period. Unless terminated early, the option period will expire three months following the delivery of topline data from the EQUALISE clinical study in lupus nephritis and interim data from the EQUATOR Phase 3 clinical study in acute graft-versus-host disease.

The Asset Purchase Agreement can be terminated at any time by Ono upon written notice, provided that in limited circumstances Ono will be obligated to continue to reimburse the Company for research and development costs and expenses of itolizumab for a certain period of time following such termination. If Ono does not timely exercise its Option, the Asset Purchase Agreement and the Option will automatically terminate. The Asset Purchase Agreement also contains customary termination rights for both parties for material breach and an outside date (subject to limited adjustments) that permits either party to terminate the Asset Purchase Agreement if the closing has not occurred by December 31, 2025.

The Asset Purchase Agreement contains customary representations and warranties with respect to both the Company and Ono. Additionally, the Company is subject to customary obligations and covenants, including affirmative and negative operating covenants on the Company with respect to its business as it applies to the development and exploitation of itolizumab, exclusivity obligations that prohibit the Company, except in limited circumstances, including in connection with the sale of the Company, from pursuing a direct or indirect sale, license or other disposition of all or any portion of the Company's itolizumab program or any of the assets to be purchased pursuant to the Asset Purchase Agreement and indemnification obligations, which, except in limited circumstances, are subject to customary caps and deductibles.

The Company applied ASC 808, Collaborative Arrangements, to the Asset Purchase Agreement and determined that the agreement is applicable to such guidance. The Company concluded that Ono represented a customer and applied relevant guidance from ASC 606, Revenue Recognition, (ASC 606) to evaluate the appropriate accounting for the Asset Purchase Agreement. In accordance with this guidance, the Company identified its performance obligations, including its grant of a license to Ono to certain of its intellectual property subject to certain conditions and the conduct of research and development services. The Company determined that its grant of a license to Ono to certain of its intellectual property subject to certain conditions was not distinct from other performance obligations because such grant is dependent on the conduct and results of the research and development services. Accordingly, the Company determined that all performance obligations should be accounted for as one combined performance obligation, and that the combined performance obligation is transferred over the expected term of the conduct of the research and development services.

The Company also assessed, in connection with the upfront and non-creditable payment of JPY 3.5 billion or $25.8 million, invoiced on December 5, 2022, that there was not a significant financing component in the Asset Purchase Agreement. The Company received payment of $26.4 million related to this upfront payment in December 2022 which included a foreign currency realized gain of $0.6 million as the initial invoice for the upfront payment was denominated in JPY.

The Company also assessed the effects of any variable elements under the Asset Purchase Agreement. Such assessment evaluated, among other things, the likelihood of receiving (i) option fees and (ii) various clinical, regulatory and commercial milestone payments. Based on its assessment, the Company concluded that, based on the likelihood of these variable components occurring, there was not a significant variable element included in the transaction price. Accordingly, the Company has not assigned a transaction price to any option fees or milestone payments under the Asset Purchase Agreement given the substantial uncertainty related to their achievement.

In accordance with ASC 606, the Company determined that the initial transaction price under the Asset Purchase Agreement equals $102.6 million, consisting of the upfront and non-creditable payment of $25.8 million and the aggregate estimated research and development funding of $76.8 million over the estimated option period. The upfront payment of $25.8 million was recorded as deferred revenue and is being recognized as revenue over time in conjunction with the Company’s conduct of research and development services as the research and development services are the primary component of the combined performance obligations. Revenue associated with the upfront payment will be recognized based on actual costs incurred as a percentage of the estimated total costs expected to be incurred over the expected term of the research and development services. Reimbursable research and development costs will be recognized as revenue as incurred.

The Company recognized revenue of $9.1 million and $18.0 million under the Asset Purchase Agreement during the three and six months ended June 30, 2023, respectively. Such revenue was comprised of $6.8 million and $13.5 million associated with development funding for the three and six months ended June 30, 2023, respectively, and $2.3 million and $4.5 million was associated with the amortization of the upfront payment for the three and six months ended June 30, 2023, respectively. As of June 30, 2023, aggregate deferred revenue related to the Asset Purchase Agreement was $20.2 million, which consisted of $14.2 million classified as current and $6.0 million as long-term.

As of June 30, 2023, the Company has received $24.4 million in cash related to aggregate development funding from Ono.

Biocon Collaboration and License Agreement

In May 2017, the Company entered into a collaboration and license agreement (which was amended in September 2018, April 2019, December 2019, April 2021 and November 2022), clinical supply agreement, investor rights agreement, and common stock purchase agreement (collectively License Agreements) with Biocon SA (subsequently assigned to Biocon Limited, or together, Biocon). Pursuant to the License Agreements, Biocon granted the Company an exclusive license to develop, make, have made, use, sell, have sold, offer for sale, import and otherwise exploit itolizumab and any pharmaceutical composition or preparation containing or comprising itolizumab that uses Biocon technology or Biocon know-how (collectively a Biocon Product) in the United States, Canada, Australia and New Zealand (collectively Equillium Territory). The Company also has the right to sublicense through multiple tiers to third parties, provided such sublicenses comply with the terms of the License Agreements and the Company provides Biocon a copy of each sublicense agreement within 30 days of execution. If the Company grants a third party a sublicense of its rights to develop and commercialize Biocon Products in Australia or New Zealand, the Company will be required to pay Biocon a high double-digit percentage of any upfront payment the Company receives from such sublicensee for such sublicense, as well as a high double-digit percentage of any additional payments the Company receives from such sublicensee for such sublicense, including but not limited to royalty payments on net sales of Biocon Products by such sublicensee. Under the License Agreements, the Company granted back to Biocon a license to use its technology and know-how related to itolizumab and Biocon Products in certain countries outside of the Equillium Territory. Pursuant to the License Agreements, Biocon agreed to be the Company’s exclusive supplier of itolizumab clinical drug product. Biocon will provide clinical drug product at no cost for up to three concurrent orphan indications until the Company’s first U.S. regulatory approval and all other clinical drug product at Biocon’s cost. In addition, the Company has agreed to co-fund an ongoing Phase 2 clinical study of itolizumab in subjects with ulcerative colitis being conducted by Biocon in India.

In consideration of the rights granted to the Company by Biocon, the Company issued Biocon a total of 2,316,134 shares of its common stock.

In addition, the Company is obligated to pay Biocon up to an aggregate of $30 million in regulatory milestone payments upon the achievement of certain regulatory approvals and up to an aggregate of $565 million in sales milestone payments upon the achievement of first commercial sale of product and specified levels of product sales. The Company is also required to pay royalties on tiers of aggregate annual net sales of Biocon Products by the Company, the Company's affiliates and the Company's sublicensees in the United States and Canada at percentages from the mid-single digits to sub-teen double-digits and on tiers of aggregate annual net sales of Biocon Products by the Company and the Company's affiliates (but not the Company's sublicensees) in Australia and New Zealand, in each case, subject to adjustments in certain circumstances. Biocon is also required to pay the Company royalties at comparable percentages for sales of itolizumab (EQ001) outside of the Equillium Territory if the approvals in such geographies included or referenced the Company’s data including data from certain of the Company’s clinical studies, subject to adjustments in certain circumstances. Should Ono exercise its option to acquire the Company's rights to itolizumab (EQ001), as described below, the aforementioned milestone payments and royalties potentially owed to Biocon would become Ono’s responsibility, and the potential royalties on sales of itolizumab outside of the Equillium Territory would be become Ono’s right. Under the License Agreements, net sales are calculated on a country-by-country basis and are subject to adjustments, including whether the Biocon Product is sold in the form of a combination product. As of June 30, 2023, the Company has not made or received payments in connection with the milestones or royalties within the agreement.

9. Stockholders’ Equity

As of June 30, 2023, the Company’s authorized capital stock consisted of 200,000,000 shares of common stock, par value $0.0001 per share, and 10,000,000 shares of preferred stock, par value $0.0001 per share.

The Company had 34,568,500 and 34,414,149 shares of common stock outstanding as of June 30, 2023 and December 31, 2022, respectively.

Stock Options

The following table summarizes stock option activity during the six months ended June 30, 2023:


	Outstanding Options			Weighted- Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands) (a)
Balance as of December 31, 2022		5,102,501		$	4.11
Granted		2,321,300		$	1.00
Exercised		-		$	-
Forfeitures and cancellations		(106,602	)	$	4.23
Balance as of June 30, 2023		7,317,199		$	3.13		7.96	$	33
Options exercisable as of June 30, 2023		3,339,111		$	4.11		6.76	$	1

(a) Aggregate intrinsic value in this table was calculated as the positive difference, if any, between the closing price per share of the Company’s common stock on June 30, 2023 of $0.75 and the price of the underlying options.

At June 30, 2023, unamortized stock compensation for stock options was $6.3 million, with a weighted-average recognition period of 2.87 years.

Stock-Based Compensation Expense

The non-cash stock-based compensation expense for all stock awards, net of forfeitures recognized as they occur, that was recognized in the condensed consolidated statements of operations is as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Research and development	$	377	$	397	$	787	$	942
General and administrative		557		905		1,185		1,658
Total	$	934	$	1,302	$	1,972	$	2,600

Common Stock Reserved for Future Issuance

Common stock reserved for future issuance is as follows:



	June 30, 2023		December 31, 2022
Stock options issued and outstanding		7,317,199		5,102,501
Warrants for common stock		1,366,141		1,366,141
Awards available under the 2018 Equity Incentive Plan		290,340		784,331
Employee stock purchase plan		1,114,887		925,963
Total		10,088,567		8,178,936

10. Income Taxes

The Company is subject to income tax in the United States (U.S.) as well as other tax jurisdictions in which it conducts business. Earnings from non-U.S. activities are subject to local country income tax. The Company does not provide for U.S. deferred income taxes on the undistributed earnings of its foreign subsidiaries as such earnings are reinvested indefinitely.

The Company’s tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter, the Company updates its estimate of the annual effective tax rate, and if the estimated annual tax rate changes, the Company makes a cumulative adjustment in that quarter. The Company’s quarterly tax provision, and its quarterly estimate of its annual effective tax rate, are subject to significant volatility due to several factors, including the Company’s ability to accurately predict its pre-tax income and loss in multiple jurisdictions.

Income tax expense was $8,000 and $68,000 for the three and six months ended June 30, 2023, respectively. The Company's effective tax rate was (0.24%) and (0.94%) for the three and six months ended June 30, 2023, respectively. There was no income tax expense for the three and six months ended June 30, 2022.

11. Subsequent Events

Authorization of Stock Repurchase Program

In July 2023, the Company’s board of directors authorized a stock repurchase program pursuant to which the Company may repurchase up to $7.5 million of shares of its common stock through December 31, 2024. Under the program, the Company may repurchase shares of common stock during the term of the program through open market transactions or such other transactions as the Company’s board of directors or designated committee thereof may approve from time to time. To date, the Company has not repurchased any shares of its common stock pursuant to the repurchase program. The timing and amount of repurchases, if any, will depend on a variety of factors, including the price of the Company’s common stock, alternative investment opportunities, the Company's cash resources, restrictions under any of the Company’s agreements, corporate and regulatory requirements and market conditions. The Company expects to fund the repurchase of shares of its common stock, if any, under the program with existing cash and cash equivalents.

Repricing of Outstanding Options

On August 7, 2023, the Company’s board of directors approved an option repricing, which will be effective on the third business day following the filing of this Quarterly Report on Form 10-Q (the Effective Date). The repricing applies to outstanding options to purchase shares of the Company’s common stock that, as of the Effective Date, are held by the Company’s employees, officers and certain non-employee directors (the Outstanding Options), to the extent such Outstanding Options have an exercise price in excess of the closing trading price of the Company’s common stock on the Effective Date, and were granted under the Company’s 2017 Equity Incentive Plan or 2018 Equity Incentive Plan (the 2018 Plan). As of the Effective Date, all Outstanding Options will be immediately repriced such that the exercise price per share for such Outstanding Options will be reduced to the closing trading price of the Company’s common stock on the Effective Date, except that a premium exercise price will apply for certain exercises, as further described below. The Outstanding Options that are repriced on the Effective Date (the Repriced Options) will include the Outstanding Options held by the Company’s executive officers and certain non-employee directors.

If a Repriced Option is exercised prior to the Retention Period End Date (as defined below), or the optionholder’s employment or service terminates under certain circumstances prior to the Retention Period End Date, the optionholder will be required to pay a premium price equivalent to the original exercise price per share of the Repriced Options. The “Retention Period End Date” means the earliest of (i) the date 18 months following the Effective Date, (ii) a Change in Control (as defined in the 2018 Plan), and (iii) the optionholder’s termination of Continuous Service (as defined in the 2018 Plan) as a result of death, disability or certain other not for Cause (as defined in the 2018 Plan) terminations.

In addition to the amendment to the exercise prices of the Repriced Options, any Repriced Options that were previously Incentive Stock Options will be amended to become Nonstatutory Stock Options (each as defined in the 2018 Plan). There will be no changes to the number of shares, the vesting schedule or the expiration date of the Repriced Options.

The Company’s board of directors approved the repricing after careful consideration of various alternatives and a review of other applicable considerations with the Company’s independent compensation consultant, outside legal counsel, the recommendation of the compensation committee of the Company’s board of directors and the determination by a disinterested director who did not have any options subject to the repricing that the repricing was fair, just and reasonable as to the Company and its stockholders. The Company’s board of directors effectuated the repricing, with the Retention Period End Date, which is permitted under the terms of the Company’s applicable equity plans, to realign the value of the Repriced Options with their intended purpose, which is to retain and motivate the holders of the Repriced Options to continue to work in the best interests of the Company and its stockholders. Prior to the repricing, many of the Repriced Options had exercise prices well above the recent market prices of the Company’s common stock.

The Company is in the process of evaluating the total incremental cost of the repricing in the Company’s condensed consolidated financial statements.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year ended December 31, 2022 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March 23, 2023. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “we,” “us,” and “our” refer to Equillium, Inc.

Forward-Looking Statements

The information in this discussion contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q and in our other filings with the SEC. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements.

Overview

We are a clinical-stage biotechnology company leveraging a deep understanding of immunobiology to develop novel therapeutics to treat severe autoimmune and inflammatory, or immuno-inflammatory, disorders with high unmet medical need. Our strategy is focused on advancing the clinical development of our product candidates, including potentially pursuing additional indications and acquiring new product candidates and platforms to expand our pipeline. We intend to commercialize our product candidates either independently or through partnerships or otherwise monetize our pipeline through strategic transactions.

Our current clinical-stage product candidates consist of EQ101, EQ102 and itolizumab (EQ001). We are focused on developing EQ101, EQ102 and itolizumab (EQ001) as potential best-in-class, disease modifying treatments for multiple severe immuno-inflammatory disorders. Our novel and differentiated pipeline of first-in-class immunology assets has the potential to address unmet medical needs in numerous therapeutic areas, including dermatology, gastroenterology, transplant science, hematology, rheumatology, oncology and pulmonology.

We acquired the exclusive worldwide rights to EQ101 and EQ102 through the acquisition of Bioniz Therapeutics, Inc., or Bioniz, in February 2022. Through the acquisition we expanded our immunology pipeline with first-in-class immuno-inflammatory product candidates across a range of development stages and obtained a proprietary platform for discovering additional, novel multi-cytokine targeting product candidates. EQ101 and EQ102 are synthetic peptides engineered to specifically inhibit key disease-driving, clinically validated cytokine targets aimed at addressing unmet needs in a number of immuno-inflammatory indications. EQ101 is a first-in class, selective, tri-specific inhibitor of IL-2, IL-9 and IL-15, and EQ102 is a first-in class, selective, bi-specific inhibitor of IL-15 and IL-21. In September 2022, we initiated a Phase 1 first-in-human clinical study of EQ102 administered subcutaneously, or SC, in up to 64 healthy volunteers in Australia. Data from the single ascending dose and multiple ascending dose cohorts is expected in the second half of 2023. We are planning an additional part to the study which will evaluate the biological activity of EQ102 in subjects with celiac disease. Data from the celiac disease patient cohort is anticipated in 2024. In November 2022, we initiated a Phase 2 proof-of-concept clinical study of EQ101 that is expected to enroll approximately 30 subjects with alopecia areata, or AA, in Australia and New Zealand. We expect to report initial data from the Phase 2 study of EQ101 for the treatment of AA in the second half of 2023 and topline data in mid-2024.

We acquired our rights to itolizumab (EQ001) pursuant to a collaboration and license agreement with Biocon SA (subsequently assigned to Biocon Limited, or together, Biocon) in May 2017, which has been subsequently amended, or Biocon License. Itolizumab (EQ001) is a first-in-class monoclonal antibody that selectively targets the immune checkpoint receptor CD6, which plays a central role in the modulation of effector T cell, or Teff cell, activity and trafficking that drives a number of immuno-inflammatory diseases across multiple therapeutic areas. In March 2022, we initiated EQUATOR, a global Phase 3 pivotal clinical study of itolizumab (EQ001) in 200 patients with acute graft-versus-host disease, or aGVHD. The decision to initiate the EQUATOR study was based on findings from our completed Phase 1b clinical study in aGVHD, called EQUATE, and feedback from both the U.S. Food and Drug Administration, or FDA, and leading physicians in the field of hematopoietic stem cell transplantation. We expect the interim review of EQUATOR data of the first 100 subjects by the Data Safety Monitoring Committee will occur in 2024.

We are also conducting the Type B portion of EQUALISE, a Phase 1b proof-of-concept clinical study of itolizumab (EQ001) in patients with lupus/lupus nephritis, or LN. We expect to report topline data from the Type B portion of the EQUALISE trial in early 2024. The Type A portion of the study has been completed, and was a multiple ascending dose, or MAD, study involving 35 systemic lupus erythematosus, or SLE, patients to evaluate the safety, tolerability, pharmacokinetics/pharmacodynamics, or PK/PD, and clinical activity of itolizumab (EQ001) administered SC. We are also collaborating with Biocon and co-funding a Phase 2 clinical study of itolizumab in subjects with ulcerative colitis. The study, which is being conducted by Biocon in India and commenced in November 2022, is a randomized, double-blinded, placebo-controlled clinical study in up to 90 subjects, to evaluate the safety and efficacy of itolizumab in patients with moderate to severe ulcerative colitis.

On December 5, 2022, we entered into an Asset Purchase Agreement, or the Asset Purchase Agreement, with Ono Pharmaceutical Co., Ltd., or Ono, pursuant to which we granted Ono an exclusive option to acquire our rights to itolizumab (EQ001), or the Option. These rights include all therapeutic indications and the rights to commercialize itolizumab (EQ001) in the United States, Canada, Australia, and New Zealand. In exchange for the Option, Ono paid us a one-time, upfront payment of an amount equal to JPY 3.5 billion, or $26.4 million.

If Ono exercises the Option, Ono will pay us a one-time, payment of an amount equal to JPY 5.0 billion, or approximately $34.8 million based on the currency exchange rate quoted by MUFG Bank, Ltd on August 3, 2023. We are also eligible to receive up to $101.4 million upon the achievement of certain development and commercialization milestones.

Pursuant to the Asset Purchase Agreement, we are responsible for conducting all research and development of itolizumab (EQ001), which will be funded by Ono on a quarterly basis from July 1, 2022 through the option period. Unless terminated early, the option period will expire three months following the delivery of topline data from the EQUALISE clinical study in LN and interim data from the EQUATOR Phase 3 clinical study in aGVHD.

The Asset Purchase Agreement can be terminated at any time by Ono upon written notice, provided that in limited circumstances Ono will be obligated to continue to reimburse us for research and development costs and expenses of itolizumab (EQ001) for a certain period of time following such termination. If Ono does not timely exercise its Option, the Asset Purchase Agreement and the Option will automatically terminate. The Asset Purchase Agreement also contains customary termination rights for both parties for material breach and an outside date (subject to limited adjustments) that permits either party to terminate the Asset Purchase Agreement if the closing has not occurred by December 31, 2025.

We have a proprietary product discovery platform that we can leverage to design novel peptides to target and inhibit multiple cytokines that are involved in validated biological and disease pathways. We also have ongoing translational biology programs to assess the therapeutic utility of our product candidates in additional indications where the mechanism of action is believed to play an important role in the pathogenesis of a particular disease. Our selection of current and future indications is driven by our analysis of the scientific, translational, clinical and commercial rationale for advancing our product candidates into further development.

Since our inception, substantially all of our efforts have been focused on organizing and staffing our company, business planning, raising capital, in-licensing rights to itolizumab (EQ001), conducting non-clinical research, filing three Investigational New Drug applications, or INDs, conducting clinical development of our product candidates, conducting business development activities such as the acquisition of Bioniz, the Asset Purchase Agreement with Ono and other transactions not completed, initiating a stock repurchase program, and the general and administrative activities associated with operating a public company. Furthermore, in connection with the acquisition of Bioniz, we expanded our pipeline from one product candidate to three product candidates, all at various stages of development. This expansion may accelerate the rate at which our operating losses increase as we incur costs to further the development and seek regulatory approval for these product candidates. We have generated revenue from the Asset Purchase Agreement related to the one-time, upfront payment from Ono in exchange for the Option as well as from the itolizumab (EQ001) development funding from Ono. We have not generated any revenue from product sales, milestone payments or royalties. Since inception, we have primarily financed our operations through debt and equity financings and revenue generated from the Asset Purchase Agreement.

We have incurred losses since our inception. For the six months ended June 30, 2023 and 2022, our net losses were $7.3 million and $51.5 million, respectively. As of June 30, 2023, we had an accumulated deficit of $179.7 million. Substantially all of our operating losses resulted from expenses incurred in connection with our research and development activities, non-clinical and clinical activities, acquired in-process research and development, and general and administrative costs associated with our operations.

We expect to continue to incur significant expenses and increasing losses into the foreseeable future. We anticipate our expenses will increase substantially as we advance our research and development activities, including the ongoing and future clinical development of EQ101, EQ102 and itolizumab (EQ001), potentially expand the indications in which we conduct clinical development of our product candidates, potentially acquire additional products and/or product candidates, seek regulatory approval for and potentially commercialize any approved product candidates, hire additional personnel, protect our intellectual property and incur general corporate costs.

We do not expect to generate any revenues from product sales unless and until we successfully complete development and obtain regulatory approval for EQ101, EQ102, or any future product candidate, which is unlikely to happen within the next 12 months, if ever. Further, under the Asset Purchase Agreement with Ono, our revenues related to itolizumab (EQ001) are limited to the upfront option fee already received, reimbursement of our development costs of itolizumab (EQ001) during the option period, and the potential option exercise fee and potential milestone payments. If Ono does not exercise its Option, we would not expect to generate any revenues from product sales of itolizumab (EQ001) unless and until we successfully complete development and obtain regulatory approval for itolizumab (EQ001), which is unlikely to happen within the next 12 months, if ever. Accordingly, until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our cash needs through a combination of equity offerings, debt financings, and collaboration and license agreements, such as our Asset Purchase Agreement with Ono. However, we may not be able to secure additional financing or enter into such other arrangements in a timely manner or on favorable terms, if at all. As a result of the conflict between Russia and Ukraine, bank failures, inflationary pressures on the economy and monetary policy responses by government agencies and other macroeconomic factors, the global credit and financial markets have experienced extreme volatility, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth and uncertainty about economic stability. There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur. If equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult to obtain, more costly and/or more dilutive. On March 10, 2023, the Federal Deposit Insurance Corporation, or FDIC, took control and was appointed receiver of Silicon Valley Bank, or SVB. At the time the FDIC took control, we held assets valued at approximately $8.2 million in a sweep account with SVB. We received full access to those funds on March 13, 2023. We currently have full access to and control over all of our cash, cash equivalents and short-term investments. In addition, because a substantial majority of our cash, cash equivalents and short-term investments are held at a financial institution unaffiliated with SVB, we do not expect any material impact to our operations directly related to the closure of SVB, but we may in the future be adversely impacted. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and could force us to delay, reduce or terminate our research and development programs or other operations, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Financial Overview

Revenue

To date, we have not generated any revenues from therapeutic product sales, developmental milestones or royalties. For the three and six months ended June 30, 2023, our revenues were derived from development funding from Ono and recognition of deferred revenue associated with the upfront payment from Ono. In the future, we may generate revenue from collaboration or license agreements we may enter into with respect to our product candidates, including further revenue such as development funding and potential option exercise and milestone payments from the Asset Purchase Agreement with Ono, as well as product sales from any approved product, which approval is unlikely to happen within the next 12 months, if ever. Our ability to generate product revenues will depend on the successful development and eventual commercialization of EQ101, EQ102, itolizumab (EQ001) if Ono does not exercise its option, and any future product candidates. If we fail to complete the development of EQ101, EQ102, itolizumab (EQ001) or any future product candidates in a timely manner, or to obtain regulatory approval for our product candidates, our ability to generate future revenue and our results of operations and financial position would be materially adversely affected.

Asset Purchase Agreement with Ono Pharmaceutical Co., Ltd.

On December 5, 2022, we entered into the Asset Purchase Agreement pursuant to which we granted Ono the Option in exchange for a one-time, upfront payment of an amount equal to JPY 3.5 billion, or $26.4 million. These rights include all therapeutic indications and the rights to commercialize itolizumab in the United States, Canada, Australia, and New Zealand.

If Ono exercises the Option, we will receive JPY 5.0 billion, or approximately $34.8 million based on the currency exchange rate quoted by MUFG Bank, Ltd. on August 3, 2023. We are also eligible to receive up to $101.4 million upon achievement of certain development and commercialization milestones.

We are responsible for conducting all research and development of itolizumab, which will be funded by Ono on a quarterly basis from July 1, 2022, through the option period. Unless terminated early, the option period will expire three months following the delivery of topline data from the EQUALISE clinical study in LN and interim data from the EQUATOR Phase 3 clinical study in aGVHD.

During the three and six months ended June 30, 2023, we recognized $9.1 million and $18.0 million, respectively, of revenue under the Asset Purchase Agreement.

As of June 30, 2023, aggregate deferred revenue related to the Asset Purchase Agreement was $20.2 million.

Research and Development Expenses

Research and development expenses primarily consist of costs associated with our non-clinical research and clinical development of our product candidates. Our research and development expenses include:

•

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

•

per patient clinical study costs;

•

external research and development expenses incurred under arrangements with third parties, such as consultants and advisors for research and development;

•

costs of services performed by third parties, such as contract research organizations, or CROs, that conduct research and development activities on our behalf;

•

costs related to preparing and filing three INDs with the FDA and other regulatory interactions and submissions;

•

pharmacovigilance costs related to global drug safety monitoring and reporting;

•

external expenses related to chemistry, manufacturing, and controls, or CMC, formulation and device development, and supply of drug product; and

•

costs related to general overhead expenses such as travel, insurance, rent expenses, lab supplies and equipment associated with our research and development activities.

We expense research and development costs as incurred. We account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received.

Our direct research and development expenses consist principally of external costs, such as fees paid to CROs and consultants in connection with our non-clinical research and clinical development.

We recognize the Australian Research and Development Tax Incentive, or the Tax Incentive, as a reduction of research and development expense. The amounts are determined based on our eligible research and development expenditures and are non-refundable, provided that in order to qualify for the Tax Incentive the filing entity must have revenue of less than AUD $20.0 million during the tax year for which a reimbursement claim is made and cannot be controlled by an income tax exempt entity. The Tax Incentive is recognized when there is reasonable assurance that the Tax Incentive will be received, the relevant expenditure has been incurred, and the amount can be reliably measured or reliably estimated.

We plan to substantially increase our research and development expenses for the foreseeable future as we advance the development of EQ101, EQ102, and itolizumab (EQ001) if Ono does not exercise its option, potentially expand the number of indications for which we are developing those product candidates, and potentially acquire or develop new product candidates. The successful development of EQ101, EQ102 and itolizumab (EQ001) is highly uncertain. At this time, due to the inherently unpredictable nature of pre-clinical and clinical development, we cannot reasonably estimate the nature, timing or costs of the efforts that will be necessary to complete the remainder of the development of our product candidates or the period, if any, in which material net cash inflows from the sales from our product candidates may commence. Clinical development timelines, the probability of success, and development costs can differ materially from expectations.

Completion of clinical trials may take several years or more, and the length of time generally varies according to the type, complexity, novelty, and intended use of a product candidate. The cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development, including, among others:

•

per patient clinical trial costs;

•

the number of clinical trials required for approval;

•

the number of sites and the number of countries included in our clinical trials;

•

the length of time required to enroll suitable patients;

•

the inefficiencies and additional costs related to any delays and potential restarts of clinical trials;

•

the number of doses that patients receive;

•

the number of patients that participate in our clinical trials;

•

the drop-out or discontinuation rates of patients in our clinical trials; the duration of patient follow-up;

•

potential additional safety monitoring or other studies requested by regulatory agencies;

•

the number and complexity of procedures, analyses and tests performed during our clinical trials;

•

the costs of procuring drug product for our clinical trials;

•

the phase of development of the product candidate; and

•

the efficacy and safety profile of the product candidate.

Acquired In-Process Research and Development Expenses

Acquired in-process research and development expense consist of the cost to acquire the rights to develop new product candidates associated with the Bioniz acquisition as those product candidates acquired were deemed to have no alternative future use.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation and benefits, and consulting fees for executive, human resources, investor relations, finance, and accounting functions. Other significant costs include legal fees relating to patent and corporate matters, insurance, travel, board expenses, facility costs and taxes.

We anticipate that our general and administrative expenses will increase in future periods, reflecting an expanding infrastructure, increased legal, audit, tax and other professional fees associated with being a public company and maintaining compliance with stock exchange listing and SEC requirements, director and officer insurance premiums associated with being a public company, and accounting and investor relations costs. In addition, if we obtain regulatory approval for any product candidate, we expect to incur expenses associated with building the infrastructure and capabilities to commercialize such product. However, the timing of any such approval is highly uncertain, and it may be several years, if ever, that we receive any such regulatory approval.

Interest Expense

Interest expense consists of interest and amortization of discounts on our prior term loans payable.

Interest Income

Interest income consists primarily of interest income earned on cash, cash equivalents and short-term investments, and is recognized when earned.

Other Expense, net

Other expense, net consists primarily of net foreign currency transaction gains and losses related to our Australian subsidiary.

Income Tax Expense

Income tax expense consists of federal and state income tax expense.

Results of Operations

Comparison of the Three and Six Months Ended June 30, 2023 and 2022

The following table sets forth our results of operations for the three and six months ended June 30, 2023 and 2022 (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Revenue	$	9,124		$	-		$	18,003		$	-
Research and development		9,610			9,488			18,882			20,251
Acquired in-process research and development		-			-			-			23,049
General and administrative		3,105			4,064			6,820			7,581
Interest expense		(259	)		(259	)		(491	)		(515	)
Interest income		627			64			1,266			90
Other expense, net		(112	)		(382	)		(291	)		(240	)
Income tax expense		8			-			68			-

Revenue

During the three and six months ended June 30, 2023, we recognized revenue of $9.1 million and $18.0 million, respectively, under our Asset Purchase Agreement with Ono. For the three months ended June 30, 2023, development funding represented $6.8 million and amortization of the upfront payment represented $2.3 million. For the six months ended June 30, 2023, development funding represented $13.5 million and amortization of the upfront payment represented $4.5 million. There was no revenue recognized during the three and six months ended June 30, 2022.

Research and Development Expenses

Research and development expenses were $9.6 million and $18.9 million for the three and six months ended June 30, 2023, respectively, compared to $9.5 million and $20.3 million for the three and six months ended June 30, 2022, respectively.

The increase of $0.1 million in research and development expenses for the three months ended June 30, 2023, compared to the same period in 2022, was primarily driven by the following changes:

•

$1.1 million increase in clinical development expenses, primarily driven by our EQ101, EQ102 and EQUATOR clinical studies, partially offset by lower costs for our other itolizumab (EQ001) clinical studies and further offset by a

•

$0.5 million increase in the estimated Tax Incentive benefit from the Australian Tax Office, or ATO, offsetting our research and development expenses associated with our EQ101 and EQ102 clinical studies in Australia;

•

$0.2 million decrease in non-clinical research expenses;

•

$0.2 million decrease in employee compensation and benefits, primarily related to decreased headcount; and

•

$0.1 million decrease in consulting expenses.

The decrease of $1.4 million in research and development expenses for the six months ended June 30, 2023, compared to the same period in 2022, was primarily driven by the following changes:

•

$1.2 million increase in the estimated Tax Incentive benefit from the ATO, offsetting our research and development expenses associated with our EQ101 and EQ102 clinical studies in Australia;

•

$1.3 million decrease in employee compensation and benefits, primarily related to decreased headcount;

•

$0.9 million decrease in non-clinical research expenses;

•

$0.4 million decrease in transaction costs associated with the Bioniz asset acquisition, primarily legal expenses; offset by a

•

$2.3 million increase in clinical development expenses, primarily driven by our EQ102, EQUATOR and EQ101 clinical studies, partially offset by lower costs for our other itolizumab (EQ001) clinical studies; and

•

$0.1 million increase in consulting expenses.

Acquired In-Process Research and Development Expenses

There were no acquired in-process research and development expenses in the three months ended June 30, 2022, whereas there was $23.0 million of such expenses in the six months ended June 30, 2022. The acquired in-process research and development expenses in the first quarter of 2022 resulted from accounting for the Bioniz acquisition as an asset acquisition based on a determination that the product candidates acquired had no alternative future use. The consideration in excess of the tangible net liabilities acquired was expensed. There were no such expenses for the three and six months ended June 30, 2023.

General and Administrative Expenses

General and administrative expenses were $3.1 million and $6.8 million for the three and six months ended June 30, 2023, respectively, compared to $4.1 million and $7.6 million for the three and six months ended June 30, 2022, respectively.

The decrease of $1.0 million in general and administrative expenses for the three months ended June 30, 2023, compared to the same period in 2022, was primarily driven by the following changes:

•

$0.4 million decrease in employee compensation and benefits primarily driven by lower non-cash stock-based compensation expenses;

•

$0.4 million decrease in legal and other professional fees; and a

•

$0.2 million decrease in consulting expenses.

The decrease of $0.8 million in general and administrative expenses for the six months ended June 30, 2023, compared to the same period in 2022, was primarily driven by the following changes:

•

$0.5 million decrease in employee compensation and benefits primarily driven by lower non-cash stock-based compensation expenses;

•

$0.2 million decrease in consulting expenses;

•

$0.2 million decrease in directors and officers insurance expenses; offset by a

•

$0.1 million increase in audit-related fees.

Interest Expense

Interest expense was $0.3 million and $0.5 million for the three and six months ended June 30, 2023, respectively, and $0.3 million and $0.5 million for the three and six months ended June 30, 2022, respectively. Interest expense consists of interest on our prior term notes payable.

Interest Income

Interest income was $0.6 million and $1.3 million for the three and six months ended June 30, 2023, respectively, compared to $0.1 million for both the three and six months ended June 30, 2022. The increase in interest income can be attributed to higher average interest rates in 2023 compared to 2022.

Other Expense, net

Other expense, net was $0.1 million and $0.3 million for the three and six months ended June 30, 2023, respectively, compared to $0.4 million and $0.2 million for the three and six months ended June 30, 2022, respectively. The change in both the three and six months ended June 30, 2023 compared to the same periods in 2022 were primarily driven by changes in net foreign currency transaction gains and losses.

Income Tax Expense

Income tax expense was $8,000 and $68,000 for the three and six months ended June 30, 2023, respectively. Our effective tax rate was (0.24%) and (0.94%) for the three and six months ended June 30, 2023, respectively. There was no income tax expense for the three and six months ended June 30, 2022.

Liquidity and Capital Resources

From inception through June 30, 2023, we have financed our operations primarily through the sale of equity and debt securities. In addition, we have generated proceeds from our Asset Purchase Agreement with Ono as described in more detail in the Sources of Liquidity section below. As of June 30, 2023, we had $25.6 million in cash and cash equivalents and $22.8 million in short-term investments.

Sources of Liquidity

Asset Purchase Agreement with Ono

On December 5, 2022, we entered into the Asset Purchase Agreement with Ono, pursuant to which we granted Ono the exclusive right, but not the obligation, to acquire our rights to itolizumab. These rights include all therapeutic indications and the rights to commercialize itolizumab in the United States, Canada, Australia, and New Zealand. In exchange for the Option, Ono paid us a one-time upfront payment of an amount equal to JPY 3.5 billion, or $26.4 million.

We are also eligible to receive up to $101.4 million upon the achievement of certain development and commercialization milestones. As of June 30, 2023, we have not received the option exercise payment or any milestone payments.

We are responsible for conducting all research and development of itolizumab, which will be funded by Ono on a quarterly basis from July 1, 2022, through the option period. The option period will expire three months following the delivery of topline data from the EQUALISE study in LN and interim data from the EQUATOR Phase 3 clinical study in aGVHD.

As of June 30, 2023, we have received $24.4 million in development funding from Ono.

Funding Requirements

We expect our expenses to increase substantially in connection with our ongoing and future activities, particularly as we advance and expand our clinical development of EQ101, EQ102, and itolizumab (EQ001) if Ono does not exercise its option, including potential new indications. We expect that our primary uses of capital will be for clinical development, non-clinical research, manufacturing and product supply, potential acquisition of new products, potential repurchases of shares of our common stock under our stock repurchase program, legal and other regulatory compliance, employee compensation and related expenses, insurance premiums, working capital and other general overhead costs.

In July 2023, our board of directors authorized a stock repurchase program pursuant to which we may repurchase up to $7.5 million of shares of our common stock through December 31, 2024. Under the program, we may repurchase shares of common stock during the term of the program through open market transactions or such other transactions as our board of directors or designated committee thereof may approve from time to time. To date, we have not repurchased any shares of our common stock pursuant to the repurchase program. The timing and amount of repurchases, if any, will depend on a variety of factors, including the price of our common stock, alternative investment opportunities, our cash resources, restrictions under any of our agreements, corporate and regulatory requirements and market conditions. We expect to fund the repurchase of shares of our common stock, if any, under the program with existing cash and cash equivalents.

We expect that our existing cash, cash equivalents and short-term investments as of June 30, 2023, including after giving effect to our stock repurchase program, will enable us to fund our currently planned operations into 2025. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we expect. Furthermore, our operating plans may change, and we may need additional funds sooner than planned. Additionally, the process of testing product candidates in clinical studies is costly, and the timing of progress in these studies is uncertain. Because the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of EQ101, EQ102 and itolizumab (EQ001) or any of our other product candidates or whether, or when, we may achieve profitability.

Our future capital requirements will depend on many factors, including:

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whether Ono exercises its option and the extent to which milestones payments, if any, are received:

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the initiation, progress, timing, costs and results of our ongoing and future clinical studies of EQ101, EQ102, itolizumab (EQ001) and other product candidates, including as such activities may be adversely impacted by public health epidemics or outbreaks, the evolving conflict between Russia and Ukraine and recent bank failures;

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the number and scope of indications we decide to pursue for the development of our product candidates;

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the cost, timing and outcome of regulatory review of any Biologics License Application, or BLA, or New Drug Application, or NDA, we may submit for our product candidates;

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the costs and timing of manufacturing EQ101, EQ102, itolizumab (EQ001) and other product candidates;

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the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

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our efforts to enhance operational systems and our ability to attract, hire and retain qualified personnel, including personnel to support the development of our product candidates;

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the costs associated with being a public company;

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our ability to enter into partnerships or otherwise monetize our pipeline through strategic transactions on a timely basis, on terms that are favorable to us, or at all;

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the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements;

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the extent to which we acquire or in-license other product candidates and technologies;

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the legal and other transactional costs associated with our business development activities; and

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the cost associated with commercializing EQ101, EQ102 and itolizumab (EQ001) or any of our other product candidates, if approved for commercial sale.

Until such time as we can generate substantial product revenues, if ever, we expect to finance our cash needs through a combination of equity offerings, debt financings, and collaboration and license agreements, such as our Asset Purchase Agreement with Ono. The sale of additional equity or convertible debt could result in additional dilution to our stockholders and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. The incurrence of debt financing would result in debt service obligations and the governing documents would likely include operating and financing covenants that would restrict our operations. As a result of the conflict between Russia and Ukraine, bank failures, inflationary pressures on the economy and monetary policy responses taken by government agencies and other macroeconomic factors, the global credit and financial markets have experienced extreme volatility, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth and uncertainty about economic stability. There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur. If equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult to obtain, more costly and/or more dilutive. If we raise additional funds through collaboration or license agreements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us and/or that may reduce the value of our common stock. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or other operations. Any of these actions could have a material effect on our business, financial condition and results of operations. We have experienced net losses and negative cash flows from operating activities since our inception and expect to continue to incur net losses into the foreseeable future. We had an accumulated deficit of $179.7 million as of June 30, 2023. We expect operating losses and negative cash flows to continue for at least the next several years as we incur costs related to the development of EQ101, EQ102, and itolizumab (EQ001) if Ono does not exercise its option, and any our other product candidates.

Material Cash Requirements

Our expected material cash requirements are comprised of contractually obligated expenditures, including amounts due under our operating leases. For additional information relating to our leases, see Note 7 of the Notes to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. We have no material non-cancelable purchase commitments with service providers, as we have generally contracted on a cancelable, purchase order basis. Our expected material cash requirements do not include potential contingent payments upon the achievement by us of regulatory and commercial milestones that we may be required to make under the terms of the merger agreement pursuant to which we acquired Bioniz, nor do they include potential contingent payments upon the achievement by us of regulatory and commercial milestones or royalty payments that we may be required to make under license agreements we have entered into or may enter into with various entities pursuant to which we have in-licensed certain intellectual property, including the Biocon License. For further details on the potential contingent payments related to our acquisition of Bioniz and related to the Biocon License, see Notes 5 and 8 of the Notes to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Cash Flows

The following table sets forth the primary sources and uses of cash for each of the periods set forth below (in thousands):


	Six Months Ended June 30,
	2023			2022
Net cash (used in) provided by:
Operating activities	$	(14,210	)	$	(23,393	)
Investing activities		(10,181	)		(3,294	)
Financing activities		(9,047	)		141
Effect of exchange rate changes on cash		(45	)		(12	)
Net decrease in cash and cash equivalents	$	(33,483	)	$	(26,558	)

Operating Activities

During the six months ended June 30, 2023, cash used in operating activities was $14.2 million compared to $23.4 million during the six months ended June 30, 2022. The primary driver of the change in cash used in operating activities was the receipt of $12.2 million in development funding from Ono in the six months ended June 30, 2023.

Investing Activities

Net cash used in investing activities was $10.2 million during the six months ended June 30, 2023. We purchased $37.2 million of short-term investments, which was partially offset by the maturing of $27.0 million of our short-term investments during the period.

Net cash used in investing activities was $3.3 million during the six months ended June 30, 2022. We purchased $15.0 million of short-term investments, which was partially offset by the maturing of $11.3 million of our short-term investments during the period. Purchases of property and equipment during the six months ended June 30, 2022 totaled $0.3 million. As a result of the Bioniz acquisition, we acquired cash totaling $0.7 million in the six months ended June 30, 2022.

Financing Activities

Net cash used in financing activities totaled $9.0 million during the six months ended June 30, 2023, driven by payments totaling $9.1 million related to our former loan and security agreement with Oxford Finance LLC and SVB, or Loan Agreement, offset by $0.1 million of cash received from employee stock purchases related to our Employee Stock Purchase Plan.

On May 25, 2023, we terminated our Loan Agreement and prepaid in full all outstanding amounts. The total payments made in the six months ended June 30, 2023 were $9.1 million, comprised of (i) principal amounts outstanding as of December 31, 2022 totaling $8.6 million, (ii) a prepayment fee of approximately $62,000, and (iii) a final payment fee of approximately $0.5 million. As of June 30, 2023, we had no further obligations under the Loan Agreement.

Net cash provided by financing activities of $0.1 million during the six months ended June 30, 2022 was attributed to cash received from employee stock purchases related to our Employee Stock Purchase Plan.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. The preparation of our condensed consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and related disclosures. We base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates.

There have been no changes to our critical accounting policies and estimates described in the Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 23, 2023, that have had a material impact on our condensed consolidated financial statements and related notes.

Recently Issued Accounting Pronouncements

See Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a summary of recently issued and adopted accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required for smaller reporting companies.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, that are designed to ensure that information required to be disclosed in our periodic and current reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

As of June 30, 2023, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2023.

There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

RISK FACTORS SUMMARY

We face many risks and uncertainties, as more fully described in this section under the heading “Risk Factors.” Some of these risks and uncertainties are summarized below. The summary below does not contain all of the information that may be important to you, and you should read this summary together with the more detailed discussion of these risks and uncertainties contained in “Risk Factors.”

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We have incurred significant losses since our inception, expect to incur significant losses for the foreseeable future and may never achieve or maintain profitability;

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We will require substantial additional funding to continue and complete the development and any commercialization of EQ101 and EQ102, and if Ono does not exercise its option, itolizumab (EQ001), and any future product candidates. If we are unable to raise this capital when needed, we may be forced to delay, reduce or eliminate our research and development programs or other operations;

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Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates;

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We are highly dependent on the successful development of our current product candidates, EQ101, EQ102 and itolizumab (EQ001), and we may not be able to obtain regulatory or marketing approval of, or successfully commercialize, these product candidates in any of the indications for which we plan to develop them;

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Interim, topline or preliminary data from our clinical studies that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data;

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We are and may become further dependent on Ono for funding the clinical development and commercialization of itolizumab (EQ001). If Ono terminates our Asset Purchase Agreement, does not exercise its option, or does not achieve the milestones specified in the Asset Purchase Agreement, our business and financial condition would be adversely impacted;

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We have licensed itolizumab from Biocon pursuant to an exclusive license agreement, which license is conditioned upon us meeting certain diligence obligations with respect to the development, regulatory approval and commercialization of itolizumab, and making significant milestone payments in connection with regulatory approval and commercial milestones as well as royalty payments;

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We have licensed the rights to itolizumab in the United States, Canada, Australia, and New Zealand. Any adverse developments that occur during any research, clinical, or commercial use of itolizumab by Biocon or third parties in other jurisdictions may affect our ability to obtain regulatory approval of or successfully commercialize itolizumab (EQ001) or otherwise adversely impact our business;

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If we are unable to obtain or protect intellectual property rights covering our product candidates, or if the scope of the intellectual property protection is not sufficiently broad, our competitors could develop and commercialize products similar or identical to ours, and we may not be able to compete effectively in our market;

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The manufacture of pharmaceutical products, especially biologics, is complex and we may encounter difficulties in production, distribution and delivery of our product candidates. If CMOs, including Biocon, our exclusive CMO for itolizumab (EQ001), encounter such difficulties, our ability to provide supply of our product candidates for clinical studies, our ability to obtain marketing approval, or our ability to obtain commercial supply of our products, if approved, could be delayed or stopped;

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We rely, and intend to continue to rely, on CROs to conduct our clinical studies and perform some of our research and preclinical studies. If these third parties do not satisfactorily carry out their contractual duties, fail to comply with applicable regulatory requirements or meet expected deadlines, our development programs may be delayed or subject to increased costs or we may be unable to obtain regulatory approval, each of which may have an adverse effect on our business, financial condition, results of operations and prospects;

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We currently have no marketing and sales organization and have no experience as a company in commercializing products, and we may have to invest significant resources to develop these capabilities. If we are unable to establish marketing and sales capabilities or enter into agreements with parties to market and sell our products, if approved, we may not be able to generate product revenue;

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Even if our product candidates receive marketing approval in any indication, they may fail to achieve the degree of market acceptance by physicians, patients, hospitals, healthcare payors and others in the medical community necessary for commercial success; and

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If we are unable to regain compliance with the listing requirements of the Nasdaq Global Market, our common stock may be delisted from the Nasdaq Global Market which could have a material adverse effect on our financial condition and could make it more difficult for you to sell your shares.

RISK FACTORS

You should carefully consider the following risk factors, as well as the other information in this report, before deciding whether to purchase, hold or sell shares of our common stock. The occurrence of any of the following risks could harm our business, financial condition, results of operations and/or growth prospects or cause our actual results to differ materially from those contained in forward-looking statements we have made in this report and those we may make from time to time. You should consider all of the factors described as well as the other information in our financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” when evaluating our business. The risk factors set forth below that are marked with an asterisk (*) contain changes to the similarly titled risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2022. If any of the following risks actually occurs, our business, financial condition, results of operations and future growth prospects would likely be materially and adversely affected. In these circumstances, the market price of our common stock would likely decline and you may lose all or part of your investments. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.

Risks Related to Our Financial Position and Need for Additional Capital

We have incurred significant losses since our inception, expect to incur significant losses for the foreseeable future and may never achieve or maintain profitability.*

We are a clinical-stage biotechnology company incorporated in March 2017 and our operations, to date, have consisted of organizing and staffing our company, business planning, raising capital, in-licensing rights to itolizumab (EQ001), conducting non-clinical research, filing three INDs, conducting clinical development of EQ101, EQ102 and itolizumab (EQ001), conducting business development activities such as the acquisition of Bioniz in February 2022 and the Asset Purchase Agreement with Ono in December 2022, and the general and administrative activities associated with being a public company. We have never completed the development of any product candidate through to marketing approval, and we have never generated any revenue from sales of an approved product. Consequently, we have no meaningful operations upon which to evaluate our business, and predictions about our future success or viability may not be as accurate as they could be if we had a history of successfully developing and commercializing biopharmaceutical products.

Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that a product candidate will fail to gain regulatory approval or become commercially viable. We have never generated any revenues from sales of an approved product, and we cannot estimate with precision the extent of our future losses. For the six months ended June 30, 2023 and the year ended December 31, 2022, our net losses were $7.3 million and $62.4 million, respectively. As of June 30, 2023, we had an accumulated deficit of $179.7 million. We expect to incur operating losses for the foreseeable future as we execute our plan to advance our research and development activities into later stages of clinical development, ramp up clinical development of EQ101 and EQ102, perform discovery research and conduct formulation and device development of our product candidates, potentially expand the indications for which we conduct clinical development of our product candidates, potentially acquire or develop new products and/or product candidates, seek regulatory approvals of and potentially commercialize any approved products, hire additional personnel and protect our intellectual property. Furthermore, in connection with the acquisition of Bioniz, we expanded our pipeline from one product candidate to three product candidates, all at various stages of development. This expansion of our pipeline may accelerate the rate at which our operating losses increase as we incur costs to further the development and seek regulatory approval of these product candidates. In addition, if we obtain regulatory approval of any of our product candidates, we expect to incur increased sales and marketing expenses, with certain of such investments potentially being made in advance of an approval. As a result, we expect to continue to incur significant operating losses and negative cash flows for the foreseeable future. These losses have had and will continue to have an adverse effect on our financial position and working capital.

To become and remain profitable, we must develop or acquire and eventually commercialize a product with significant market potential. This will require us to be successful in a range of challenging activities, including completing preclinical studies and clinical studies of our product candidates, obtaining marketing approvals of our product candidates, manufacturing, marketing and selling our product candidates if we obtain marketing approval, and satisfying post-marketing requirements, if any. We may never succeed in these activities and, even if we succeed in obtaining approval of and commercializing our product candidates, we may never generate revenues that are significant enough to achieve profitability. In addition, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown challenges. Furthermore, because of the numerous risks and uncertainties associated with biopharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis and we may continue to incur substantial research and development and other expenditures to develop and market additional product candidates. Our failure to become and remain profitable would decrease the value of the company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.

We expect our expenses to increase substantially during the next few years. The development of biotechnology product candidates is capital intensive. As we conduct non-clinical research and clinical development of our product candidates, we will need substantial additional funds to maintain and expand our capabilities in a variety of areas including discovery and non-clinical research, clinical development, regulatory affairs, product development, product quality assurance, and pharmacovigilance. In addition, if we obtain marketing approval of any of our product candidates, we expect to incur significant commercialization expenses for marketing, sales, manufacturing and distribution. Some of those commercialization investments may be made at-risk in advance of receiving an approval.

As of June 30, 2023, we had $48.4 million in cash, cash equivalents and short-term investments. We expect that our existing cash, cash equivalents and short-term investments as of June 30, 2023, including after giving effect to the stock repurchase program, will enable us to fund our operations into 2025. However, changing circumstances or inaccurate estimates by us may cause us to use capital significantly faster than we currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control. For example, our ongoing and future clinical studies of our product candidates may encounter technical, enrollment or other issues that could cause our development costs to increase more than we expect. In addition, we may use up to $7.5 million of our cash and cash equivalents to repurchase shares of our common stock under our stock repurchase program. The timing and amount of any such repurchases will depend on a variety of factors, including the price of our common stock, alternative investment opportunities, our cash resources, restrictions under any of our agreements, corporate and regulatory requirements and market conditions.

We do not have sufficient funds to complete the clinical development of EQ101 or EQ102, and if Ono does not exercise its option, itolizumab (EQ001), through regulatory approvals for our current indications. We will need to raise substantial additional capital, and even more if we make any repurchases of shares of our common stock under our stock repurchase program, to complete the development and commercialization of each of those product candidates, which additional capital may be raised through the sale of our common stock or other securities or through the entering into of alternative strategic transactions, the terms of which may require us to divest one or more of our product candidates, such as our Asset Purchase Agreement with Ono, or cause our stockholders to incur substantial dilution.

Future capital requirements will depend on many factors, including:

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the initiation, progress, timing, costs and results of our ongoing and future clinical studies of our product candidates, including as such activities may be adversely impacted by public health epidemics or outbreaks;

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the number and scope of indications we decide to pursue for our product development;

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non-clinical research and toxicology studies necessary to support the successful clinical development and potential approvals of our product candidates;

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formulation and device development work related to our product candidates;

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the cost, timing and outcome of regulatory review of any BLA or NDA we may submit for our product candidates;

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the costs and timing of manufacturing our product candidates and products; the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements, including our Asset Purchase Agreement with Ono;

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the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

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our efforts to enhance operational systems and our ability to attract, hire and retain qualified personnel, including personnel to support the development of our product candidates;

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the costs associated with being a public company;

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our ability to enter into partnerships or otherwise monetize our pipeline through strategic transactions on a timely basis, on terms that are favorable to us, or at all;

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the extent to which we acquire or in-license other product candidates and technologies;

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the legal and other transactional costs associated with our business development activities;

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whether and to what extent we make repurchases of shares of our common stock under our stock repurchase program; and

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the cost associated with commercializing our product candidates if any are approved for commercial sale.

Our commercial revenues, if any, are expected to be primarily derived from sales of products, which is unlikely to happen within the next 12 months, if ever. Under the Asset Purchase Agreement with Ono, we received a one-time, upfront payment of JPY 3.5 billion, or approximately $26.4 million, and are (i) entitled to receive a one-time payment of JPY 5.0 billion, or approximately $34.8 million (based on the currency exchange rate quoted by MUFG Bank, Ltd. on August 3, 2023) if Ono exercises its exclusive option to acquire our rights to itolizumab and (ii) eligible to receive up to $101.4 million upon the achievement of certain milestones. However, there is no assurance that Ono will exercise its option or that we will ever receive any milestone payments. Additionally, due to the risks associated with foreign exchange rates, if Ono exercises the Option, the one-time upfront payment of JPY 5.0 billion may result in a USD value that is significantly less than expected. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. Adequate additional financing may not be available to us on acceptable terms, or at all. Our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from public health epidemics or outbreaks, bank failures, the conflict between Russia and Ukraine, and monetary policy changes of federal agencies that have increased interest rates to address increasing inflationary pressures on the economy. If such disruptions persist and deepen, we could experience an inability to access additional capital. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or other operations, or enter into partnerships or otherwise monetize our pipeline through strategic transactions on terms that may not be as favorable to us as if we developed or commercialized the product candidates ourselves. Further, we may not be able to access a portion of our existing cash, cash equivalents and investments due to market conditions. For example, on March 10, 2023, the Federal Deposit Insurance Corporation, or FDIC, took control and was appointed receiver of SVB. At the time the FDIC took control, we held assets valued at approximately $8.2 million in a sweep account with SVB. We received full access to those funds on March 13, 2023. If other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our existing cash, cash equivalents and investments may be threatened and could have a material adverse effect on our business and financial condition.

Risks Related to our Business and to the Development and Regulatory Approval of our Product Candidates

Our future success will depend almost entirely on our ability to successfully develop, obtain regulatory approval of and then successfully commercialize EQ101, EQ102 and itolizumab (EQ001), in any of the indications for which we are currently planning to develop them, including treatment of AA with EQ101, treatment of celiac disease with EQ102, or treatment of aGVHD and LN with itolizumab (EQ001), which may never occur. We currently generate no revenues from sales of any biopharmaceutical products, and we may never be able to develop or commercialize a marketable biopharmaceutical product.

Before we can market and sell any of our product candidates in the United States, we will need to manage research and development activities, commence and complete clinical studies, obtain necessary regulatory approvals from the FDA and build a commercial organization or enter into a marketing collaboration with a third party, among other things. We cannot assure you that we will be able to successfully complete the necessary clinical studies and/or obtain regulatory approval and develop sufficient commercial capabilities for any of our product candidates.

We have not submitted a BLA or an NDA to the FDA or filed for approval with any other regulatory authority outside the United States for any product candidate. Further, our product candidates may not receive regulatory approval even if they are successful in clinical studies. If we do not receive regulatory approvals, our business, prospects, financial condition and results of operations will be adversely affected. Even if we obtain regulatory approval, we may never generate significant revenues from any commercial sales of any of our products. If any of our product candidates are approved and we fail to successfully commercialize them, we may be unable to generate sufficient revenues to sustain and grow our business, and our business, prospects, financial condition and results of operations will be adversely affected.

We have and may in the future enter into partnerships or similar arrangements or otherwise monetize our pipeline through strategic transactions, which may harm our ability to realize a return, if any, on our investments and may increase our need for external funding.

We may enter into partnerships or similar arrangements or otherwise monetize our pipeline through strategic transactions for purposes of raising additional capital and allocating our available capital and other resources to developing and commercializing our other or future product candidates. For example, in December 2022 we entered into the Asset Purchase Agreement with Ono pursuant to which we granted Ono the exclusive option to acquire our rights to itolizumab (EQ001). Despite our efforts, we may be unable to enter into future partnerships or otherwise monetize our pipeline through strategic transactions with third parties on favorable terms or at all. Supporting diligence activities conducted by third parties and negotiating the financial and other terms of a strategic arrangement are long, costly and complex processes with uncertain results, and we may fail to derive any financial benefit from these activities. Any efforts toward finding a strategic partner for one or more of our product candidates may divert the time and attention of our management away from their day-to-day activities, which may adversely affect our focus on the discovery and development of our current product candidates that we intend to continue to develop and commercialize. Further, potential strategic partners may develop alternative products or pursue alternative technologies either on their own or in collaboration with others, potentially resulting in us receiving no future milestone or royalty payments under any such arrangement. We may enter into a strategic transaction for one or more of our product candidates that prove to be more successful than the product candidates we decide to continue to develop and commercialize. As a result, our financial position and the return we realize on our research and development activities could be negatively affected, and we could be required to seek additional funding to support our operations through equity offerings, debt financings or other capital sources, which could result in substantial dilution to our existing stockholders and could cause the price of our common stock to decline. Any of the foregoing could have a material adverse effect on our competitive position, business prospects, financial condition and results of operations.

We may wish to acquire rights to future assets through in-licensing or may attempt to form collaborations with respect to our current or future product candidates, but may not be able to do so, which may cause us to alter or delay our development and commercialization plans.

The development and potential commercialization of our product candidates will require substantial additional capital to fund expenses. We may, in the future, decide to collaborate with biotechnology or pharmaceutical companies for the development and potential commercialization of product candidates, such as our Asset Purchase Agreement with Ono. We will face significant competition in seeking appropriate collaborators. We may not be successful in our efforts to establish other strategic partnerships or alternative arrangements for any product candidates because they may be deemed to be at too early of a stage of development for collaborative effort and potential parties may not view such product candidates as having the requisite potential to demonstrate safety and efficacy. If and when we collaborate on the development and commercialization of product candidates other than itolizumab (EQ001), we can expect to relinquish some or all of the control over the future success of that product candidate to the partner. Our ability to reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the following:

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the design or results of clinical studies;

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the likelihood of approval by the FDA or comparable foreign regulatory authorities;

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the potential market for the product candidate;

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the costs and complexities of manufacturing and delivering such product candidate to patients;

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the potential of competing products;

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the existence of uncertainty with respect to our ownership of technology or other rights, which can exist if there is a challenge to such ownership without regard to the merits of the challenge; and

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industry and market conditions generally.

The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate. We may also be restricted under any license agreements from entering into agreements on certain terms or at all with potential collaborators. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators and changes to the strategies of the combined company. As a result, we may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of such product candidate, reduce or delay one or more of our other development programs, delay the potential commercialization or reduce the scope of any planned sales or marketing activities for such product candidate, or increase our expenditures and undertake development, manufacturing or commercialization activities at our own expense. If we elect to increase our expenditures to fund development, manufacturing or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our future product candidates or bring them to market and generate product revenue. Even if we are successful in our efforts to establish such collaborations, the terms that we agree upon may not be favorable to us, and we may not be able to maintain such collaborations if, for example, development approval of a product candidate is delayed, the safety of a product candidate is questioned or sales of an approved product candidate are unsatisfactory.

We have limited experience in clinical development and have not successfully completed late-stage clinical studies or obtained regulatory approval of any product candidate.*

We initiated our first clinical study in the first quarter of 2019, which was a Phase 1 clinical study of itolizumab (EQ001) for the treatment of aGVHD. Since then, we have initiated three additional clinical studies of itolizumab (EQ001), two of which were Phase 1 clinical studies in uncontrolled asthma and lupus/LN and one was a Phase 3 clinical study in aGVHD. The Phase 1 study in uncontrolled asthma has been completed, but the Phase 1 study in lupus/LN and the Phase 3 study in aGVHD are currently ongoing. In September 2022, we initiated a Phase 1 first-in-human clinical study of EQ102 in healthy volunteers in Australia, and in November 2022 we initiated a Phase 2 clinical study of EQ101 in subjects with AA in Australia. We currently have two active INDs with the FDA for the use of itolizumab (EQ001) in the treatment of aGVHD and LN. Through the acquisition of Bioniz, we have INDs with the FDA for the use of EQ101 in the treatment of HTLV-I-associated myelopathy/tropical spastic paraparesis, cutaneous T cell lymphoma, or CTCL, and AA. Because of our limited interaction with the FDA, we may not learn of certain information or data that the FDA may request until future interactions. In part because of our limited infrastructure, experience conducting clinical studies as a company and regulatory interactions, we also cannot be certain that our ongoing and future clinical studies will be completed on time, if at all, that our planned clinical studies will be initiated on time, if at all, or that our planned development programs would be acceptable to the FDA.

Adverse safety and toxicology findings may emerge as we conduct non-clinical research or clinical studies. In addition, success in early clinical studies does not mean that later clinical studies will be successful, because later-stage clinical studies may be conducted in broader patient populations and involve different study designs. For example, although itolizumab (EQ001) and ALZUMAb share the same primary monoclonal antibody sequence, they are manufactured in different cell lines and thus could be considered different biopharmaceutical products. Therefore, results seen in clinical studies of ALZUMAb conducted by Biocon may not be predictive of the results of our clinical studies of itolizumab (EQ001). Furthermore, our future clinical studies will need to demonstrate sufficient safety and efficacy in larger patient populations for approval by the FDA. Companies frequently suffer significant setbacks in advanced clinical studies, even after earlier clinical studies have shown promising results, and we cannot be certain that we will not face similar setbacks. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical studies have nonetheless failed to obtain marketing approval of their products. In addition, only a small percentage of product candidates under development result in the submission of a BLA or NDA to the FDA and even fewer are approved for commercialization.

Our ability to generate product revenues, which we do not expect will occur for at least the next several years, if ever, will depend heavily on our ability to successfully complete the above activities and any other activities required for the successful development and eventual commercialization of our product candidates. The success of our product candidates will further depend on factors such as:

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completion of our ongoing and future clinical studies and preclinical studies with favorable results, including activities that may be adversely impacted by public health epidemics or outbreaks;

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acceptance of INDs by the FDA for our future clinical studies, as applicable;

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timely and successful enrollment in, and completion of, clinical studies with favorable results;

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demonstrating safety, efficacy and acceptable risk-benefit profile of our product candidates to the satisfaction of the FDA;

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receipt of marketing approvals from the FDA; maintaining arrangements with our contract manufacturing organizations, or CMOs, for clinical and, if and when approved, commercial supply of EQ101 and EQ102 and with Biocon, our manufacturer of itolizumab (EQ001), for cell lines and drug product clinical supply and, if and when approved, for commercial supply of itolizumab (EQ001);

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establishing sales, marketing and distribution capabilities and launching commercial sale of our product candidates, if and when approved in one or more indications;

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acceptance of our product candidates, if and when approved, by patients, the medical community and third-party payors;

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effectively competing with other therapies;

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obtaining and maintaining patent, trade secret and other intellectual property protection and regulatory exclusivity for our product candidates; and

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maintaining a continued acceptable safety profile of our products, following approval.

If we do not achieve one or more of these factors in a timely manner, we could experience significant delays or an inability to successfully obtain marketing approval and commercialize our product candidates, which would materially harm our business.

Itolizumab (EQ001) is a monoclonal antibody that selectively targets CD6, a target for which there are no FDA-approved therapies. This makes it difficult to predict the timing and costs of clinical development for itolizumab (EQ001). We do not know whether our approach in targeting CD6 will allow us to develop any products of commercial value.

Targeting CD6 is a therapeutic approach that represents a significant component of our current research and development, and the successful development of this therapeutic approach to the diseases we are targeting for treatment plays a major factor in our future success. To date, there are no FDA-approved drugs that target CD6, and while there are a number of independent studies clinically validating CD6 as a target, other than our partner Biocon, CD6 has not traditionally been a pathway targeted by other biopharmaceutical companies. The regulatory approval process for novel product candidates such as itolizumab (EQ001) can be more expensive and take longer than for other, better known or extensively studied therapeutic approaches. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to bring itolizumab (EQ001) to market could decrease our ability to generate sufficient revenue to maintain our business.

Additionally, companion diagnostic tests may be developed for use with itolizumab (EQ001). We, or our collaborators, will be required to obtain FDA clearance or approval for these tests, as well as coverage and reimbursement separate and apart from the approval and coverage and reimbursement we seek for our itolizumab (EQ001). Our inability to collaborate with a companion diagnostics developer could have a material and adverse effect on our business, financial condition, results of operations and prospects.

Biocon, its Cuban partner, CIMAB, S.A., and their licensees, over which we have no control, have the rights to develop itolizumab worldwide and commercialize itolizumab in geographies outside of the Equillium Territory (as defined below). Itolizumab is approved in India for the treatment of moderate to severe plaque psoriasis, and is marketed by Biocon as ALZUMAb. Biocon was also granted restricted emergency use approval of itolizumab by the Drugs Controller General of India, or DCGI, for the treatment of cytokine release syndrome, or CRS, in COVID-19 patients with moderate to severe ARDS in India. In September 2020, the DCGI granted approval of itolizumab produced in a Chinese hamster ovary (CHO) cell line, marketed in India under the brand name ALZUMAb-L, or ALZUMAb Lyophilized, for the treatment of chronic plaque psoriasis, as well as restricted emergency use authorization for the treatment of CRS in COVID-19 patients with moderate to severe ARDS. We are also aware that ALZUMAb and ALZUMAb-L have been and may continue to be used in India on a compassionate use basis, off label, and/or in investigator-initiated studies.

We are unaware of any currently active and ongoing clinical studies of itolizumab in Cuba. Centro de Immunologia Molecular was granted emergency use authorization of itolizumab for patients with severe COVID-19 in Cuba.

The results of clinical studies with itolizumab conducted by Biocon or third parties as well as the ongoing adverse event reporting related to the clinical or commercial use of itolizumab supported by Biocon or third parties could impact our development plans and the potential commercial prospects for itolizumab (EQ001). Further, we do not control and are unable to validate study results reported by Biocon or third parties. Any errors or omissions in the data and public disclosures reported by Biocon or third parties could have a material adverse effect on our stock price and business plans.

If serious adverse events occur with patients using itolizumab as an approved therapy or during any clinical studies, exploratory studies, or other clinical uses of itolizumab conducted or supported by Biocon or third parties, regulatory authorities, including the FDA, may delay, limit or deny approval of itolizumab (EQ001), suspend our clinical development of itolizumab (EQ001), or require us to conduct additional clinical studies as a condition of marketing approval, which would increase our costs and adversely impact our business. If we receive regulatory approval of itolizumab (EQ001) and a new and serious safety issue is identified in connection with the commercial use of ALZUMAb or ALZUMAb-L or in clinical studies, exploratory studies, or other clinical uses of itolizumab conducted or supported by Biocon or third parties, regulatory authorities may withdraw their approval of the product or otherwise restrict our ability to market and sell itolizumab. In addition, treating physicians may be less willing to administer our product due to concerns over such adverse events, which would limit our ability to commercialize itolizumab (EQ001) and could potentially adversely impact our ability to conduct clinical development of itolizumab (EQ001).

If we fail to develop or acquire other product candidates or products, our business and prospects would be limited.

One element of our strategy is to expand our pipeline by acquiring a portfolio of other product candidates through business or product candidate acquisitions such as our acquisition of Bioniz. The success of this strategy depends in large part upon the combination of our regulatory, development and commercial capabilities and expertise and our ability to identify, select and acquire product candidates for therapeutic indications that complement or augment our current pipeline, or that otherwise fit into our development or strategic plans on terms that are acceptable to us. Identifying, selecting and acquiring promising product candidates requires substantial technical, financial and human resources expertise. Efforts to do so may not result in the actual acquisition or license of a particular product candidate, potentially resulting in a diversion of our management’s time and the expenditure of our resources with no resulting benefit. If we are unable to identify, select and acquire suitable product candidates from third parties or acquire businesses at valuations and on other terms acceptable to us, or if we are unable to raise capital required to acquire businesses or new product candidates, our business and prospects will be limited and may require us to divest one or more of our product candidates to enable us to acquire businesses or new product candidates or progress the development of our other product candidates.

Moreover, any product candidate we acquire may require additional, time-consuming development or regulatory efforts prior to commercial sale or prior to expansion into other indications, including pre-clinical studies if applicable, and extensive clinical testing and approval by the FDA and applicable foreign regulatory authorities. All product candidates are prone to the risk of failure that is inherent in pharmaceutical drug development, including the possibility that the product candidate will not be shown to be sufficiently safe and/or effective for approval by regulatory authorities. In addition, we cannot assure that any such products that are approved will be manufactured or produced economically, successfully commercialized or widely accepted in the marketplace or be more effective or desired than other commercially available alternatives.

In addition, if we fail to successfully commercialize and further develop our product candidates, there is a greater likelihood that we will fail to successfully develop a pipeline of other product candidates to follow our existing product candidates or be able to acquire other product candidates to expand our existing portfolio, and our business and prospects would be harmed.

Potential natural disasters, some possibly related to the increasing effects of climate change, could damage or destroy clinical study sites, our office spaces, laboratories, and/or warehouses, which could have a significant negative impact on our operations.

We are vulnerable to the increasing impact of climate change and other natural disasters. Volatile changes in weather conditions, including extreme heat or cold, could increase the risk of wildfires, floods, blizzards, hurricanes and other weather-related disasters. Such extreme weather events, or other natural disasters such as earthquakes, can cause power outages and network disruptions that may result in disruption to operations and may impact our ability to continue or complete our clinical studies, which will negatively impact our operations and delay our plans to commercialize our product candidates. They could also cause significant damage to or destruction of our clinical study sites resulting in temporary or long-term closures of these facilities. Such disasters could also result in loss or damage to office buildings, laboratories, employee and/or patient homes, employees and/or patients relocating to other parts of the country or being unwilling to travel to the clinical study site locations, and the inability to recruit key employees and/or enroll patients. This could result in adverse impacts to the available workforce and/or patient samples, damage to or destruction of materials and/or data, or the inability to conduct clinical studies and deliver new data.

We are party to an exclusive license agreement with Biocon, pursuant to which we initially acquired an exclusive license to develop, make, have made, use, sell, have sold, offer for sale, import and otherwise exploit itolizumab and any pharmaceutical composition or preparation containing or comprising itolizumab in the United States and Canada and which was later amended to grant us the same exclusive license in Australia and New Zealand as well, or, collectively, the Equillium Territory. We are obligated, under this agreement, to achieve certain development milestones within specified timeframes in order to retain all of the licensed rights.

Certain of such milestones are largely outside of our control. We are also obligated to use commercially reasonable efforts to develop and seek regulatory approval of, and if regulatory approval is obtained, to commercialize, itolizumab in the Equillium Territory and to secure funding for the development of itolizumab in two or more indications. Further, we are obligated to make certain cash milestone payments to Biocon upon completion of certain regulatory approval and commercial milestones and are required to pay royalties to Biocon on net sales of itolizumab, if approved. Though we believe that the royalty rates and milestone payments are reasonable in light of our business plan, we will require large amounts of capital to satisfy these obligations. We may become obligated to make a milestone payment when we do not have the cash on hand to make such payment, which could require us to delay our clinical studies, curtail our operations, scale back our commercialization and marketing efforts or seek funds to meet these obligations on terms unfavorable to us. In addition, if we are unable to make any payment when due or, if we fail to achieve the development milestones within the timeframes required by the license agreement, or to satisfy our general diligence obligation to use commercially reasonable efforts to develop, register and commercialize itolizumab and to secure funding for the development of itolizumab in two or more indications, Biocon may have the right to limit the scope of our license or terminate the agreement and all of our rights to develop and commercialize itolizumab.

In December 2022, we entered into the Asset Purchase Agreement with Ono pursuant to which we granted Ono the exclusive option to acquire our rights to itolizumab (EQ001), which option expires three months following the delivery of topline data from the EQUALISE clinical study in LN and interim data from the EQUATOR Phase 3 clinical study in aGVHD. During the option period, we will be responsible for conducting all research and development of itolizumab (EQ001), which will be funded by Ono on a quarterly basis commencing July 1, 2022. If Ono fails to provide such funding, our financial condition and ability to conduct continued research and development of itolizumab (EQ001) would be adversely affected.

In the event that Ono exercises its option to acquire our rights to itolizumab (EQ001), we would no longer control the clinical development and potential commercialization of itolizumab (EQ001). Per the Asset Purchase Agreement and depending on Ono’s election, we may conduct and be compensated for certain activities on Ono’s behalf, but we would not control any itolizumab (EQ001) activities. Ono would be responsible for filing future applications with the FDA or other regulatory authorities for approval of itolizumab (EQ001) and will be the owner of any marketing approvals of itolizumab (EQ001) issued by the FDA or other regulatory authorities. If the FDA or other regulatory authorities approve itolizumab (EQ001), Ono would also be responsible for the launch, marketing and sale of the resulting product. However, we cannot control whether Ono will devote sufficient attention and resources to the clinical development of itolizumab (EQ001) or will proceed in an expeditious manner. Even if the FDA or other regulatory agencies approve itolizumab (EQ001), Ono may elect not to proceed with the commercialization of the resulting product in one or more countries. If the development of itolizumab (EQ001) does not progress for these or any other reasons, we would be prevented from obtaining further revenues, including certain development and commercialization milestones, from itolizumab (EQ001) and from otherwise realizing the benefit of such transaction, which could harm our business.

The development and commercialization of biopharmaceutical products are subject to extensive regulation, and we may not obtain regulatory approvals of our product candidates in any of the indications for which we plan to develop them, or any future product candidates, on a timely basis or at all.*

The clinical development, manufacturing, labeling, packaging, storage, recordkeeping, advertising, promotion, export, import, marketing, distribution, adverse event reporting, including the submission of safety and other post-marketing information and reports, and other possible activities relating to our current product candidates, as well as any other product candidate that we may develop in the future, are subject to extensive regulation. Marketing approval of a new therapeutic product in the United States requires the submission of an NDA or a BLA to the FDA, and we are not permitted to market any product candidate in the United States until we obtain approval from the FDA for that product. An NDA or BLA must be supported by extensive clinical and preclinical data, as well as extensive information regarding pharmacology, chemistry, manufacturing and controls. Similar submissions are required for approval by the relevant regulatory authority in other territories outside the United States before a therapeutic product can be marketed.

FDA and other applicable regulatory approval is not guaranteed, and the review and approval process is an expensive and uncertain process that may take several years. Regulatory authorities, like the FDA, also have substantial discretion in the approval process. The number and types of preclinical studies and clinical studies that will be required for approval varies depending on the product candidate, the disease or the condition that the product candidate is designed to treat and the regulations applicable to any particular product candidate. Despite the time and expense associated with preclinical studies and clinical studies, failure can occur at any stage. The results of preclinical and early clinical studies of our product candidates may not be predictive of the results of our later-stage clinical studies.

Clinical study failure may result from a multitude of factors including flaws in study design, dose selection, placebo effect, patient enrollment criteria and failure to demonstrate favorable safety or efficacy traits, and failure in clinical studies can occur at any stage. Companies in the biopharmaceutical industry frequently suffer setbacks in the advancement of clinical studies due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier studies. Based upon negative or inconclusive results, we may decide, or regulators may require us, to conduct additional clinical studies or preclinical studies. In addition, data obtained from clinical studies are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we do, which may further delay, limit or prevent marketing approval.

The FDA and other applicable regulatory authorities could delay, limit or deny approval of a product candidate for many reasons, including because they:

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may not deem our product candidate to be adequately safe and effective;

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may not agree that the data collected from clinical studies are acceptable or sufficient to support the submission of a BLA, NDA or other submission or to obtain regulatory approval, and may impose requirements for additional preclinical studies or clinical studies;

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may determine that adverse events experienced by participants in our clinical studies represents an unacceptable level of risk;

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may determine that population studied in the clinical study may not be sufficiently broad or representative to assure safety in the full population for which we seek approval;

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may not accept clinical data from studies, which are conducted at clinical facilities or in countries where the standard of care is potentially different from that of the United States;

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may disagree regarding the formulation, labeling and/or the specifications;

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may not approve the manufacturing processes or facilities associated with our product candidate;

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may change approval policies or adopt new regulations; or

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may not accept a submission due to, among other reasons, the content or formatting of the submission.

Generally, public concern regarding the safety of biopharmaceutical products could delay or limit our ability to obtain regulatory approval, result in the inclusion of unfavorable information in our labeling, or require us to undertake other activities that may entail additional costs. We have not obtained approval of any product from the FDA or any other applicable regulatory authority. This lack of experience may impede our ability to obtain FDA or any other applicable regulatory approval in a timely manner, if at all, of our product candidates.

If we experience delays in obtaining approval or if we fail to obtain approval of any of our product candidates, our commercial prospects will be harmed and our ability to generate revenues will be materially impaired which would adversely affect our business, prospects, financial condition and results of operations.

Any delays in the commencement or completion, or termination or suspension, of our ongoing, planned or future clinical studies could result in increased costs to us, delay or limit our ability to generate revenue and adversely affect our commercial prospects. Before we can initiate clinical studies of our product candidates in any distinct indication in the United States, we must submit the results of preclinical studies to the FDA along with other information, including information about their chemistry, manufacturing and controls and our proposed clinical study protocol, as part of an IND or similar regulatory filing. To date, we have only submitted INDs for clinical studies of itolizumab (EQ001) for the treatment of aGVHD, LN, and COVID-19. In addition, there are open INDs for EQ101 in HTLV-I-associated myelopathy/tropical spastic paraparesis, CTCL and AA, which were originally filed by Bioniz prior to our acquisition of the EQ101 asset.

Before obtaining marketing approval from the FDA or from any other applicable regulatory authority outside of the United States for the sale of any of our product candidates in any indication, we must conduct extensive clinical studies to demonstrate the safety and efficacy of those product candidates. Clinical testing is expensive, time consuming and uncertain as to outcome. In addition, we expect to rely in part on preclinical, clinical and quality data generated by our partner, Biocon, as well as contract research organizations, or CROs, and other contracted parties for regulatory submissions for our product candidates. While we have or will have agreements governing these contracted parties’ services, we have limited influence over their actual performance.

If these parties do not make data available to us, or, if applicable, make regulatory submissions in a timely manner, in each case pursuant to our agreements with them, our development programs may be significantly delayed and we may need to conduct additional studies or collect additional data independently. In either case, our development costs would increase.

The FDA and other applicable regulatory authorities may require us to conduct additional preclinical studies of our existing or any future product candidates before they allow us to initiate clinical studies, which may lead to additional delays and increase the costs of our preclinical development programs. Any such delays in the commencement or completion of our ongoing, planned or future clinical studies could significantly affect our product development costs. We do not know whether our ongoing and future studies will be completed on schedule, if at all, or whether our studies will begin on time, if at all. The commencement and completion of clinical studies can be delayed for a number of reasons, including delays related to:

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the FDA or other applicable regulatory authorities disagreeing as to the design or implementation of our clinical studies;

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obtaining FDA or other applicable regulatory authorizations to commence a study or reaching a consensus with the applicable FDA regulators on study design;

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any failure or delay in reaching an agreement with CROs and clinical study sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and study sites;

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obtaining approval from one or more Institutional Review Boards, or IRBs;

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additional nonclinical pharmacology and toxicology studies to support Phase 2 and 3 clinical studies;

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IRBs refusing to approve, suspending or terminating the study at an investigational site, precluding enrollment of additional subjects, or withdrawing their approval of the study;

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changes to clinical study protocol;

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clinical sites deviating from study protocol or dropping out of a study;

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manufacturing sufficient quantities of product candidate or obtaining sufficient quantities of combination therapies for use in clinical studies;

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subjects failing to enroll or remain in our study at the rate we expect, or failing to return for post-treatment follow-up;

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subjects choosing an alternative treatment, or participating in competing clinical studies;

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lack of adequate funding to continue the clinical study;

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subjects experiencing severe or unexpected drug-related adverse effects;

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occurrence of serious adverse events in studies of the same class of agents conducted by other companies;

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selection of clinical end points that require prolonged periods of clinical observation or analysis of the resulting data;

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a facility manufacturing our product candidates or any of their components being ordered by the FDA (or its own regulatory authorities if such facility is located outside the United States) to temporarily or permanently shut down or cease export of such materials due to violations of current good manufacturing practice, or cGMP, regulations or other applicable requirements, changes in export restrictions and controls, or infections or cross-contaminations during the manufacturing process;

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any changes to our manufacturing process that may be necessary or desired;

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impacts and risks associated with global health epidemics or outbreaks;

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third-party clinical investigators losing the licenses or permits necessary to perform our clinical studies, not performing our clinical studies on our anticipated schedule or consistent with the clinical study protocol, Good Clinical Practices, or GCP, or other regulatory requirements;

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us, or our contractors not performing data collection or analysis in a timely or accurate manner or improperly disclosing data prematurely or otherwise in violation of a clinical study protocol; or

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our contractors becoming debarred or suspended or otherwise penalized by the FDA or other government or regulatory authorities for violations of regulatory requirements, in which case we may need to find a substitute contractor, and we may not be able to use some or all of the data produced by such contractors in support of our marketing applications.

We could also encounter delays if a clinical study is modified, suspended or terminated by us, by the IRBs of the institutions in which such studies are being conducted, by a Data Safety Monitoring Board for such study or by the FDA or by other regulatory agencies or health authorities that have jurisdiction in countries in which the study is being conducted.

Such authorities may impose such a suspension or termination, or a modification to our study protocol, due to a number of factors, including failure to conduct the clinical study in accordance with regulatory requirements or our clinical protocols, inspection of the clinical study operations or study site by the FDA or other regulatory agencies resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a pharmaceutical, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical study. In addition, changes in regulatory requirements and policies may occur, and we may need to amend clinical study protocols to comply with these changes. Amendments may require us to resubmit our clinical study protocols to IRBs for reexamination, which may impact the costs, timing or successful completion of a clinical study.

Certain of our scientific advisors or consultants who receive compensation from us are likely to be investigators for our future clinical studies. Under certain circumstances, we may be required to report some of these relationships to the FDA or other regulatory agencies. The FDA or other regulatory agencies may conclude that a financial relationship between us and a principal investigator has created a conflict of interest or otherwise affected interpretation of the clinical study. The FDA or other applicable regulatory agency may therefore question the integrity of the data generated at the applicable clinical study site and the utility of the clinical study itself may be jeopardized. This could result in a delay in approval, or rejection, of our marketing applications by the FDA or other regulatory agencies and may ultimately lead to the denial of marketing approval of our product candidates in one or more indications. If we experience delays in the completion of, or termination of, any clinical study of our product candidates, the commercial prospects of such product candidate will be harmed, and our ability to generate product revenues will be delayed. Moreover, any delays in completing our clinical studies will increase our costs, slow down our development and approval process and jeopardize our ability to commence product sales and generate revenues from product sales which may harm our business, financial condition, results of operations and prospects significantly.

If we experience delays or difficulties in enrolling patients in our ongoing or planned clinical studies, our receipt of necessary regulatory approval could be delayed or prevented.*

We may not be able to continue our ongoing or initiate our future clinical studies of our product candidates if we are unable to identify and enroll a sufficient number of eligible patients to participate in these studies as required by the FDA or other applicable regulatory authorities. Multiple factors could contribute to such challenges of enrolling our clinical studies, including impacts related to public health epidemics or outbreaks, which have previously adversely impacted enrollment in our clinical studies. In addition, some of our competitors may have ongoing clinical studies for product candidates that would treat the same indications as our product candidates, and patients who would otherwise be eligible for our clinical studies may instead enroll in clinical studies of our competitors’ product candidates. Patient enrollment is also affected by other factors, including:

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severity of the disease under investigation;

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

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invasive procedures required to obtain evidence of the product candidate’s performance during the clinical study;

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availability and efficacy of approved medications for the disease under investigation;

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eligibility criteria defined in the protocol for the study in question;

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

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perceived risks and benefits;

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efforts to facilitate timely enrollment in clinical studies;

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reluctance of physicians to encourage patient participation in clinical studies;

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the ability to monitor patients adequately during and after treatment;

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our ability to obtain and maintain patient consents;

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proximity and availability of clinical study sites for prospective patients; and

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impacts and risks associated with global health epidemics or outbreaks.

Our inability to enroll and retain a sufficient number of patients for our clinical studies would result in significant delays or may require us to abandon one or more clinical studies altogether. Enrollment delays in our clinical studies may result in increased development costs, which would cause the value of our company to decline and limit our ability to obtain additional financing.

Adverse side effects or other safety risks associated with our product candidates could delay or preclude approval, cause us to suspend or discontinue clinical studies, abandon further development, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.*

As is the case with pharmaceuticals generally, it is likely that there may be side effects and adverse events associated with our product candidates in our ongoing and future clinical studies as well as in clinical studies, investigator-initiated studies, or off-label usage in jurisdictions where itolizumab is available commercially.

EQ101 has been well-tolerated with no dose limiting toxicities or infusion reactions reported in subjects that have been dosed in prior studies completed by Bioniz, including healthy volunteers, subjects with large granular lymphocyte leukemia and CTCL. Our Phase 2 clinical study of EQ101 in subjects with AA is currently ongoing as is our Phase 1 first-in-human clinical study of EQ102 in healthy volunteers.

Based on our current limited clinical experience with itolizumab (EQ001), expected adverse events include lymphopenia, injection site reactions, infusion-/injection-related reactions (including fever and headache), and other systemic hypersensitivity reactions including rash, urticaria, erythema, and pruritus.

The most common adverse drug reactions that have been identified from the itolizumab (EQ001) clinical programs were injection site reactions (designated an identified risk) with SC administration and lymphopenia (designated an important identified risk). Additionally, infection has been designated as an important potential risk. Lymphopenia events were common treatment emergent adverse events reported across itolizumab (EQ001) studies. A decrease in lymphocyte count is a known pharmacodynamic marker of itolizumab (EQ001). These events were generally transient following the first dose, did not decline with continued dosing, and resolved when itolizumab (EQ001) treatment was withdrawn. Further, the declines in lymphocyte count were not associated with infection or other clinical sequelae.

Biocon may also continue to support the use of ALZUMAb or ALZUMAb-L in their own sponsored clinical studies, off-label use, investigator-initiated studies, or third party-sponsored studies over which we have no control. For example, Biocon is studying itolizumab in ulcerative colitis as part of a Phase 2 clinical study being conducted in India, which Equillium is collaborating and co-funding. Given such ongoing usage of itolizumab by Biocon or third parties, there is a risk that adverse events may impact our ability to conduct clinical development and successfully commercialize itolizumab (EQ001). Further, there is a risk that any such adverse events are not properly reported, which may also adversely impact our business.

Although itolizumab (EQ001) and ALZUMAb share the same primary monoclonal antibody sequence, they are manufactured in different cell lines and thus could be considered different biopharmaceutical products. Therefore, clinical results seen with ALZUMAb may have no bearing on results, including adverse events, that may be seen with itolizumab (EQ001). Through the date of the filing of this Quarterly Report on Form 10-Q, we are not aware of any meaningful change in the benefit-to-risk profile of itolizumab.

Results of our clinical studies could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics. Undesirable side effects caused by our product candidates could result in the delay, suspension or termination of clinical studies by us, the FDA or other applicable regulatory authorities for a number of reasons. Additionally, a material percentage of patients in our aGVHD clinical studies may die from this disease, possibly as a result of itolizumab (EQ001), which could impact development of itolizumab (EQ001). If we elect or are required to delay, suspend or terminate any clinical study, the commercial prospects of our product candidates will be harmed and our ability to generate product revenues from this product candidate will be delayed or eliminated. Serious adverse events observed in clinical studies could hinder or prevent market acceptance of our product candidates. Any of these occurrences may harm our business, prospects, financial condition and results of operations significantly.

Moreover, if any of our product candidates are associated with undesirable side effects in clinical studies or have characteristics that are unexpected, we may elect to abandon or limit their development to more narrow uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective, which may limit the commercial expectations for our product candidates, if approved. We may also be required to modify our study plans based on findings in our clinical studies. Many product candidates that initially showed promise in early stage testing have later been found to cause side effects that prevented further development. In addition, regulatory authorities may draw different conclusions or require additional testing to confirm these determinations.

It is possible that as we test our product candidates in larger, longer and more extensive clinical studies, including with different dosing regimens, or as the use of our product candidates becomes more widespread following any regulatory approval, illnesses, injuries, discomforts and other adverse events that were observed in earlier studies, as well as conditions that did not occur or went undetected in previous studies, will be reported by patients. If such side effects become known later in development or upon approval, if any, such findings may harm our business, financial condition, results of operations and prospects significantly.

In addition, if any of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by that approved product or any related products, a number of potentially significant negative consequences could result, including:

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regulatory authorities may withdraw approval of the approved product; we may be required to recall a product or change the way the approved product is administered to patients;

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regulatory authorities may require additional warnings on the label, such as a “black box” warning or a contraindication, or issue safety alerts, “Dear Healthcare Provider” letters, press releases or other communications containing warnings or other safety information about the product;

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we may be required to implement a Risk Evaluation and Mitigation Strategy, or REMS, or create a medication guide outlining the risks of such side effects for distribution to patients;

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additional restrictions may be imposed on the marketing or promotion of the particular product or the manufacturing processes for the product or any component thereof;

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we could be sued and held liable for harm caused to patients;

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the approved product could become less competitive; and

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our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of any of our product candidates, if approved, and could significantly harm our business, financial condition, results of operations and prospects.

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

Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses, or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and our company in general. In addition, the information we choose to publicly disclose regarding a particular study or clinical study is based on what is typically extensive information, and you or others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular biopharmaceutical product, biopharmaceutical product candidate or our business. If the topline data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval of, and commercialize, our product candidates may be harmed, which could harm our business, operating results, prospects or financial condition.

In the past, we have conducted clinical studies of itolizumab (EQ001) outside of the United States, and we are and may in the future continue to use sites outside of the United States for clinical studies of EQ101, EQ102 and itolizumab (EQ001), including our Phase 3 pivotal clinical study of itolizumab (EQ001) in aGVHD, as well as possibly for clinical studies of any other product candidates. The FDA may not accept data from such studies, in which case our development plans will be delayed, which could materially harm our business.*

In the fourth quarter of 2017, Biocon completed a Phase 1 clinical study of itolizumab (EQ001) in healthy subjects in Australia to assess the safety and tolerability of the SC version of itolizumab (EQ001). The study also included a separate stage to compare the pharmacokinetics of the IV administration of itolizumab (EQ001) to ALZUMAb and determine the absolute bioavailability of SC itolizumab (EQ001), but this stage was terminated early due to the occurrence of an initial decrease in lymphocyte counts and transient lymphopenia. We submitted this data to the FDA as part of our IND submissions for the conduct of clinical studies for the treatment of aGVHD, LN and COVID-19. However, it is possible that the FDA will not authorize us to proceed with clinical studies in connection with any future IND submissions in other indications that have different patient populations and we may be required to conduct additional Phase 1 clinical studies, which would be costly and time consuming, and delay aspects of our development plan, which could harm our business.

We have utilized sites in Australia and New Zealand for a Phase 1b clinical study of itolizumab (EQ001) in uncontrolled moderate to severe asthma, and we have utilized sites in India for a Phase 1b clinical study of itolizumab (EQ001) in lupus and LN. Also, we are utilizing sites from a variety of countries outside of the United States in our pivotal Phase 3 clinical study of itolizumab (EQ001) in aGVHD, including sites in Europe, Asia and elsewhere. Our Phase 2 clinical study of EQ101 in subjects with AA is being conducted in Australia and New Zealand, and our Phase 1 first-in-human clinical study of EQ102 in healthy volunteers and subjects with celiac disease is being conducted in Australia. Although the FDA may accept data from clinical studies conducted entirely outside the United States and not under an IND, acceptance of such clinical study data is generally subject to certain conditions. For example, the FDA requires the clinical study to have been conducted in accordance with GCPs, and the FDA must be able to validate the data from the clinical studies through an onsite inspection if it deems such inspection necessary. In addition, when clinical studies are conducted only at sites outside of the United States, the FDA generally does not provide advance comment on the clinical protocols for the studies, and therefore there is an additional potential risk that the FDA could determine that the study design or protocol for a non-U.S. clinical study was inadequate, which would likely require us to conduct additional clinical studies. Conducting clinical studies outside the United States also exposes us to additional risks, including risks associated with:

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additional foreign regulatory requirements;

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foreign exchange fluctuations;

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compliance with foreign manufacturing, customs, shipment and storage requirements;

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cultural differences in medical practice and clinical research; and

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diminished protection of intellectual property in some countries.

We may not be successful in our efforts to expand our pipeline by identifying additional indications for which to test our product candidates in the future. We may expend our limited resources to pursue a particular indication for a product candidate and fail to capitalize on other product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

Our translational biology program may initially show promise in identifying additional indications for which our product candidates may have therapeutic benefit, yet this may fail to yield additional clinical development opportunities for our product candidates for a number of reasons, including, our product candidates may, on further study, be shown to have harmful side effects, limited to no efficacy or other characteristics that indicate that it is unlikely to receive marketing approval and achieve market acceptance in such additional indications. Research programs to identify additional indications for our product candidates require substantial technical, financial and human resources.

Because we have limited financial and managerial resources, we must prioritize our research programs and will need to focus our development efforts on the potential treatment of certain, limited indications. As a result, we may forego or delay pursuit of opportunities with other indications or for any future product candidates, or divest product candidates that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending toward developing our product candidates for specific indications may not yield any approved or commercially viable products. If we do not accurately evaluate the commercial potential or target market for our product candidates, we may pursue indications that are less attractive and may also relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.

Even if we receive regulatory approval of any of our product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense. Additionally, any of our product candidates, if approved, could be subject to labeling and other restrictions and market withdrawal and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products.*

Any regulatory approvals of our product candidates may be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical studies, and surveillance to monitor the safety and efficacy of the product candidate. In addition, if the FDA approves any product candidate, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export and record keeping for the product will be subject to extensive and ongoing regulatory requirements, which can be costly and time consuming. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMPs and GCPs, for any clinical studies that we conduct post-approval. We must incur significant expenses and spend time and effort to ensure compliance with these complex regulations.

Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, undesirable side effects caused by the product, problems encountered by our contracted manufacturers or manufacturing processes, or failure to comply with regulatory requirements, either before or after product approval, may result in, among other things:

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restrictions on the marketing or manufacturing of the product;

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requirements to include additional warnings on the label;

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requirements to create a medication guide outlining the risks to patients;

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withdrawal of the product from the market;

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voluntary or mandatory product recalls;

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requirements to change the way the product is administered or for us to conduct additional clinical studies;

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fines, warning letters or holds on clinical studies;

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refusal by the FDA to approve pending applications or supplements to approved applications filed by us or our strategic partners, or suspension or revocation of product license approvals;

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product seizure or detention, or refusal to permit the import or export of products;

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injunctions or the imposition of civil or criminal penalties; and

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harm to our reputation.

Additionally, if any product candidate receives marketing approval, the FDA could require us to adopt a REMS to ensure that the benefits of the therapy outweigh its risks, which may include, among other things, a medication guide outlining the risks for distribution to patients and a communication plan to health care practitioners. Any of these events could prevent us from achieving or maintaining market acceptance of the product or the particular product candidate at issue and could significantly harm our business, prospects, financial condition and results of operations.

In addition, if we have any product candidate approved, our product labeling, advertising and promotion will be subject to regulatory requirements and continuing regulatory review. The FDA strictly regulates the promotional claims that may be made about biopharmaceutical products. In particular, a product may not be promoted for uses that are not approved by the FDA as reflected in the product’s approved labeling. If we receive marketing approval for a product candidate, physicians may nevertheless prescribe it to their patients in a manner that is inconsistent with the approved label. If we are found to have promoted such off-label uses, we may become subject to significant liability. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant sanctions. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed.

The FDA’s policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability, which would adversely affect our business, prospects, financial condition and results of operations.

If any of our product candidates receive marketing approval in any one or more indication, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. If they do not achieve an adequate level of acceptance, we may not generate significant product revenues and we may not become profitable. The degree of market acceptance, if approved for commercial sale in any indication, will depend on a number of factors, including:

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efficacy and potential advantages compared to alternative treatments;

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our ability to offer the approved product for sale at competitive prices;

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convenience and ease of administration compared to alternative treatments; the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;

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the strength of marketing and distribution support;

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potential product liability claims;

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the timing of market introduction as well as competitive biopharmaceutical products;

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the effectiveness of our or any of our potential future sales and marketing strategies;

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unfavorable publicity;

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sufficient third-party payor coverage and adequate reimbursement;

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the willingness of patients to pay all, or a portion of, out-of-pocket costs associated with our products in the absence of sufficient third-party coverage and adequate reimbursement; and

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the prevalence and severity of any side effects.

We currently have no marketing and sales organization and have no experience as a company in commercializing products, and we may have to invest significant resources to develop these capabilities. If we are unable to establish marketing and sales capabilities or enter into agreements with contracted third parties to market and sell any of our approved products, we may not be able to generate product revenue.

We have no internal sales, marketing or distribution capabilities, nor have we commercialized a product. If any of our product candidates ultimately receives regulatory approval, we may not be able to effectively market and distribute it. We may have to seek collaborators or invest significant amounts of financial and management resources to develop internal sales, distribution and marketing capabilities, some of which will be committed prior to any confirmation that any of our product candidates will be approved, if at all. We may not be able to enter into collaborations or hire consultants or external service providers to assist us in sales, marketing and distribution functions on acceptable financial terms, or at all. In addition, our product revenues and our profitability, if any, may be lower if we rely on contracted parties for these functions than if we were to market, sell and distribute our products ourselves. We likely will have limited control over such contracted parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively. Even if we determine to perform sales, marketing and distribution functions ourselves, we could face a number of additional related risks, including:

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we may not be able to attract and build an effective marketing department or sales force;

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the cost of establishing a marketing department or sales force may exceed our available financial resources and the revenue generated by any approved product candidates; and

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our direct sales and marketing efforts may not be successful.

We face substantial competition, which may result in others discovering, developing or commercializing products more quickly or marketing them more successfully than us. If their product candidates are shown to be safer or more effective than ours, then our commercial opportunity will be reduced or eliminated.*

The development and commercialization of new products is highly competitive. We compete in the segments of the pharmaceutical, biotechnology and other related markets that develop drugs and biologics for the treatment of immuno-inflammatory diseases. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop, or that would render any products that we may develop obsolete or non-competitive. Our competitors also may obtain marketing approval of their products more rapidly than we may obtain approval of ours, which could result in our competitors establishing a strong market position before we are able to enter the market.

We are aware that other products addressing the same indications as EQ101, EQ102 and itolizumab (EQ001) are in development, and some have been approved. For the treatment of AA, Eli Lilly and Company has received FDA approval of Olumiant, and Pfizer Inc. has recently received FDA approval of Litfulo. Other private and public companies involved in AA drug development include Arcutis Biotherapeutics, Inc., ASLAN Pharmaceuticals Limited, Concert Pharmaceuticals, Inc. (acquired by Sun Pharmaceutical Industries Ltd.), Forte Biosciences, Inc., Horizon Therapeutics plc, Legacy Healthcare, Pfizer Inc., Reistone Biopharma, Zelgen Biopharmaceuticals Co., Ltd., and Zura Bio Limited. There are no approved products for celiac disease. Private and public companies with development programs targeting celiac disease include Anokion SA, Calypso Biotech BV, Chugai Pharmaceutical Co., Ltd., IGY Immune Technologies & Life Sciences Inc., Immunic, Inc., ImmunogenX, Inc., Protagonist Therapeutics, Inc., Provention Bio, Theriva Biologics, Inc., Takeda Pharmaceuticals, and Zedira GmbH. There are no FDA-approved therapies indicated as a first-line treatment of aGVHD. Second-line therapy consists of off-label immunosuppressives for which the therapeutic benefit has not been established, and Incyte Corporation’s ruxolitinib which was approved for the treatment of steroid refractory aGVHD in 2019.

Other private and public companies with development programs in first-line and steroid refractory aGVHD, including AltruBio, Inc., ASC Therapeutics, CSL Behring LLC, Cynata Therapeutics Limited, ElsaLys Biotech, Humanigen, Inc., Maat Pharma SA, Medac GmbH, Mesoblast Limited, Shenzhen Xbiome Biotech, Co., Ltd., VectivBio Holding AG, and Zelgen Biopharmaceuticals Co., Ltd. There are currently two approved therapies for the treatment of LN: GlaxoSmithKline’s Benlysta, approved in 2020, and Aurinia Pharmaceuticals’ Lupkynis, approved in January 2021. Other private and public companies involved in LN drug development include Amgen Inc., AstraZeneca plc, Boehringer Ingelheim GmbH, Bristol-Myers Squibb Company, Corestem Co., Ltd., CSL Behring LLC, Genentech Inc., Horizon Therapeutics plc, Jansen Pharmaceutical Companies of Johnson & Johnson, Kezar Life Sciences, Inc., Novartis AG, Omeros Corporation and Vera Therapeutics, Inc.

Many of our competitors, such as large pharmaceutical and biotechnology companies like Pfizer Inc. and Eli Lilly and Company, have significantly greater financial resources and expertise in research and development, manufacturing, preclinical studies, conducting clinical studies, obtaining regulatory approvals and marketing approved products than we have. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical study sites and patient registration for clinical studies, as well as in acquiring technologies complementary to, or necessary for, our programs. In addition, these larger companies may be able to use their greater market power to obtain more favorable distribution and sales-related agreements with third parties, which could give them a competitive advantage over us.

Further, as more product candidates within a particular class of biopharmaceutical products proceed through clinical development to regulatory review and approval, the amount and type of clinical data that may be required by regulatory authorities may increase or change. Consequently, the results of our clinical studies for product candidates in those classes will likely need to show a risk benefit profile that is competitive with or more favorable than those products and product candidates in order to obtain marketing approval or, if approved, a product label that is favorable for commercialization. If the risk benefit profile is not competitive with those products or product candidates, we may have developed a product that is not commercially viable, that we are not able to sell profitably or that is unable to achieve favorable pricing or reimbursement. In such circumstances, our future product revenues and financial condition would be materially and adversely affected.

Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical study sites and subject enrollment for clinical studies, as well as in acquiring technologies complementary to, or necessary for, EQ101, EQ102, itolizumab (EQ001) or any future programs.

The key competitive factors affecting the success of any of our product candidates are likely to be their efficacy, safety, convenience and availability of reimbursement. If we are not successful in developing, commercializing and achieving higher levels of reimbursement than our competitors, we will not be able to compete against them and our business would be materially harmed.

Our current product candidates and any future product candidates for which we intend to seek approval as biologic products may face competition sooner than anticipated.

The Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, the Affordable Care Act, includes a subtitle called the Biologics Price Competition and Innovation Act of 2009, or BPCIA, which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical studies to demonstrate the safety, purity and potency of their product. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation and meaning are subject to uncertainty. While it is uncertain when such processes intended to implement BPCIA may be fully adopted by the FDA, any such processes could have a material adverse effect on the future commercial prospects for our biological products.

We believe that any of our product candidates approved as a biological product under a BLA should qualify for the 12-year period of exclusivity. However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider our product candidates to be reference products for competing products, potentially creating the opportunity for biosimilar competition sooner than anticipated. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.

If market opportunities for our product candidates are smaller than we believe they are, our potential revenue may be adversely affected and our business may suffer.

We only have the rights to itolizumab (EQ001) for the Equillium Territory, and we are focused on the development of itolizumab (EQ001) for immuno-inflammatory diseases, with current plans to develop it for the treatment of patients with aGVHD and LN. We have global rights to EQ101 and EQ102 and currently have plans to develop those product candidates for AA and celiac disease, respectively. Our projections of addressable patient populations that have the potential to benefit from treatment with our product candidates are based on estimates and may prove to be incorrect. If any of our estimates are inaccurate, the market opportunities for our product candidates could be significantly diminished and have an adverse material impact on our business.

We may not ultimately realize the potential benefits of orphan drug designation for EQ101 or itolizumab (EQ001).

EQ101 has been granted orphan drug designation by the FDA and the European Medicines Agency for CTCL, and itolizumab (EQ001) has been granted orphan drug designations by the FDA for both the prevention and treatment of aGVHD. The FDA grants orphan designation to drugs that are intended to treat rare diseases with fewer than 200,000 patients in the United States or that affect more than 200,000 persons but are not expected to recover the costs of developing and marketing a treatment drug. Orphan drugs do not require prescription drug user fees with a marketing application, may qualify the drug development sponsor for certain tax credits, and may be eligible for a market exclusivity period of seven years (with certain exceptions). However, orphan drug designation neither shortens the development time nor regulatory review time of a product candidate nor gives the candidate any advantage in the regulatory review or approval process. Even if we are awarded marketing exclusivity, the FDA can still approve another drug containing the same active ingredient and used for the same orphan indication if it determines that a subsequent drug is safer, more effective or makes a major contribution to patient care, and orphan exclusivity can be lost if the orphan drug manufacturer is unable to assure that a sufficient quantity of the orphan drug is available to meet the needs of patients with the rare disease or condition. Orphan drug exclusivity may also be lost if the FDA later determines that the initial request for designation was materially defective. In addition, orphan drug exclusivity does not prevent the FDA from approving competing drugs for the same or similar indication containing a different active ingredient. If orphan drug exclusivity is lost and we were unable to successfully enforce any remaining patents covering our eligible product candidates, we could be subject to biosimilar competition earlier than we anticipate. In addition, if a subsequent drug is approved for marketing for the same or a similar indication as EQ101 or itolizumab (EQ001), we may face increased competition and lose market share regardless of orphan drug exclusivity.

Fast track designation by the FDA may not actually lead to a faster development or regulatory review or approval process.

We have received fast track designation for itolizumab (EQ001) for the treatment of aGVHD and LN. If a product is intended for the treatment of a serious or life-threatening condition and the product demonstrates the potential to address unmet medical needs for this condition, the product sponsor may apply for FDA fast track designation. Even with fast track designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may withdraw fast track designation if it believes that the designation is no longer supported by data from our clinical development program.

Even if we receive marketing approval, we may not be able to successfully commercialize any of our approved products due to unfavorable pricing regulations or third-party coverage and reimbursement policies, which could make it difficult for us to sell any of our approved products profitably.

Obtaining coverage and adequate reimbursement approval of a product from a government or other third-party payor is a time-consuming and costly process that could require us to provide supporting scientific, clinical and cost effectiveness data for the use of our approved products to the payor. There may be significant delays in obtaining such coverage and reimbursement for newly approved products, and coverage may be more limited than the purposes for which the product is approved by the FDA. Moreover, eligibility for coverage and reimbursement does not imply that a product will be paid for in all cases or at a rate that covers our costs, including research, development, intellectual property, manufacture, sale and distribution expenses. Interim reimbursement levels for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the product and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost products and may be incorporated into existing payments for other services. Net prices for products may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors, by any future laws limiting pharmaceutical prices and by any future relaxation of laws that presently restrict imports of product from countries where they may be sold at lower prices than in the United States.

There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting reimbursement policies, but also have their own methods and approval process apart from Medicare coverage and reimbursement determinations. Decisions regarding the extent of coverage and amount of reimbursement to be provided for any product candidates that we develop will be made on a payor-by-payor basis. One third-party payor’s determination to provide coverage for a drug does not assure that other payors will also provide coverage and adequate reimbursement for the drug.

Additionally, a third-party payor’s decision to provide coverage for a therapy does not imply that an adequate reimbursement rate will be approved. Third-party payors are increasingly challenging the price, examining the medical necessity and reviewing the cost-effectiveness of medical products, therapies and services, in addition to questioning their safety and efficacy.

Coverage and reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a product is:

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a covered benefit under its health plan;

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safe, effective and medically necessary;

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appropriate for the specific patient;

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cost-effective; and

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neither experimental nor investigational.

We cannot be sure that coverage or reimbursement will be available for any product that we commercialize and, if coverage and reimbursement are available, what the level of reimbursement will be. Obtaining adequate reimbursement for our products may be particularly difficult because of the higher prices often associated with branded therapeutics and therapeutics administered under the supervision of a physician. Similarly, because our product candidates are physician-administered injectables, separate reimbursement for the product itself may or may not be available. Instead, the administering physician may be reimbursed for providing the treatment or procedure in which our product is used. Our inability to promptly obtain coverage and adequate reimbursement rates from both government-funded and private payors for any approved products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.

Reimbursement may impact the demand for, and the price of, any product for which we obtain marketing approval. Assuming we obtain coverage for a given product by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. Each third-party payor determines whether or not it will provide coverage for a therapy, what amount it will pay the manufacturer for the therapy and on what tier of its list of covered drugs, or formulary, it will be placed. The position on a third-party payor’s formulary, generally determines the co-payment that a patient will need to make to obtain the therapy and can strongly influence the adoption of such therapy by patients and physicians. Patients who are prescribed medications for the treatment of their conditions, and their prescribing physicians, generally rely on third-party payors to reimburse all or part of the costs associated with those medications. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover all or a significant portion of the cost of our products. Therefore, coverage and adequate reimbursement is critical to new product acceptance. Coverage decisions may depend upon clinical and economic standards that disfavor new products when more established or lower cost therapeutic alternatives are already available or subsequently become available. Additionally, if we or our collaborators develop companion diagnostic tests for use with our product candidates, such tests will be subject to the coverage and reimbursement process separate and apart from the coverage and reimbursement we seek for our product candidates.

We expect to experience pricing pressures in connection with the sale of our product candidates due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription medicines, medical devices and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the successful commercialization of new products.

Further, the adoption and implementation of any future governmental cost containment or other health reform initiative may result in additional downward pressure on the price that we may receive for any approved product.

Risks Related to Manufacturing and Our Reliance on Third Parties

We have no experience in biologic manufacturing and do not own or operate, and we do not expect to own or operate, facilities for product manufacturing, storage and distribution, or testing. We are completely dependent on third-party CMOs to fulfill our clinical and commercial supply of our product candidates. However, the process of manufacturing pharmaceutical products, especially biologics, is complex, highly-regulated and subject to multiple risks. Such manufacturing is highly susceptible to product loss due to contamination, equipment failure, improper installation or operation of equipment, vendor or operator error, inconsistency in yields, variability in product characteristics and difficulties in scaling the production process.

Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions and higher costs. If microbial, viral or other contaminations are discovered at the facilities of our manufacturer, such facilities may need to be closed for an extended period of time to investigate and remedy the contamination, which could delay clinical studies, result in higher costs of drug product and adversely harm our business. In addition, if the facilities of our manufacturer are located outside of the United States, as is the case currently for itolizumab (EQ001) and EQ102, the production, distribution and delivery of pharmaceutical products are also subject to the laws and regulations of the country. Any changes in the laws and regulations of another country, or disruptions in production or the supply chain related to geopolitical issues or health pandemics, could delay clinical studies, result in higher costs of drug product and adversely harm our business. Moreover, if the FDA determines that our manufacturer is not in compliance with FDA laws and regulations, including those governing cGMPs, the FDA may deny BLA approval until the deficiencies are corrected or we replace the manufacturer in our BLA with a manufacturer that is in compliance.

In addition, there are risks associated with large scale manufacturing for clinical studies or commercial scale including, among others, cost overruns, potential problems with process scale-up, process reproducibility, stability issues, compliance with cGMPs, lot consistency and timely availability and delivery of raw materials. Even if we obtain regulatory approval of our product candidates or any future product candidates, there is no assurance that our CMOs will be able to manufacture the approved product to specifications acceptable to the FDA or other regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential launch of the product or to meet potential future demand. Further, our contracted manufacturers may experience manufacturing or shipping difficulties due to resource constraints or as a result of natural disasters, labor disputes, unstable political environments, or public health epidemics. If our manufacturers are unable to produce sufficient quantities for clinical studies or for commercialization, commercialization efforts would be impaired, which would have an adverse effect on our business, financial condition, results of operations and growth prospects.

Scaling up pharmaceutical manufacturing processes, especially biological processes and peptide synthesis, is a difficult and uncertain task, and our CMOs may not have the necessary capabilities to complete the implementation and development process of further scaling up production, transferring production to other sites, or managing its production capacity to timely deliver our supplies of EQ101, EQ102, itolizumab (EQ001) or other future product candidates (including other biologics) or meet product demand.

In May 2017, we entered into an exclusive clinical supply agreement with Biocon and have agreed to enter into an exclusive commercial supply agreement with Biocon in the future. Biocon manufactures itolizumab (EQ001) at its FDA regulated facility in Bangalore, India. Our dependence on Biocon subjects us to further risks and uncertainties related to our ability to fulfill our clinical and commercial supply of itolizumab (EQ001). For example, in March 2020, due to the spread of the coronavirus, the Indian government restricted the export of 26 active pharmaceutical ingredients and the medicines made from them. These export restrictions are indefinite and may be expanded. If the export restrictions are expanded to include itolizumab (EQ001), our supply of itolizumab (EQ001) may be disrupted, delayed or stopped indefinitely and our ability to continue development of itolizumab (EQ001), including our ongoing clinical studies, may be significantly impacted and may result in higher costs of drug product and adversely harm our business. If Biocon is unable to meet our manufacturing requirements (due to export restrictions or otherwise), it has the discretion to outsource manufacturing to a third party and the joint steering committee may determine to shift manufacturing to a third party. However, transfer of the manufacturing of biologic products to a new contract manufacturer, whether related to itolizumab (EQ001) or any of our current or future product candidates, can be lengthy and involve significant additional costs. Even if we are able to adequately validate and scale-up the manufacturing process with a contract manufacturer, we will still need to negotiate with such contract manufacturer an agreement for commercial supply and it is not certain we will be able to come to agreement on terms acceptable to us, if at all. In addition, Biocon has certain rights to reacquire exclusive manufacturing rights for itolizumab (EQ001), even after a third party has been engaged following shortfalls by Biocon, which may make it difficult and expensive to engage any third-party manufacturer for itolizumab (EQ001) other than Biocon.

We do not have the ability to independently conduct all aspects of our preclinical testing or clinical studies ourselves. As a result, we are and will be dependent on third parties to conduct our ongoing and future preclinical studies and clinical studies of EQ101, EQ102 and itolizumab (EQ001) and any future preclinical studies and clinical studies of any other product candidates. The timing of the initiation and completion of these studies will therefore be partially controlled by such third parties and may result in delays to our development programs.

Specifically, we expect CROs, clinical investigators and consultants to play a significant role in the conduct of these studies and the subsequent collection and analysis of data. However, we will not be able to control all aspects of their activities.

Nevertheless, we are responsible for ensuring that each clinical study is conducted in accordance with the applicable protocol and legal, regulatory and scientific standards, and our reliance on the CROs and other third parties does not relieve us of our regulatory responsibilities. Should our CROs engage in unethical, illegal, or non-compliant activities, such behavior could adversely impact our business. Further, should we terminate our contractual relationship with a CRO for such improprieties, transitioning to a different CRO may delay, disrupt or otherwise adversely impact the progress of the clinical study. We and our CROs are required to comply with GCP requirements, which are regulations and guidelines enforced by the FDA, for product candidates in clinical development. Regulatory authorities enforce these GCP requirements through periodic inspections of study sponsors, clinical study investigators and clinical study sites. If we or any of our CROs or clinical study sites fail to comply with applicable GCP requirements, the data generated in our clinical studies may be deemed unreliable, and the FDA may require us to perform additional clinical studies before approving our marketing applications. In addition, our clinical studies must be conducted with product produced under cGMP regulations. Our failure to comply with these regulations may require us to stop and/or repeat clinical studies, which would delay the marketing approval process.

There is no guarantee that any such CROs, clinical study investigators or other third parties on which we rely on will devote adequate time and resources to our development activities or perform as contractually required. If any of these third parties fail to meet expected deadlines, adhere to our clinical protocols or meet regulatory requirements, otherwise performs in a substandard manner, or terminates its engagement with us, the timelines for our development programs may be extended or delayed or our development activities may be suspended or terminated. If our clinical study site terminates for any reason, we may experience the loss of follow-up information on subjects enrolled in such clinical study unless we are able to transfer those subjects to another qualified clinical study site, which may be difficult or impossible. In addition, clinical study investigators for our clinical study may serve as scientific advisors or consultants to us from time to time and may receive cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, or the FDA concludes that the financial relationship may have affected the interpretation of the study, the integrity of the data generated at the applicable clinical study site may be questioned and the utility of the clinical study itself may be jeopardized, which could result in the delay or rejection of any marketing application we submit by the FDA. Any such delay or rejection could prevent us from commercializing EQ101, EQ102, itolizumab (EQ001) or any future product candidates.

Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors for whom they may also be conducting clinical studies or other biopharmaceutical product development activities that could harm our competitive position. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical studies in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals of EQ101, EQ102, itolizumab (EQ001) or any future product candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our products.

Our reliance on contracted parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.

Because we rely on contracted parties to research, develop, and manufacture our product candidates, we must share trade secrets with them. The need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of confidentiality agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s independent discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business.

Agreements with our advisors, employees, contractors and consultants may contain certain limited publication rights. For example, any academic institution that we may collaborate with will likely expect to be granted rights to publish data arising out of such collaboration and any joint research and development programs may require us to share trade secrets under the terms of our research and development or similar agreements. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of our agreements, independent development or publication of information by any of our collaborators. A competitor’s discovery of our trade secrets would impair our competitive position and have an adverse impact on our business.

Risks Related to Intellectual Property

Our success depends in significant part on our, and with respect to itolizumab (EQ001), Biocon’s, ability to establish, maintain and protect patents and other intellectual property rights with respect to our proprietary technologies, research programs, and product candidates, including EQ101, EQ102 and itolizumab (EQ001), and operate without infringing the intellectual property rights of others.

The patent prosecution process is expensive and time-consuming, and we and our current or future licensors, licensees or partners may not be able to prepare, file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we or our current and future licensors, licensees or partners will fail to identify patentable aspects of our research or inventions made in the course of development and commercialization activities before it is too late to obtain patent protection on them. Although we enter into confidentiality agreements with parties who have access to patentable aspects of our research and development programs, such as our employees, corporate collaborators, outside scientific collaborators, CROs, contract manufacturers, consultants, independent contractors, advisors and other third parties, any of these parties may breach these agreements and disclose such results before a patent application is filed, thereby jeopardizing our ability to seek patent protection on technology relating to our research programs. Moreover, in some circumstances, we may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology that we license from or license to third parties and are reliant on our licensors, licensees or partners. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. If our current or future licensors, licensees or partners fail to establish, maintain or protect such patents and other intellectual property rights, such rights may be reduced or eliminated. If our licensors, licensees or partners are not fully cooperative or disagree with us as to the prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised. There may be significant pressure on the U.S. government and international governmental bodies to limit the scope of patent protection both inside and outside the United States for disease treatments that prove successful, as a matter of public policy regarding worldwide health concerns.

The patent position of biotechnology companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation, resulting in court decisions, including Supreme Court decisions, which have increased uncertainties as to the ability to enforce patent rights in the future. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States, allowing foreign competitors a better opportunity to create, develop and market competing product candidates, or vice versa. We cannot be certain that the claims in our pending patent applications directed to our product candidates such as EQ101, EQ102 and itolizumab (EQ001), as well as technologies relating to our research programs, will be considered patentable by the United States Patent and Trademark Office, or USPTO, or by patent offices in foreign countries. Furthermore, even if they are unchallenged, patents in our portfolio may not adequately exclude third parties from practicing relevant technology or prevent others from designing around our claims. As a result, the issuance, scope, validity, enforceability and commercial value of our and our current or future licensors’, licensees’ or partners’ patent rights are highly uncertain. Our and our licensors’, licensees’ or partners’ pending and future patent applications may not result in patents being issued, which protect our technology or products, in whole or in part, or their intended uses, methods of manufacture or formulations, or which effectively prevent others from commercializing competitive technologies and products. The patent examination process may require us or our licensors, licensees or partners to narrow the scope of the claims of our or our licensors’, licensees’ or partners’ pending and future patent applications, which may limit the scope of patent protection that may be obtained. In the past, we have not always been able to obtain the full scope of patent protection we have initially sought in our patent applications, and as described above and as is typical for most biotechnology patent prosecution, we have been required to narrow or eliminate patent claims as part of the patent prosecution process. In addition, some patent applications that we or our licensors have filed have not resulted in issued patents because we or our licensors have abandoned those patent applications as changes in business and/or legal strategies dictated.

We cannot assure you that all of the potentially relevant prior art—information that was or is deemed available to a person of skill in the relevant art prior to the priority date of the claimed invention—relating to our patents and patent applications has been found. If such prior art exists, it can invalidate a patent or prevent a patent from issuing from a pending patent application, and we may be subject to a third party pre-issuance submission of prior art to the USPTO. Even if patents do successfully issue and even if such patents cover our product candidates, third parties may initiate litigation or opposition, interference, re-examination, post-grant review, inter partes review, nullification or derivation action in court or before patent offices, or similar proceedings challenging the validity, enforceability or scope of such patents, which may result in the patent claims being narrowed or invalidated, may allow third parties to commercialize our product candidates and compete directly with us, without payment to us, or limit the duration of the patent protection of our technology and products. The legal threshold for initiating such proceedings may be low, so that even proceedings with a low probability of success might be initiated. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, regardless of the outcome, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates. Our and our licensors’, licensees’ or partners’ patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications, and then only to the extent the issued claims cover the technology.

Because patent applications in the United States and most other countries are confidential for a period of time after filing, and some remain so until issued, we cannot be certain that we or our licensors were the first to file any patent application related to our research programs and product candidates such as EQ101, EQ102 and itolizumab (EQ001). Even where we have a valid and enforceable patent, we may not be able to exclude others from practicing our invention where the other party can show that they used the invention in commerce before our filing date or the other party benefits from a compulsory license. In addition, patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering our product candidates are obtained, once the patent life has expired for a product, we may be open to competition from competitive medications, including biosimilar or generic medications.

If we are not able to obtain patent term extension in the United States under the Hatch-Waxman Act and in foreign countries under similar legislation, thereby potentially extending the term of our marketing exclusivity for EQ101, EQ102, itolizumab (EQ001) or any other product candidates that we may identify, our business may be materially harmed.

Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. We expect to seek extensions of patent terms where these are available in any countries where we are prosecuting patents. This includes in the United States under the Drug Price Competition and Patent Term Restoration Act of 1984, or Hatch-Waxman Act, which permits a patent term extension of up to five years beyond the expiration of the patent. The Hatch-Waxman Act allows a maximum of one patent to be extended per FDA-approved product as compensation for the patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only those claims covering such approved drug product, a method for using it or a method for manufacturing it may be extended. Patent term extension may also be available in certain foreign countries upon regulatory approval of our product candidates. However, the applicable authorities, including the FDA and USPTO, in the United States, and any equivalent foreign regulatory authority, may not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to our patents, or may grant more limited extensions than we request. If this occurs, our competitors may take advantage of our investment in development and clinical studies by referencing our clinical and preclinical data and launch their product earlier than might otherwise be the case.

The degree of future protection for our proprietary rights is uncertain, and we cannot predict:

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if and when patents may issue based on our patent applications;

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the scope of protection of any patent issuing based on our patent applications;

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whether the claims of any patent issuing based on our patent applications will provide protection against competitors;

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whether any of the patents we own or license will be found to ultimately be valid and enforceable;

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whether or not third parties will find ways to invalidate or circumvent our patent rights;

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whether or not others will obtain patents claiming aspects similar to those covered by our patents and patent applications;

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whether the patents of others will not have an adverse effect on our business;

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whether we will develop additional proprietary technologies or products that are separately patentable;

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whether we will need to initiate litigation or administrative proceedings to enforce and/or defend our patent rights which will be costly whether we win or lose; and/or

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whether the patent applications that we own or in-license will result in issued patents with claims that cover our product candidates or uses thereof in the United States or in other foreign countries.

We depend on intellectual property licensed from Biocon and termination of our license could result in the loss of significant rights, which would harm our business.

We currently in-license certain intellectual property that is important to our business from Biocon and, in the future, we may enter into additional agreements that provide us with licenses to valuable intellectual property or technology. We rely to some extent on Biocon to file patent applications and to otherwise protect the intellectual property we license from them. We have limited control over these activities or any other intellectual property that may be related to our in-licensed intellectual property. For example, we cannot be certain that such activities by Biocon have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights. We have limited control over the manner in which Biocon initiates an infringement proceeding against a third-party infringer of the intellectual property rights, or defend certain of the intellectual property that is licensed to us. It is possible that our licensor’s infringement proceeding or defense activities may be less vigorous than had we conducted them ourselves.

Furthermore, in-licensed patents may be subject to a reservation of rights by one or more third parties. Further, our existing license with Biocon imposes, and future agreements may also impose, various diligence, milestone payment, royalty, insurance and other obligations on us. If we fail to comply with these obligations, we may be required to pay damages and our licensor may have the right to terminate the license, in which event we would not be able to develop or market the products covered by such licensed intellectual property and our competitors or other third parties might be able to gain access to technologies and products that are identical to ours.

Our business would suffer if any current or future licenses terminate, if the licensors fail to abide by the terms of the license, if the licensors fail to enforce licensed patents against infringing third parties, if the licensed patents or other rights are found to be invalid or unenforceable, or if we are unable to enter into necessary licenses on acceptable terms. Furthermore, if any current or future licenses terminate, or if the underlying patents fail to provide the intended exclusivity, competitors or other third parties may gain the freedom to seek regulatory approval of, and to market, products identical to ours. Moreover, our licensors may own or control intellectual property that has not been licensed to us and, as a result, we may be subject to claims, regardless of their merit, that we are infringing or otherwise violating the licensor’s rights. Disputes may also arise between us and our licensor regarding intellectual property subject to a license agreement, including those relating to:

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

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

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our right to sublicense patent and other rights to third parties under collaborative development relationships;

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whether we are complying with our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of our product candidates; and

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the allocation of ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and by us and our partners.

In addition, intellectual property or technology license agreements, including our existing agreements, are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations, and prospects. If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates. We are generally also subject to all of the same risks with respect to protection of intellectual property that we license as we are for intellectual property that we own, which are described below. If we or our licensor fail to adequately protect this intellectual property, our ability to commercialize products could suffer.

Because our programs may require the use of proprietary rights held by third parties, the growth of our business may depend in part on our ability to acquire, in-license or use these proprietary rights. We may be unable to acquire or in-license any compositions, methods of use, processes or other third-party intellectual property rights from third parties that we identify as necessary for our product candidates. The licensing and acquisition of third-party intellectual property rights is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire third-party intellectual property rights that we may consider attractive. These established companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities.

In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment. In addition, while we cannot currently determine the amount of the royalty obligations we would be required to pay on sales of future products, if any, the amounts may be significant. The amount of our future royalty obligations will depend on the technology and intellectual property we use in products that we successfully develop and commercialize, if any. Therefore, even if we successfully develop and commercialize products, we may be unable to achieve or maintain profitability.

In the future, we may need to obtain additional licenses of third-party technology that may not be available to us or are available only on commercially unreasonable terms, and which may cause us to operate our business in a more costly or otherwise adverse manner that was not anticipated.

From time to time we may be required to license technologies relating to our therapeutic research programs from additional third parties to further develop or commercialize our product candidates such as EQ101, EQ102, itolizumab (EQ001) and/or others. Should we be required to obtain licenses to any third-party technology, including any such patents required to manufacture, use or sell our product candidates, such licenses may not be available to us on commercially reasonable terms, or at all. The inability to obtain any third-party license required to develop or commercialize any of our product candidates could cause us to abandon any related efforts, which could seriously harm our business and operations.

Any collaboration arrangements that we may enter into in the future may not be successful, which could adversely affect our ability to develop and commercialize our products.

Any future collaborations that we enter into may not be successful. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborations are subject to numerous risks, which may include that:

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

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collaborators may not pursue development and commercialization of our products or may elect not to continue or renew development or commercialization programs based on study or test results, changes in their strategic focus due to the acquisition of competitive products, availability of funding or other external factors, such as a business combination that diverts resources or creates competing priorities;

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collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates;

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a collaborator with marketing, manufacturing and distribution rights to one or more products may not commit sufficient resources to or otherwise not perform satisfactorily in carrying out these activities;

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we could grant exclusive rights to our collaborators that would prevent us from collaborating with others;

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collaborators may not properly maintain or defend our intellectual property rights or may use our intellectual property or proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential liability;

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disputes may arise between us and a collaborator that causes the delay or termination of the research, development or commercialization of our current or future products or that results in costly litigation or arbitration that diverts management attention and resources;

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collaborations may be terminated, and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable current or future products;

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collaborators may own or co-own intellectual property covering our products that results from our collaborating with them, and in such cases, we would not have the exclusive right to develop or commercialize such intellectual property; and

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a collaborator’s sales and marketing activities or other operations may not be in compliance with applicable laws resulting in civil or criminal proceedings.

We may not identify relevant third-party patents or may incorrectly interpret the relevance, scope or expiration of a third-party patent, which might adversely affect our ability to develop and market our products.

We cannot assure you that our operations do not, or will not in the future, infringe existing or future patents. We cannot guarantee that any of our patent searches or analyses, including the identification of relevant patents, the scope of patent claims or the expiration of relevant patents, are complete or thorough, nor can we be certain that we have identified each and every third party patent and pending application in the United States and abroad that is relevant to our therapeutic research programs or necessary for the commercialization of our product candidates such as EQ101, EQ102, itolizumab (EQ001) and/or others in any jurisdiction.

Numerous U.S. and foreign patents and pending patent applications exist in our market that are owned by third parties, and there may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our products and/or product candidates that we may identify. Our competitors in both the United States and abroad, many of which have substantially greater resources and have made substantial investments in patent portfolios and competing technologies, may have applied for or obtained or may in the future apply for and obtain, patents that will prevent, limit or otherwise interfere with our ability to make, use and sell our products. We do not always conduct independent reviews of pending patent applications of and patents issued to third parties. Patent applications in the United States and elsewhere are typically published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Certain U.S. applications that will not be filed outside the United States can remain confidential until patents issue. In addition, patent applications in the United States and elsewhere can be pending for many years before issuance, or unintentionally abandoned patents or applications can be revived. Furthermore, pending patent applications that have been published can, subject to certain limitations, be later amended in a manner that could cover our technologies, our products or the use of our products. As such, there may be applications of others now pending or recently revived patents of which we are unaware, potentially relating to our research programs and product candidates such as EQ101, EQ102, itolizumab (EQ001) and others, or their intended uses. These applications may later result in issued patents, or the revival of previously abandoned patents, that will prevent, limit or otherwise interfere with our ability to make, use or sell our products.

The scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent and the patent’s prosecution history. Our interpretation of the relevance or the scope of a patent or a pending application may be incorrect, which may negatively impact our ability to market our products.

We may incorrectly determine that our products are not covered by a third party patent or may incorrectly predict whether a third party’s pending application will issue with claims of relevant scope. Our determination of the expiration date of any patent in the United States or abroad that we consider relevant may be incorrect, which may negatively impact our ability to develop and market our product candidates. Our failure to identify and correctly interpret relevant patents may negatively impact our ability to develop and market our products.

We cannot provide any assurances that third party patents do not exist which might be enforced against our current technology, including our research programs, product candidates, which include EQ101, EQ102, itolizumab (EQ001) and others, their respective methods of use, manufacture and formulations thereof, and could result in either an injunction prohibiting our manufacture or future sales, or, with respect to our future sales, an obligation on our part to pay royalties and/or other forms of compensation to third parties, which could be significant.

If we are sued for infringing intellectual property rights of third parties, such litigation could be costly and time consuming and could prevent or delay us from developing or commercializing our product candidates.

Our commercial success depends, in part, on our ability to develop, manufacture, market and sell EQ101, EQ102, and itolizumab (EQ001), and other potential future product candidates without infringing the intellectual property and other proprietary rights of third parties. Third parties may allege that we have infringed or misappropriated their intellectual property. Litigation or other legal proceedings relating to intellectual property claims, with or without merit, is unpredictable and generally expensive and time consuming and, even if resolved in our favor, is likely to divert significant resources from our core business, including distracting our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the market price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. We cannot assure you that our operations do not, or will not in the future, infringe existing or future patents.

There is a substantial amount of intellectual property litigation in the biotechnology and pharmaceutical industries, and we may become party to, or threatened with, litigation or other adversarial proceedings regarding intellectual property rights with respect to our product candidates. Our competitors in both the United States and abroad, many of which have substantially greater resources and have made substantial investments in patent portfolios and competing technologies, may have applied for or obtained or may in the future apply for and obtain, patents that will prevent, limit or otherwise interfere with our ability to make, use and sell our product candidates. Third parties may assert infringement claims against us based on existing or future intellectual property rights. The pharmaceutical and biotechnology industries have produced a significant number of patents, and it may not always be clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we were sued for patent infringement, we would need to demonstrate that our product candidates, products or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid or unenforceable, and we may not be able to do this. Proving invalidity may be difficult. For example, in the United States, proving invalidity in court requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and the time and attention of our management and scientific personnel could be diverted in pursuing these proceedings, which could have a material adverse effect on our business and operations. In addition, we may not have sufficient resources to bring these actions to a successful conclusion. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or administrative proceedings, there is a risk that some of our confidential information could be compromised by disclosure.

If we are found to infringe a third party’s intellectual property rights, we could be forced, including by court order, to cease developing, manufacturing or commercializing the infringing product candidate or product. Alternatively, we may be required to obtain a license from such third party in order to use the infringing technology and continue developing, manufacturing or marketing the infringing product candidate. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, and could divert the time and attention of our technical personnel and management, cause development delays, and/or require us to develop non-infringing technology, which may not be possible on a cost-effective basis, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business.

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

Competitors may infringe our patents, trademarks, copyrights or other intellectual property that relate to our current and future product candidates, including EQ101, EQ102, itolizumab (EQ001) and others, their respective methods of use, manufacture and formulations thereof. To counter infringement or unauthorized use, we or our licensor may be required to file infringement claims, which can be expensive and time consuming and divert the time and attention of our management and scientific personnel. Any claims we or our licensor assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents, in addition to counterclaims asserting that our patents are invalid or unenforceable, or both. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace, and the outcome following legal assertions of invalidity and unenforceability is unpredictable. In any patent infringement proceeding, there is a risk that a court will decide that a patent that we own or have licensed is invalid or unenforceable, in whole or in part, and that we do not have the right to stop the other party from using the invention at issue. There is also a risk that, even if the validity of such patents is upheld, the court will construe the patent’s claims narrowly or decide that we do not have the right to stop the other party from using the invention at issue on the grounds that our patent claims do not cover the invention. An adverse outcome in a litigation or proceeding involving our patents could limit our ability to assert our patents against those parties or other competitors and may curtail or preclude our ability to exclude third parties from making and selling similar or competitive products.

Interference or derivation proceedings provoked by third parties or brought by us or declared by the USPTO may be necessary to determine the priority of inventions with respect to our patents or patent applications. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. For example, an unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms or at all, or if a non-exclusive license is offered and our competitors gain access to the same technology. Our defense of litigation or interference or derivation proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to continue our clinical studies, continue our research programs, license necessary technology from third parties, or enter into development partnerships that would help us bring EQ101, EQ102, itolizumab (EQ001) or other product candidates that we may identify to market. Any of these occurrences could adversely affect our competitive business position, results of operations business prospects and financial condition. Similarly, if we assert trademark infringement claims, a court may determine that the marks we have asserted are invalid or unenforceable, or that the party against whom we have asserted trademark infringement has superior rights to the marks in question. In this case, we could ultimately be forced to cease use of such trademarks.

Even if we establish infringement, the court may decide not to grant an injunction against further infringing activity and instead award only monetary damages, which may or may not be an adequate remedy. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of shares of our common stock. Moreover, we cannot assure you that we will have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are concluded. Even if we ultimately prevail in such claims, the monetary cost of such litigation and the diversion of the attention of our management and scientific personnel could outweigh any benefit we receive as a result of the proceedings.

Because of the expense and uncertainty of litigation, we may not be in a position to enforce our intellectual property rights against third parties.

Because of the expense and uncertainty of litigation, we may conclude that even if a third party is infringing our issued patent relating to our research programs and product candidates, any patents that may be issued as a result of our pending or future patent applications or other intellectual property rights, the risk-adjusted cost of bringing and enforcing such a claim or action may be too high or not in the best interest of our company or our stockholders. In such cases, we may decide that the more prudent course of action is to simply monitor the situation or initiate or seek some other non-litigious action or solution.

We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.

We employ individuals who previously worked with other companies, including our competitors or potential competitors. We could in the future be subject to claims that we or our employees, consultants, or independent contractors have inadvertently or otherwise used or disclosed alleged trade secrets or other confidential information of current or former employers or competitors.

Although we try to ensure that our employees, consultants and independent contractors do not use the intellectual property, proprietary information, know-how or trade secrets of others in their work for us, we may become subject to claims that we caused an individual to breach the terms of his or her non-competition or non-solicitation agreement, or that we or these individuals have, inadvertently or otherwise, used or disclosed the alleged trade secrets or other proprietary information of a current or former employer or competitor.

While we may litigate to defend ourselves against these claims, even if we are successful, litigation could result in substantial costs and could be a distraction to management and other employees. If our defenses to these claims fail, in addition to requiring us to pay monetary damages, a court could prohibit us from using technologies or features that are essential to our product candidates, including EQ101, EQ102 or itolizumab (EQ001), if such technologies or features are found to incorporate or be derived from the trade secrets or other proprietary information of the current or former employers. Moreover, any such litigation or the threat thereof may adversely affect our reputation, our ability to form strategic alliances or sublicense our rights to collaborators, engage with scientific advisors or hire employees or consultants, each of which would have an adverse effect on our business, results of operations and financial condition.

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

Filing, prosecuting and defending all current and future patents in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection but enforcement is not as strong as that in the United States. These products may compete with our product candidates, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

The legal systems of many foreign countries do not favor the enforcement of patents and other intellectual property protection, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights. For example, some foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, some countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. Further, the complexity and uncertainty of European patent laws have increased in recent years. In Europe, the new unitary patent system that came into effect in June 2023 would significantly impact European patents, including those granted before the introduction of such a system. Under the unitary patent system, European applications will have the option, upon grant of a patent, of becoming a Unitary Patent which will be subject to the jurisdiction of the Unitary Patent Court, or UPC. As the UPC is a new court system, there is no precedent for the court, increasing the uncertainty of any litigation. Patents granted before the implementation of the UPC will have the option of opting out of the jurisdiction of the UPC and remaining as national patents in the UPC countries. Patents that remain under the jurisdiction of the UPC will be potentially vulnerable to a single UPC-based revocation challenge that, if successful, could invalidate the patent in all countries who are signatories to the UPC. We cannot predict with certainty the long-term effects of any potential changes. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

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

Periodic maintenance fees, renewal fees, annuities fees and various other governmental fees on patents and/or patent applications are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent and/or patent application. The USPTO and various foreign governmental patent agencies also require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we fail to maintain the patents and patent applications covering our research programs and product candidates such as EQ101, EQ102, itolizumab (EQ001) and others as well as their respective methods of use, manufacture and formulations thereof, our competitive position would be adversely affected, as, for example, competitors might be able to enter the market earlier than would otherwise have been the case.

We may rely on trade secret and proprietary know-how which can be difficult to trace and enforce and, if we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

In addition to seeking patents for some of our technology and product candidates, we may also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position with respect to our research programs and product candidates. Elements of our product candidates, including processes for their preparation and manufacture, may involve proprietary know-how, information, or technology that is not covered by patents, and thus for these aspects we may consider trade secrets and know-how to be our primary intellectual property. Any disclosure, either intentional or unintentional, by our employees, the employees of third parties with whom we share our facilities or third party consultants and vendors that we engage to perform research, clinical studies or manufacturing activities, or misappropriation by third parties (such as through a cybersecurity breach) of our trade secrets or proprietary information could enable competitors to duplicate or surpass our technological achievements, thus eroding our competitive position in our market.

Trade secrets and know-how can be difficult to protect. We require our employees to enter into written employment agreements containing provisions of confidentiality and obligations to assign to us any inventions generated in the course of their employment. We and any third parties with whom we share facilities enter into written agreements that include confidentiality and intellectual property obligations to protect each party’s property, potential trade secrets, proprietary know-how, and information. We further seek to protect our potential trade secrets, proprietary know-how, and information in part, by entering into non-disclosure and confidentiality agreements with parties who are given access to them, such as our corporate collaborators, outside scientific collaborators, CROs, contract manufacturers, consultants, advisors and other third parties. With our consultants, contractors, and outside scientific collaborators, these agreements typically include invention assignment obligations. However, we cannot be certain that such agreements have been entered into with all relevant parties, and we cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Moreover, despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Monitoring unauthorized uses and disclosures is difficult, and we do not know whether the steps we have taken to protect our proprietary technologies will be effective. Unauthorized parties may also attempt to copy or reverse engineer certain aspects of our products that we consider proprietary. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets.

Trade secrets may be independently developed by others in a manner that could prevent legal recourse by us. Trade secrets will over time be disseminated within the industry through independent development, the publication of journal articles and the movement of personnel skilled in the art from company to company or academic to industry scientific positions. Though our agreements with third parties typically restrict the ability of our advisors, employees, collaborators, licensors, suppliers, third-party contractors and consultants to publish data potentially relating to our trade secrets, our agreements may contain certain limited publication rights. Because from time to time we expect to rely on third parties in the development, manufacture, and distribution of our products and provision of our services, we must, at times, share trade secrets with them. Despite employing the contractual and other security precautions described above, the need to share trade secrets increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other third party, we would have no right to prevent them from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor or other third party, our competitive position would be harmed.

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

We or our licensor may be subject to claims that former employees, consultants, independent contractors, collaborators or other third parties have an interest in our patents or other intellectual property as an owner, co-owner, inventor or co-inventor. The failure to name the proper inventors on a patent application can result in the patents issuing thereon being unenforceable. Inventorship disputes may arise from conflicting views regarding the contributions of different individuals named as inventors, the effects of foreign laws where foreign nationals are involved in the development of the subject matter of the patent, conflicting obligations of third parties involved in developing our product candidates or as a result of questions regarding co-ownership of potential joint inventions. In addition, while it is our policy to require our employees, consultants, advisors, contractors and other third parties who may be involved in the conception or development of intellectual property rights to execute agreements assigning such intellectual property rights to us, we or our licensors may be unsuccessful in executing such agreements with each party who, in fact, conceives or develops intellectual property rights that we regard as our own. The assignment of intellectual property rights may not be self-executing or sufficient in scope, or the assignment agreements may be breached. Furthermore, individuals executing agreements with us may have preexisting or competing obligations to a third party, such as an academic institution, and thus an agreement with us or our licensors may be ineffective in perfecting ownership of inventions developed by that individual.

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

Patent terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time.

Patent rights are of limited duration. In the United States, the natural expiration of a patent is generally 20 years after its first effective non-provisional filing date. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such product candidates are commercialized. Even if patents covering our product candidates are obtained, once the patent life has expired for a product, we may be open to competition from biosimilar or generic products. A patent term extension based on regulatory delay may be available in the United States. However, only a single patent can be extended for each marketing approval, and any patent can be extended only once, for a single product. Moreover, the scope of protection during the period of the patent term extension does not extend to the full scope of the claim, but instead only to the scope of the product as approved. Laws governing analogous patent term extensions in foreign jurisdictions vary widely, as do laws governing the ability to obtain multiple patents from a single patent family. Additionally, we may not receive an extension if we fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. If we are unable to obtain patent term extension or restoration, or the term of any such extension is less than we request, the period during which we will have the right to exclusively market our product will be shortened and our competitors may obtain approval of competing products following our patent expiration, and our revenue could be reduced, possibly materially.

If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.

We currently have two U.S. trademark registrations for EQUILLIUM respectively covering Classes 5 and 42, and one Canadian trademark registration for EQUILLIUM covering both Classes 5 and 42. Our current or future trademarks or trade names may be challenged, infringed, circumvented or declared generic or descriptive determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names or may be forced to stop using these names, which we need for name recognition by potential partners or customers in our markets of interest. During trademark registration proceedings, we may receive rejections. Although we would be given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. If we are unable to establish name recognition based on our trademarks and trade names, we may not be able to compete effectively, and our business may be adversely affected. We may license our trademarks and trade names to third parties, such as distributors. Though these license agreements may provide guidelines for how our trademarks and trade names may be used, a breach of these agreements or misuse of our trademarks and tradenames by our licensees may jeopardize our rights in or diminish the goodwill associated with our trademarks and trade names.

Intellectual property rights do not necessarily address all potential threats to our competitive advantage.

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

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others may be able to make product candidates that are similar to ours but that are not covered by the claims of the patents that we own or have exclusively licensed;

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we or our licensors or future collaborators might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed;

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

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

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

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issued patents that we own or have exclusively licensed may be held invalid or unenforceable, as a result of legal challenges by our competitors; our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;

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

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

Should any of these events occur, they could significantly harm our business, financial condition, results of operations and prospects.

Risks Related to Employees, Managing Our Growth and Other Legal Matters

We are highly dependent on the services of our key personnel.

We are highly dependent on the services of our key personnel, Bruce D. Steel, who serves as our President and Chief Executive Officer and Stephen Connelly, Ph.D., who serves as our Chief Scientific Officer. Although we have entered into agreements with them regarding their employment, they are not for a specific term and each of them may terminate their employment with us at any time, though we are not aware of any present intention of any of these individuals to leave us.

We expect to expand our development, regulatory and operational capabilities and, as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.*

As of June 30, 2023, we had 47 full-time employees. As we advance the clinical development of EQ101, EQ102 and itolizumab (EQ001), and potentially other product candidates, we expect to experience significant growth in the number of our employees and the scope of our operations across a variety of areas including non-clinical research, clinical development, quality, regulatory affairs, pharmacovigilance, manufacturing and supply chain, as well as general and administrative functions. If EQ101, EQ102, itolizumab (EQ001), or any future product candidates receive marketing approval, we would expect to add employees in sales, marketing and distribution. To manage our anticipated future growth, we must:

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identify, recruit, integrate, maintain and motivate additional qualified personnel;

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identify and lease additional facilities;

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manage our development efforts effectively, including the initiation and conduct of clinical studies for EQ101, EQ102, itolizumab (EQ001) and any future product candidates; and

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improve our operational, financial and management controls, reporting systems and procedures.

Our future financial performance and our ability to develop, manufacture and commercialize our product candidates will depend, in part, on our ability to effectively manage any future growth, and our management may also have to divert financial and other resources, and a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time, to managing these growth activities.

We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain CROs, CMOs, other contract service providers, advisors and consultants to provide certain services, including assuming substantial responsibilities for the conduct of our ongoing and future clinical studies and the manufacture of EQ101, EQ102, itolizumab (EQ001) and any future product candidates. We cannot assure you that the services of such contract service providers, advisors and consultants will continue to be available to us on a timely basis when needed, or that we can find qualified replacements. In addition, if we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided by our vendors or consultants is compromised for any reason, our clinical studies may be extended, delayed or terminated, and we may not be able to obtain marketing approval of our product candidates or otherwise advance our business. We cannot assure you that we will be able to properly manage our existing vendors or consultants or find other competent outside vendors and consultants on economically reasonable terms, or at all.

If we are not able to effectively expand our organization by leasing additional facilities, hiring new employees and expanding our groups of consultants and contractors, we may not be able to successfully implement the tasks necessary to further develop and commercialize our product candidates and, accordingly, may not achieve our research, development and commercialization goals.

Our future success depends on our ability to retain key employees, consultants and advisors and to attract, retain and motivate qualified personnel.

Our industry has experienced a high rate of turnover in recent years. Our ability to compete in the highly competitive biopharmaceuticals industry depends upon our ability to attract, retain and motivate highly skilled and experienced personnel with scientific, medical, regulatory, manufacturing and management skills and experience. We conduct our operations primarily in the Greater San Diego Area region that is home to many other biopharmaceutical companies as well as many academic and research institutions, resulting in fierce competition for qualified personnel.

We may not be able to attract or retain qualified personnel in the future due to the intense competition for a limited number of qualified personnel among biopharmaceutical companies. Many of the other biopharmaceutical companies against which we compete have greater financial and other resources, different risk profiles and a longer history in the industry than we do. Our competitors may provide higher compensation, more diverse opportunities and/or better opportunities for career advancement. Any or all of these competing factors may limit our ability to continue to attract and retain high quality personnel, which could negatively affect our ability to successfully develop and commercialize our product candidates and to grow our business and operations as currently contemplated.

Third-party expectations relating to environmental, social and governance factors may impose additional costs and expose us to new risks.

In recent years, there has been an increased focus from certain investors, employees and other stakeholders concerning corporate responsibility, specifically related to environmental, social and governance, or ESG, factors. Third-party providers of ESG ratings and reports on companies have increased in number, resulting in varied and, in some cases, inconsistent standards. Topics taken into account in such assessments include, among others, the company’s efforts and impacts with respect to climate change and human rights, ethics and compliance with the law, and the role of the company’s board of directors in supervising various sustainability issues.

Some investors may use third-party ESG ratings and reports to guide their investment strategies and, in some cases, may choose not to invest in us if they believe our ESG practices are inadequate. The criteria by which companies’ ESG practices are assessed are evolving, which could result in greater expectations of us and cause us to undertake costly initiatives to satisfy such new criteria. Alternatively, if we elect not to or are unable to satisfy new criteria or do not meet the criteria of a specific third-party provider, some investors may conclude that our policies with respect to ESG are inadequate and choose not to invest in us.

If our ESG practices do not meet evolving investor or other stakeholder expectations and standards, then our reputation, our ability to attract or retain employees and our desirability as an investment or business partner could be negatively impacted. Similarly, our failure or perceived failure to adequately pursue or fulfill our goals and objectives or to satisfy various reporting standards within the timelines we announce, or at all, could expose us to additional regulatory, social or other scrutiny of us, the imposition of unexpected costs, or damage to our reputation, which in turn could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common stock to decline.

Our employees, clinical study investigators, CROs, consultants, vendors and any potential commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.

We are exposed to the risk of fraud or other misconduct by our employees, clinical study investigators, CROs, consultants, vendors and any potential commercial partners. Misconduct by these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that violates: (i) FDA laws and regulations or those of comparable foreign regulatory authorities, including those laws that require the reporting of true, complete and accurate information, (ii) manufacturing standards, (iii) federal and state health and data privacy, security, fraud and abuse, government price reporting, transparency reporting requirements, and other healthcare laws and regulations in the United States and abroad, (iv) sexual harassment and other workplace misconduct, or (v) laws that require the true, complete and accurate reporting of financial information or data. Such misconduct could also involve the improper use of information obtained in the course of clinical studies, which could result in regulatory sanctions and cause serious harm to our reputation. We have adopted a code of conduct applicable to all of our employees, as well as a disclosure program and other applicable policies and procedures, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from government funded healthcare programs, such as Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, additional integrity reporting and oversight obligations, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

Our internal information technology systems, or those of our CROs or other contractors or consultants, may fail or suffer security breaches, loss or leakage of data and other disruptions, which could result in a material disruption of our development programs, compromise sensitive information related to our business or prevent us from accessing critical information, potentially exposing us to liability or otherwise adversely affecting our business.*

In the ordinary course of our business, we may collect, receive, store, process, generate, use, transfer, disclose, make accessible, protect, secure, dispose of, transmit, and share (collectively, process) proprietary, confidential, and sensitive data, including personal data (such as health-related and biometric personal information), intellectual property, and trade secrets (collectively, sensitive information).

We may rely upon third-party service providers and technologies to operate critical business systems to process sensitive information on our behalf in a variety of contexts, including, without limitation, third-party providers of cloud-based infrastructure, encryption and authentication technology, employee email, and other functions. Our ability to monitor these third parties’ information security practices is limited, and these third parties may not have adequate information security measures in place. We may share or receive sensitive information with or from third parties.

Cyberattacks, malicious internet-based activity, and online and offline fraud are prevalent and continue to increase. These threats are becoming increasingly difficult to detect. These threats come from a variety of sources, including traditional computer “hackers,” threat actors, and persons with authorized access to our systems (such as through mistakes, theft, or misuse). Threat actors, personnel, sophisticated nation-states, and nation-state-supported actors now engage and are expected to continue to engage in cyberattacks, including for geopolitical and/or military reasons. Specifically, we and the third parties we rely on may be vulnerable to a heightened risk of cyberattacks that could materially disrupt our systems and operations, supply chain, and ability to produce, sell and distribute our goods and services.

We and the third parties we rely on may be subject to a variety of evolving threats, including but not limited to social-engineering attacks (including through phishing attacks), malicious code (such as viruses and worms), malware (including as a result of advanced persistent threat intrusions), denial-of-service attacks, credential stuffing, personnel misconduct or error, software bugs, server malfunctions, software or hardware failures, loss of data or other information technology assets, adware, telecommunications failures, earthquakes, fires, floods, and other similar threats.

Ransomware attacks, including by organized criminal threat actors, nation-states, and nation-state-supported actors, are becoming increasingly prevalent and severe and can lead to significant interruptions in our operations, loss of data and income, reputational harm, and diversion of funds. Extortion payments may alleviate the negative impact of a ransomware attack, but we may be unwilling or unable to make such payments due to, for example, applicable laws or regulations prohibiting such payments.

Similarly, supply-chain attacks have increased in frequency and severity, and we cannot guarantee that third parties and infrastructure in our supply chain or our third-party partners’ supply chains have not been compromised or that they do not contain exploitable defects or bugs that could result in a breach of or disruption to our information technology systems (including our products and services) or the third-party information technology systems that support us and our services. As more of our employees work from home, utilizing network connections outside our premises, a trend driven by the COVID-19 pandemic, there is an increased risk to our information technology systems and data.

Any of the previously identified or similar threats could cause a security incident or other interruption, which could result in unauthorized, unlawful, or accidental acquisition, modification, destruction, loss, alteration, encryption, disclosure of, or access to our sensitive information. A security incident or other interruption could disrupt our ability (and that of third parties upon whom we rely) to provide our products and services.

We may expend significant resources or modify our business activities (including our clinical study activities) to try to protect against security incidents. Certain data privacy and security obligations may require us to implement and maintain specific security measures, industry-standard or reasonable security measures to protect our information technology systems and sensitive information. There can be no assurance that the security measures we and our third-party suppliers have implemented will be effective. We are not always able to detect vulnerabilities in our security controls, systems, or software (including third-party software we have installed on our systems). Further, we may experience delays in deploying remedial measures designed to address any such identified vulnerabilities. Efforts to identify and remediate vulnerabilities, if any, in our information technology systems or software (including third-party software we have installed on our systems) may not be successful.

Applicable data privacy and security obligations may require us to notify relevant stakeholders of security incidents. Such disclosures are costly, and the disclosures or the failure to comply with such requirements could lead to adverse consequences. If we (or a third party upon whom we rely) experience a security incident or are perceived to have experienced a security incident, we may experience adverse consequences. These consequences may include: government enforcement actions (for example, investigations, fines, penalties, audits, and inspections); additional reporting requirements and/or oversight; restrictions on processing sensitive information (including personal data); litigation (including class claims); indemnification obligations; negative publicity; reputational harm; monetary fund diversions; interruptions in our operations (including the delay of development and commercialization of our product candidates); financial loss; and other similar harms. Security incidents and attendant consequences that we or our third party providers could experience may cause customers to stop using our products and services, deter new customers from using our products and services, and negatively impact our ability to grow and operate our business.

Our contracts may not contain limitations of liability, and even where they do, there can be no assurance that limitations of liability in our contracts are sufficient to protect us from liabilities, damages, or claims related to our data privacy and security obligations. We cannot be sure that our insurance coverage will be adequate or sufficient to protect us from or to mitigate liabilities arising out of our privacy and security practices, that such coverage will continue to be available on commercially reasonable terms or at all, or that such coverage will pay future claims.

We are subject to stringent and changing obligations related to data privacy and security. Our actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions; litigation; fines and penalties; disruptions of our business operations; reputational harm; loss of revenue or profits; loss of customers or sales; and other adverse business consequences.*

Our data processing activities, including acquisition and processing of information from study participants, may subject us to numerous data privacy and security obligations, such as various laws, regulations, guidance, industry standards, external and internal privacy and security policies, contractual provisions, and other obligations that govern the processing of personal data by us and on our behalf. In the United States, numerous federal and state laws and regulations, including federal health information privacy laws, state data breach notification laws, state health information privacy laws, and federal and state consumer protection laws, that govern the collection, use, disclosure, and protection of health-related and other personal information could apply to our operations or the operations of our collaborators. In addition, we may obtain health information from third parties (including research institutions from which we obtain clinical study data) that are subject to privacy and security requirements under the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH. Depending on the facts and circumstances, we could be subject to penalties, including criminal penalties, if we knowingly obtain, use, or disclose individually identifiable health information maintained by a HIPAA-covered entity in a manner that is not authorized or permitted by HIPAA.

Additionally, the California Consumer Privacy Act of 2018, or CCPA, imposes obligations on covered businesses and could impact our operations. These obligations include, but are not limited to, providing specific disclosures in privacy notices and affording California residents certain rights related to their personal data. The CCPA allows for statutory fines for noncompliance (up to $7,500 per violation) and a private right of action for certain breaches. In addition, the California Privacy Rights Act of 2020, or CPRA, became effective on January 1, 2023, and expands the CCPA. Additionally, the CPRA established a new California Privacy Protection Agency to implement and enforce the CPRA, which could increase the risk of enforcement. Other states have enacted data privacy laws. For example, Virginia, Colorado, Utah, and Connecticut, all have passed privacy laws that became effective in 2023. Several other states have passed or are currently considering similar privacy protection laws. Additionally, several states and localities, as well as foreign jurisdictions, have enacted statutes banning or restricting the collection of biometric information. We collect biometric data that may subject us to biometric privacy laws. For example, the Illinois Biometric Information Privacy Act, or BIPA, regulates the collection, use, safeguarding, and storage of biometric information. BIPA provides for substantial penalties and statutory damages and have generated significant class action activity, and the cost of litigating and settling any claims that we have violated BIPA or similar laws could be significant.

Outside the United States, an increasing number of laws, regulations, and industry standards apply to data privacy and security, and could apply to our operations. For example, the European Union’s General Data Protection Regulation, or EU GDPR, and the United Kingdom’s GDPR, or UK GDPR, impose strict requirements for processing personal data. For example, under the EU GDPR, government regulators may impose temporary or definitive bans on data processing, as well as fines of up to 20 million euros or 4% of annual global revenue, whichever is greater. Further, individuals may initiate litigation related to processing of their personal data.

Certain jurisdictions have enacted data localization laws and cross-border personal data transfer laws, which could make it more difficult to transfer information across jurisdictions (such as transferring or receiving personal data that originates in the EU or in other foreign jurisdictions). Existing mechanisms that facilitate cross-border personal data transfers may change or be invalidated. The European Commission released a set of “Standard Contractual Clauses,” or SCCs, that are a valid mechanism to transfer personal data outside of the EEA, but there exists some uncertainty regarding whether the SCCs will remain a valid mechanism. Additionally, the SCCs impose additional compliance burdens, such as conducting transfer impact assessments to determine whether additional security measures are necessary to protect the at-issue personal data.

In addition, the UK similarly restricts personal data transfers outside of those jurisdictions to countries, such as the United States, that do not provide an adequate level of personal data protection, and certain countries outside Europe (e.g. China) have also passed or are considering laws requiring local data residency or otherwise impeding the transfer of personal data across borders, any of which could increase the cost and complexity of doing business. The inability to import personal data to the United States could significantly and negatively impact our business operations, including by limiting our ability to conduct clinical study activities in Europe and elsewhere; limiting our ability to collaborate with parties that are subject to such cross-border data transfer or localization laws; or requiring us to increase our personal data processing capabilities and infrastructure in foreign jurisdictions at significant expense.

Recently, the UK has implemented an International Data Transfer Agreement / Addendum and the EU-U.S. Data Privacy Framework has been introduced, (the latter of which allows for transfers of personal data for relevant U.S.-based organizations who self-certify compliance and participate in the Framework), but these mechanisms are subject to legal challenges, and there is no assurance that we can satisfy or rely on these measures to lawfully transfer personal data to the United States.

Although we endeavor to comply with all applicable data privacy and security obligations, we may at times fail to do so (or be perceived to have failed to have done so). Moreover, despite our efforts, our personnel or third parties upon whom we rely on may fail to comply with such obligations, which could negatively impact our business operations and compliance posture. For example, any failure by a third-party processor to comply with applicable law, regulations, or contractual obligations could result in adverse effects, including inability to or interruption in our ability to operate our business and proceedings against us by governmental entities or others. Consequences for our failure to comply may include, but are not limited to, government enforcement actions (e.g., investigations, fines, penalties, audits, inspections, and similar); litigation (including class-related claims); additional reporting requirements and/or oversight; bans on processing personal data; orders to destroy or not use personal data; and imprisonment of company officials.

Any of these events could have a material adverse effect on our reputation, business, or financial condition, including but not limited to: loss of customers; interruptions or stoppages in our business operations (including, as relevant, clinical studies); inability to process personal data or to operate in certain jurisdictions; limited ability to develop or commercialize our products; expenditure of time and resources to defend any claim or inquiry; adverse publicity; or revision or restructuring of our operations.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.*

As of December 31, 2022, we had aggregate U.S. federal net operating loss, or NOL, carryforwards of approximately $116.4 million. Under current U.S. federal income tax law, U.S. federal NOLs generated in taxable years beginning after December 31, 2017, may be carried forward indefinitely, but the deductibility of such U.S. federal NOLs is generally limited to 80% of taxable income. It is uncertain if and to what extent various states will conform to the current U.S. federal income tax law.

In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or IRC, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50 percentage-point cumulative change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes (such as research tax credits) to offset its post-change income or taxes may be limited. We determined that we experienced one or more ownership changes prior to June 30, 2023, however, our ability to utilize NOLs to offset taxable income in the current year is not expected to be significantly impacted. We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership some of which may be outside of our control. As a result, our ability to use our pre-ownership change NOL carryforwards to offset U.S. federal taxable income in the future (if we earned net taxable income) and any other pre-ownership change tax attributes may be subject to limitations, which could potentially result in increased future tax liability to us. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.

We conduct significant operations through our Australian wholly-owned subsidiary. If we lose our ability to operate in Australia, or if our subsidiary is unable to receive the research and development tax credit allowed by Australian regulations, our business and results of operations will suffer.

In January 2019, we formed a wholly-owned Australian subsidiary, Equillium Australia Pty Ltd, to initially conduct the clinical development of itolizumab (EQ001) for the treatment of uncontrolled asthma in Australia and New Zealand. That subsidiary is also conducting our current clinical studies of EQ101 and EQ102 and may conduct further clinical studies in the future. Due to the geographical distance and lack of employees currently in Australia, as well as our lack of experience operating in Australia, we may not be able to efficiently or successfully monitor, develop or commercialize our product candidates in Australia and New Zealand, including conducting clinical studies. Furthermore, we have no assurance that the results of any clinical studies that we conduct for our product candidates in Australia and New Zealand will be accepted by the FDA or other foreign regulatory authorities for development and commercialization approvals.

In addition, current Australian tax regulations provide for a refundable research and development tax credit. If we lose our ability to operate Equillium Australia Pty Ltd in Australia, are ineligible or unable to receive the research and development tax credit, or receive a refund that is materially less than our expectations, or if the Australian government significantly reduces or eliminates the tax credit, our financial forecasts could be incorrect and our business and results of operations would be adversely affected.

If we fail to comply with U.S. export control and economic sanctions, our business, financial condition and prospects may be materially and adversely affected.

Our business and our products are subject to U.S. export control laws and regulations, including the U.S. Export Administration Regulations and economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Control, or OFAC. Our company must comply with these laws and regulations. The antibody sequence for itolizumab (EQ001) is derived from Cuban-origin intellectual property and thus we believe this to be a pharmaceutical of Cuban origin, which would make the import, development and commercialization of itolizumab (EQ001) subject to these laws, sanctions and regulations. We currently rely on a general license issued by OFAC under the Cuban Assets Control Regulations, or CACR, relating to Cuban-origin pharmaceuticals to import and conduct clinical studies relating to itolizumab (EQ001). In the absence of the OFAC general license, all of our development and potential commercialization activities for itolizumab (EQ001) would be prohibited under the CACR, and we would be required to request a specific license from OFAC authorizing such activities, which OFAC could deny.

We submitted to OFAC, and subsequently amended and supplemented, a request for interpretive guidance confirming the applicability of the general license to itolizumab (EQ001), or in its absence, a specific license authorization from OFAC authorizing activities relating to the commercialization of itolizumab (EQ001), or the Submission. We simultaneously requested that OFAC treat the Submission as a voluntary disclosure if OFAC concluded that our determination that the general license applies to itolizumab (EQ001) was in error.

In November 2019, OFAC notified us that after careful consideration, which included consultation with the FDA, OFAC determined that itolizumab (EQ001) falls within the definition of “Cuban-origin pharmaceutical” and, as such, the general licenses at section 515.547(b) and (c) of the CACR authorize the conduct of clinical studies for itolizumab (EQ001) for the purpose of seeking approval of the drug from the FDA. Thus, no further authorization is required from OFAC at this time for our ongoing and future clinical studies of itolizumab (EQ001).

Even though OFAC has concluded that the general license for Cuban-origin pharmaceuticals applies to itolizumab (EQ001), there can be no assurance that the general license will not be revoked or modified by OFAC in the future, or that we will remain in compliance with the general license or other export laws and regulations. If OFAC revokes or modifies the general license, or otherwise determines that the general license does not apply to itolizumab (EQ001), and OFAC then denies our request for a specific license or delays issuance of a specific license, we will be unable to deal in, or otherwise commercialize, itolizumab (EQ001). In that case, we would be required to cease operations related to itolizumab (EQ001), which would materially and adversely affect our financial condition and business prospects. In addition, in the absence of the general or specific license, the transfer, sale and/or purchase of our securities could be prohibited, and the ownership or possession of our securities could be subject to an affirmative OFAC reporting requirement relating to blocked property. Any violations of the CACR or other applicable export control and sanctions laws could subject us and certain of our employees to substantial civil or criminal penalties.

Changes in healthcare law and implementing regulations, as well as changes in healthcare policy, may impact our business in ways that we cannot currently predict and may have a significant adverse effect on our business and results of operations.*

There have been, and continue to be, numerous legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any product candidates for which we obtain marketing approval. Among policy makers and payors in the United States there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access and the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives.

The Affordable Care Act substantially changed the way healthcare is financed by both the government and private insurers, and significantly impacts the U.S. pharmaceutical industry. The Affordable Care Act, among other things: (i) introduced a “average manufacturer price” calculation for drugs and biologics that are inhaled, infused, instilled, implanted or injected and that are not generally dispensed through retail community pharmacies; (ii) increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and expanded rebate liability from fee-for-service Medicaid utilization to include the utilization of Medicaid managed care organizations as well; (iii) established a branded prescription drug fee that pharmaceutical manufacturers of branded prescription drugs must pay to the federal government; (iv) expanded the list of covered entities eligible to participate in the 340B drug pricing program by adding new entities to the program; (v) established Medicare Part D coverage gap discount program, in which manufacturers currently must agree to offer 70% point-of-sale discounts off negotiated prices of applicable branded drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D; (vi) expanded eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals, including individuals with income at or below 133% of the federal poverty level, thereby potentially increasing manufacturers’ Medicaid rebate liability; (vii) created a licensure framework for follow-on biologic products; and (viii) established a Center for Medicare & Medicaid Innovation at the Centers for Medicare & Medicaid Services to test innovative payment and service delivery models to lower Medicare and Medicaid spending.

There have been judicial, Congressional and executive challenges to certain aspects of the Affordable Care Act. For example, on June 17, 2021, the U.S. Supreme Court held in a 7-2 opinion that the states and individuals challenging the constitutionality of Affordable Care Act do not have standing to challenge the law. The U.S. Supreme Court did not reach the merits of the challenge regarding Affordable Care Act’s constitutionality, but the decision ended the case. Further, prior to the U.S. Supreme Court ruling, on January 28, 2021, President Biden issued an executive order that initiated a special enrollment period for purposes of obtaining health insurance coverage through the Affordable Care Act marketplace. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the Affordable Care Act. In addition, on August 16, 2022, President Biden signed the Inflation Reduction Act of 2022, or IRA, into law, which among other things, extends enhanced subsidies for individuals purchasing health insurance coverage in Affordable Care Act marketplaces through plan year 2025. The IRA also eliminates the “donut hole” under the Medicare Part D program beginning in 2025 by significantly lowering the beneficiary maximum out-of-pocket cost and creating a new manufacturer discount program. It is possible that the Affordable Care Act will be subject to judicial or Congressional challenges in the future. It is unclear how any such challenges and the healthcare reform measures of the Biden administration will impact the Affordable Care Act. We are continuing to monitor any changes to the Affordable Care Act that, in turn, may potentially impact our business in the future.

Other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. These changes include aggregate reductions to Medicare payments to providers of 2% per fiscal year pursuant to the Budget Control Act of 2011 and subsequent laws, which began in 2013 and will remain in effect until 2032 unless additional Congressional action is taken. Additionally, on March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s average manufacturer price, for single source and innovator multiple source drugs, beginning January 1, 2024. In January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. New laws may result in additional reductions in Medicare and other healthcare funding, which may materially adversely affect customer demand and affordability for our products and, accordingly, the results of our financial operations.

Also, there has been heightened governmental scrutiny recently over the manner in which pharmaceutical companies set prices for their marketed products, which have resulted in several Congressional inquiries and proposed federal legislation, as well as state efforts, designed to, among other things, bring more transparency to product pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. At the federal level, in July 2021, the Biden administration released an executive order, “Promoting Competition in the American Economy,” with multiple provisions aimed at prescription drugs. In response to Biden’s executive order, on September 9, 2021, the Department of Health and Human Services, or HHS, released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies that Congress could pursue as well as potential administrative actions HHS can take to advance these principles. In addition, the IRA, among other things, (1) directs HHS to negotiate the price of certain single-source drugs and biologics covered under Medicare and (2) imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation. These provisions will take effect progressively starting in fiscal year 2023, although the Medicare drug price negotiation program is currently subject to legal challenges. The IRA permits HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial years. HHS has and will continue to issue and update guidance as these programs are implemented. It is currently unclear how the IRA will be implemented but is likely to have a significant impact on the pharmaceutical industry. Further, in response to the Biden administration’s October 2022 executive order, on February 14, 2023, HHS released a report outlining three new models for testing by the Centers for Medicare & Medicaid Services (CMS) Innovation Center which will be evaluated on their ability to lower the cost of drugs, promote accessibility, and improve quality of care. It is unclear whether the models will be utilized in any health reform measures in the future. At the state level, individual states in the United States are increasingly active in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. The IRA’s drug pricing reforms have the potential to adversely impact our ability to successfully commercialize our product candidates and could lessen the real or perceived value of our product candidates, which would negatively impact our business.

We expect that these and other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and lower reimbursement, and in additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government-funded programs may result in a similar reduction in payments from private payors.

The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our drugs, once marketing approval is obtained.

If any of our services providers are characterized as employees, we would be subject to employment and tax withholding liabilities and other additional costs.*

We rely on independent contractors to provide certain services to us. We structure our relationships with these outside services providers in a manner that we believe results in an independent contractor relationship, not an employee relationship. An independent contractor is generally distinguished from an employee by his or her degree of autonomy and independence in providing services. A high degree of autonomy and independence is generally indicative of an independent contractor relationship, while a high degree of control is generally indicative of an employment relationship. Tax or other regulatory authorities may challenge our characterization of services providers as independent contractors both under existing laws and regulations and under laws and regulations adopted in the future. We are aware of a number of judicial decisions and legislative proposals that could bring about major changes in the way workers are classified, including the California legislature’s passage of California Assembly Bill 5, which California Governor Gavin Newsom signed into law in September 2019, or AB 5, and Assembly Bill 2257, or AB 2257, which went into effect in September 2020 and amended certain portions of AB 5. AB 5 and AB 2257 are often referred to collectively simply as AB 5. AB 5 purports to codify the holding of the California Supreme Court’s unanimous decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, which introduced a new test for determining worker classification that is widely viewed as expanding the scope of employee relationships and narrowing the scope of independent contractor relationships. While AB 5 exempts certain licensed health care professionals, including physicians and psychologists, not all of our independent contractors work in exempt occupations. There has been little guidance from the regulatory authorities charged with enforcing AB 5, and there is a significant degree of uncertainty regarding its application. In addition, AB 5 has been the subject of widespread national discussion and it is possible that other jurisdictions might enact similar laws. As a result, there is significant uncertainty regarding what the state, federal and foreign worker classification regulatory landscape will look like in future years. The current economic climate indicates that the debate over worker classification will continue for the foreseeable future. If such regulatory authorities or state, federal or foreign courts were to determine that our services providers are employees and not independent contractors, we would, among other things, be required to withhold income taxes, to withhold and pay Social Security, Medicare and similar taxes, to pay unemployment and other related payroll taxes, and to provide certain employee benefits. We could also be liable for unpaid past taxes and other costs and subject to penalties. As a result, any determination that the service providers we characterize as independent contractors should be classified as employees could adversely impact our business, financial condition and results of operations.

We may be subject to applicable foreign, federal and state fraud and abuse, transparency, government price reporting, and other healthcare laws and regulations. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.

Healthcare providers and third-party payors will play a primary role in the recommendation and prescription of any future product candidates for which we obtain marketing approval. Our arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may affect the business or financial arrangements and relationships through which we conduct research and would market, sell and distribute our products. Even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors, federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to our business. The laws that may affect our ability to operate include, but are not limited to:

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the federal Anti-Kickback Statute, which prohibits, among other things, any person or entity from knowingly and willfully soliciting, receiving, offering or paying any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of an item or service reimbursable, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs. The term “remuneration” has been broadly interpreted to include anything of value. The federal Anti-Kickback Statute has also been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers, and formulary managers on the other the other hand. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution. Additionally, the intent standard under the federal Anti-Kickback Statute was amended by the Affordable Care Act such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the Affordable Care Act codified case law that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act, or FCA;

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federal civil and criminal false claims laws, such as the FCA which can be enforced by private citizens, on behalf of the government, through civil qui tam actions, and civil monetary penalty laws prohibits individuals or entities from, among other things, knowingly presenting, or causing to be presented, false, fictitious or fraudulent claims for payment or approval by the federal government, including federal health care programs, such as Medicare and Medicaid, and knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim, or knowingly making a false statement to improperly avoid, decrease or conceal an obligation to pay money to the federal government.

In addition, a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA. As a result of a modification made by the Fraud Enforcement and Recovery Act of 2009, a claim includes “any request or demand” for money or property presented to the U.S. government. In addition, manufacturers can be held liable under the FCA even when they do not submit claims directly to government payors if they are deemed to “cause” the submission of false or fraudulent claims. Criminal prosecution is also possible for making or presenting a false, fictitious or fraudulent claim to the federal government. Government enforcement agencies and private whistleblowers have investigated pharmaceutical companies for or asserted liability under the FCA for a variety of alleged promotional and marketing activities, such as providing free product to customers with the expectation that the customers would bill federal programs for the product, providing consulting fees and other benefits to physicians to induce them to prescribe products, engaging in promotion for “off-label” uses, and submitting inflated best price information to the Medicaid Rebate Program;

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HIPAA, among other things, imposes criminal and civil liability for executing or attempting to execute a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement or representation, in connection with the delivery of or payment for healthcare benefits, items or services. Like the federal Anti-Kickback Statute, the Affordable Care Act amended the intent standard for certain healthcare fraud statutes under HIPAA such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

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HIPAA, as amended by HITECH and their implementing regulations, which imposes privacy, security and breach reporting obligations with respect to individually identifiable health information upon entities subject to the law, such as health plans, healthcare clearinghouses and certain healthcare providers, known as covered entities, and their respective business associates and their subcontractors that perform services for them that involve individually identifiable health information. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in U.S. federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions;

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the U.S. federal Food, Drug and Cosmetic Act, which prohibits, among other things, the adulteration or misbranding of drugs, biologics and medical devices;

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the Public Health Service Act, which prohibits, among other things, the introduction of a biological product into interstate commerce without an approved BLA;

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

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the federal transparency requirements under the Physician Payments Sunshine Act, created under the Affordable Care Act, which requires, among other things, certain manufacturers of drugs, devices, biologics and medical supplies reimbursed under Medicare, Medicaid, or the Children’s Health Insurance Program to annually report to the Centers for Medicare & Medicaid Services information related to payments and other transfers of value provided to physicians, as defined by such law, other healthcare professionals (such as physician assistants and nurse practitioners), and teaching hospitals and physician ownership and investment interests, including such ownership and investment interests held by a physician’s immediate family members;

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state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws, that may impose similar or more prohibitive restrictions, and may apply to items or services reimbursed by any non-governmental third-party payors, including private insurers; and

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state and foreign laws that require pharmaceutical companies to implement compliance programs and comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government; track and report gifts, compensation and other remuneration provided to physicians, other health care providers, and certain health care entities; report information related to drug pricing; and/or ensure the registration and compliance of sales personnel. In addition, we may be subject to federal, state and foreign laws that govern the privacy and security of health information or personally identifiable information in certain circumstances, including state health information privacy and data breach notification laws which govern the collection, use, disclosure, and protection of health-related and other personal information, many of which differ from each other in significant ways and often are not pre-empted by HIPAA, thus complicating compliance efforts.

We have entered into consulting and scientific advisory board arrangements with physicians and other healthcare providers, including some who could influence the use of EQ101, EQ102, itolizumab (EQ001) and any future product candidates, if approved. Because of the complex and far-reaching nature of these laws, regulatory agencies may view these transactions as prohibited arrangements that must be restructured, or discontinued, or for which we could be subject to other significant penalties. We could be adversely affected if regulatory agencies interpret our financial relationships with providers who may influence the ordering of and use of EQ101, EQ102, itolizumab (EQ001) or any future product candidates, if approved, to be in violation of applicable laws.

The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform. Federal and state enforcement bodies have recently increased their scrutiny of interactions between healthcare companies, healthcare providers and other third parties, including charitable foundations, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. It is possible that governmental authorities may conclude that our business practices, including our consulting arrangements with physicians, some of whom receive stock options as compensation for services provided, do not comply with current or future statutes, regulations, agency guidance or case law involving applicable healthcare laws. Responding to investigations can be time and resource-consuming and can divert management’s attention from the business. Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our business.

Ensuring that our business arrangements with third parties comply with applicable healthcare laws and regulations will likely be costly. If our operations are found to be in violation of any of these laws or any other current or future governmental laws and regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from government funded healthcare programs, such as Medicare and Medicaid, contractual damages, reputational harm, diminished profits and future earnings, additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations, any of which could substantially disrupt our operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to significant criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

We are subject to certain U.S. and certain foreign anti-corruption, anti-money laundering, export control, sanctions, and other trade laws and regulations. We can face serious consequences for violations.

U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions, and other trade laws and regulations, or collectively Trade Laws, prohibit, among other things, companies and their employees, agents, CROs, legal counsel, accountants, consultants, contractors, and other partners from authorizing, promising, offering, providing, soliciting, or receiving, directly or indirectly, corrupt or improper payments or anything else of value to or from recipients in the public or private sector. Violations of Trade Laws can result in substantial criminal fines and civil penalties, imprisonment, the loss of trade privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm, and other consequences. We have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities, and other organizations. We also expect our non-U.S. activities to increase over time. We expect to rely on contract service providers for research, preclinical studies, and clinical studies and/or to obtain necessary permits, licenses, patent registrations, and other marketing approvals. We can be held liable for the corrupt or other illegal activities of our personnel, agents, or partners, even if we do not explicitly authorize or have prior knowledge of such activities. Any violations of the laws and regulations described above may result in substantial civil and criminal fines and penalties, imprisonment, the loss of export or import privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm and other consequences.

Risks Related to Ownership of our Common Stock

The stock price of our common stock may be volatile or may decline regardless of our operating performance, and you could lose all or part of your investment.*

The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

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our operating performance and the performance of other similar companies;

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our ability to enroll and retain subjects in our ongoing and future clinical studies;

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results from our ongoing and future clinical studies with our current and future product candidates, and the results of the clinical studies of our competitors or of Biocon;

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adverse events observed in our clinical studies or in the clinical studies, exploratory studies, or other clinical uses of itolizumab supported by Biocon or third parties or during post-approval use of itolizumab; the timing of data from our ongoing and planned clinical studies of EQ101, EQ102 and itolizumab (EQ001);

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changes in our projected operating results that we provide to the public, our failure to meet these projections or changes in recommendations by securities analysts that elect to follow our common stock;

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regulatory or legal developments of ours, our competitors’ or Biocon’s;

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the level of expenses related to future product candidates or clinical development programs;

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changes in the structure of healthcare payment systems;

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our ability to achieve product development goals in the timeframe we announce;

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announcements of clinical study results, regulatory developments, acquisitions or mergers, strategic alliances or significant agreements by us, by our competitors, or by Biocon;

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the success or failure of our efforts to acquire, license or develop additional product candidates;

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recruitment or departure of key personnel;

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the economy as a whole and market conditions in our industry;

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trading activity by a limited number of stockholders who together beneficially own a substantial proportion of our outstanding common stock;

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the size of our market float;

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our implementation and execution of a stock repurchase program;

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delays or other adverse impacts to our clinical studies from global health epidemics or outbreaks; and

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any other factors discussed in this report.

In addition, the stock markets have experienced extreme price and volume fluctuations, including as a result of the COVID-19 pandemic, bank failures and the conflict between Russia and Ukraine, that have affected and may continue to affect the market prices of equity securities of many life sciences companies. Stock prices of many biopharmaceutical companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have filed securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and adversely affect our business.

Our common stock is listed on the Nasdaq Global Market, and we are therefore subject to its continued listing requirements, including requirements with respect to the market value of publicly held shares, market value of listed shares, minimum bid price per share, and minimum stockholders' equity, among others, and requirements relating to board and committee independence. If we fail to satisfy one or more of the requirements, we may be delisted from the Nasdaq Global Market.

On April 5, 2023, we received a notice, or Notice, from the Nasdaq Stock Market, or Nasdaq, that we are not currently in compliance with the $1.00 minimum bid price requirement for continued listing on the Nasdaq Global Market, as set forth in Nasdaq Listing Rule 5450(a)(1), or the Minimum Bid Price Requirement. The Notice indicated that, consistent with Nasdaq Listing Rule 5810(c)(3)(A), we have 180 days, or until October 2, 2023, to regain compliance with the Minimum Bid Price Requirement by having the bid price of our common stock meet or exceed $1.00 per share for at least ten consecutive business days. The Notice had no immediate effect on the listing of our common stock, and our common stock will continue to trade on the Nasdaq Global Market under the symbol “EQ” at this time.

If we do not regain compliance by October 2, 2023, we may be afforded an additional 180 calendar day period to regain compliance. To qualify, we would be required to transfer to the Nasdaq Capital Market and meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, except for the Minimum Bid Price Requirement. In addition, we would be required to notify Nasdaq of our intent to cure the deficiency during the second compliance period. Following a transfer to the Nasdaq Capital Market, we would be afforded the second 180 calendar day period to regain compliance, unless it does not appear to Nasdaq that it is possible for us to do so. If we do not regain compliance with the Minimum Bid Price Requirement by the end of the compliance period (or the second compliance period, if applicable), our common stock will become subject to delisting. In the event that we receive notice that our common stock is being delisted, the Nasdaq listing rules permit us to appeal a delisting determination by the Staff to a hearings panel.

There can be no assurance, however, that we will be able to regain compliance with the Minimum Bid Price Requirement, and even if we do, there can be no assurance that we will be able to maintain compliance with the continued listing requirements for the Nasdaq Global Market (or, potentially, the Nasdaq Capital Market) or that our common stock will not be delisted in the future. In addition, we may be unable to meet other applicable listing requirements of the Nasdaq Global Market (or, potentially, the Nasdaq Capital Market), including maintaining minimum levels of stockholders’ equity or market values of our common stock in which case, our common stock could be delisted notwithstanding our ability to demonstrate compliance with the Minimum Bid Price Requirement.

Delisting from the Nasdaq Global Market may adversely affect our ability to raise additional financing through the public or private sale of equity securities, may significantly affect the ability of investors to trade our securities and may negatively affect the value and liquidity of our common stock. Delisting also could have other negative results, including the potential loss of employee confidence, the loss of institutional investors or interest in business development opportunities.

If we are delisted from Nasdaq and we are not able to list our common stock on another exchange, our common stock could be quoted on the OTC Bulletin Board or in the “pink sheets.” As a result, we could face significant adverse consequences including, among others:

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a limited availability of market quotations for our securities;

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a determination that our common stock is a “penny stock” which will require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;

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a limited amount of news and little or no analyst coverage for us;

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an inability to qualify for exemptions from state securities registration requirements, which may require us to comply with applicable state securities laws; and

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a decreased ability to issue additional securities (including pursuant to registration statements on Form S-3) or obtain additional financing in the future.

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.*

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, and collaboration and license agreements, such as our Asset Purchase Agreement with Ono. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

If we raise funds through collaboration and license agreements with third parties, such as our Asset Purchase Agreement with Ono, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Adverse developments affecting the financial services industry could adversely affect our current and projected business operations and our financial condition and results of operations.*

Adverse developments that affect financial institutions, such as events involving liquidity that are rumored or actual, have in the past and may in the future lead to bank failures and market-wide liquidity problems. For example, on March 10, 2023, SVB was closed by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver. Similarly, on March 12, 2023, Signature Bank and Silvergate Capital Corp. were each swept into receivership. In addition, on May 1, 2023, the FDIC seized First Republic Bank and sold its assets to JPMorgan Chase & Co. While the U.S. Department of Treasury, FDIC and Federal Reserve Board have implemented a program to provide up to $25 billion of loans to financial institutions secured by certain of such government securities held by financial institutions to mitigate the risk of potential losses on the sale of such instruments, widespread demands for customer withdrawals or other liquidity needs of financial institutions for immediate liquidity may exceed the capacity of such program, there is no guarantee that such programs will be sufficient. Additionally, it is uncertain whether the U.S. Department of Treasury, FDIC and Federal Reserve Board will provide access to uninsured funds in the future in the event of the closure of other banks or financial institutions, or that they would do so in a timely fashion.

While we have not experienced any adverse impact to our liquidity or to our current and projected business operations, financial condition or results of operations as a result of the matters relating to SVB, Signature Bank, Silvergate Capital Corp and First Republic Bank, uncertainty remains over liquidity concerns in the broader financial services industry, and our business, our business partners or industry as a whole may be adversely impacted in ways that we cannot predict at this time.

Although we assess our banking relationships as we believe necessary or appropriate, our access to cash in amounts adequate to finance or capitalize our current and projected future business operations could be significantly impaired by factors that affect the financial institutions with which we have banking relationships. These factors could include, among others, events such as liquidity constraints or failures, the ability to perform obligations under various types of financial, credit or liquidity agreements or arrangements, disruptions or instability in the financial services industry or financial markets, or concerns or negative expectations about the prospects for companies in the financial services industry. These factors could also include factors involving financial markets or the financial services industry generally. The results of events or concerns that involve one or more of these factors could include a variety of material and adverse impacts on our current and projected business operations and our financial condition and results of operations. These could include, but may not be limited to, delayed access to deposits or other financial assets or the uninsured loss of deposits or other financial assets; or termination of cash management arrangements and/or delays in accessing or actual loss of funds subject to cash management arrangements.

In addition, widespread investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on acceptable terms or at all. Any decline in available funding or access to our cash and liquidity resources could, among other risks, adversely impact our ability to meet our operating expenses, financial obligations or fulfill our other obligations, result in breaches of our financial and/or contractual obligations or result in violations of federal or state wage and hour laws. Any of these impacts, or any other impacts resulting from the factors described above or other related or similar factors not described above, could have material adverse impacts on our liquidity and our current and/or projected business operations and financial condition and results of operations.

If there are substantial sales of shares of our common stock, the price of our common stock could decline.*

The price of our common stock could decline if there are substantial sales of our common stock, particularly sales by our directors, executive officers and significant stockholders, or if there is a large number of shares of our common stock available for sale and the market perceives that sales will occur. As of August 7, 2023, we had 34,568,500 shares of our common stock outstanding. Shares held by directors, executive officers and other affiliates will be subject to volume limitations under Rule 144 under the Securities Act. We have registered shares of common stock that we have issued and may issue under our employee equity incentive plans, which shares may be sold freely in the public market upon issuance. Sales of our common stock by current stockholders may make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate, and make it more difficult for other stockholders to sell shares of our common stock.

The market price of the shares of our common stock could decline as a result of the sale of a substantial number of our shares of common stock in the public market or the perception in the market that the holders of a large number of shares intend to sell their shares. We are unable to predict the effect that sales may have on the prevailing market price of our common stock.

The concentration of our stock ownership will likely limit your ability to influence corporate matters, including the ability to influence the outcome of director elections and other matters requiring stockholder approval.

Our executive officers, directors and the holders of more than 5% of our outstanding common stock, in the aggregate, beneficially own a significant percentage of our common stock. As a result, these stockholders, acting together, will have significant influence over all matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. Corporate actions might be taken even if other stockholders oppose them. This concentration of ownership might also have the effect of delaying or preventing a change of control of our company that other stockholders may view as beneficial.

We cannot guarantee that our stock repurchase program will be consummated or will enhance stockholder value, and share repurchases could affect the price of our common stock.*

Open market repurchases will be structured to occur in accordance with applicable federal securities laws, including within the pricing and volume requirements of Rule 10b-18 under the Exchange Act. We may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases of our shares of common stock under this authorization. The timing and amount of repurchases, if any, will depend on a variety of factors, including the price of our common stock, alternative investment opportunities, our cash resources, restrictions under any of our agreements, corporate and regulatory requirements and market conditions.

Repurchases of shares of common stock could affect the market price of our common stock, increase their volatility or diminish our cash reserves, which may impact our ability to finance our future operations. Although our stock repurchase program is intended to enhance long-term stockholder value, there is no assurance that it will do so, and short-term share price fluctuations could reduce the program’s effectiveness.

In addition, any future stock repurchases will likely reduce our “public float,” (i.e., the number of shares of our common stock that are owned by non-affiliated stockholders and available for trading in the securities markets). A reduction in our public float may reduce the volume of trading in our shares of common stock and result in reduced liquidity, which, in each case, may cause fluctuations in the trading price of our common stock unrelated to our performance.

Delaware law and provisions in our amended and restated certificate of incorporation and amended and restated bylaws could make a merger, tender offer or proxy contest difficult, thereby depressing the trading price of our common stock.

Provisions of our amended and restated certificate of incorporation and amended and restated bylaws may delay or discourage transactions involving an actual or potential change in our control or change in our management, including transactions in which stockholders might otherwise receive a premium for their shares or transactions that our stockholders might otherwise deem to be in their best interests. Therefore, these provisions could adversely affect the price of our common stock. Among other things, our amended and restated certificate of incorporation and amended and restated bylaws:

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permit our board of directors to issue up to 10,000,000 shares of preferred stock, with any rights, preferences and privileges as they may designate (including the right to approve an acquisition or other change in our control);

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provide that the authorized number of directors may be changed only by resolution of the board of directors;

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provide that the board of directors or any individual director may only be removed with cause and the affirmative vote of the holders of at least 66-2/3% of the voting power of all of our then outstanding common stock;

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provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum;

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divide our board of directors into three classes;

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require that any action to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and not be taken by written consent;

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provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide notice in writing in a timely manner and also specify requirements as to the form and content of a stockholder’s notice;

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do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose);

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provide that special meetings of our stockholders may be called only by the chairman of the board, our Chief Executive Officer or by the board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors; and

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provide that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for the following types of actions or proceedings under Delaware statutory or common law; (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors or officers to us or our stockholders, (iii) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law or our certificate of incorporation or bylaws, or (iv) any action asserting a claim against us governed by the internal affairs doctrine. These provisions would not apply to suits brought to enforce a duty or liability created by the Exchange Act. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims.

The amendment of any of these provisions, with the exception of the ability of our board of directors to issue shares of preferred stock and designate any rights, preferences and privileges thereto, would require approval by the holders of at least 66-2/3% of our then-outstanding common stock. In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law.

These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time. A Delaware corporation may opt out of this provision by express provision in its original certificate of incorporation or by amendment to its certificate of incorporation or bylaws approved by its stockholders. However, we have not opted out of this provision.

These and other provisions in our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law could make it more difficult for stockholders or potential acquirors to obtain control of our board of directors or initiate actions that are opposed by our then-current board of directors, including delay or impede a merger, tender offer or proxy contest involving our company. The existence of these provisions could negatively affect the price of our common stock and limit opportunities for you to realize value in a corporate transaction.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware and the federal district courts of the United States of America will be the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law:

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any derivative action or proceeding brought on our behalf;

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any action asserting a breach of fiduciary duty;

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any action asserting a claim against us arising under the Delaware General Corporation Law, our amended and restated certificate of incorporation, or our amended and restated bylaws; and

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any action asserting a claim against us that is governed by the internal-affairs doctrine.

This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated certificate of incorporation further provides that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. While the Delaware courts have determined that such choice of forum provisions are facially valid and several state study courts have enforced such provisions and required that suits asserting Securities Act claims be filed in federal court, there is no guarantee that courts of appeal will affirm the enforceability of such provisions and a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and restated certificate of incorporation. This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions. If a court were to find either exclusive forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with litigating Securities Act claims in state court, or both state and federal court, which could seriously harm our business, financial condition, results of operations, and prospects.

These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers and other employees. If a court were to find either exclusive-forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with resolving the dispute in other jurisdictions, all of which could seriously harm our business.

General Risk Factors

As a public company in the United States, we incur significant legal and financial compliance costs and we are subject to the Sarbanes-Oxley Act. We can provide no assurance that we will, at all times, in the future be able to report that our internal controls over financial reporting are effective.

Companies that file reports with the SEC, including us, are subject to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. Section 404 requires management to establish and maintain a system of internal control over financial reporting, and annual reports on Form 10-K filed under the Securities Exchange Act of 1934, as amended, or the Exchange Act, must contain a report from management assessing the effectiveness of a company’s internal control over financial reporting. Ensuring that we have adequate internal financial and accounting controls and procedures in place to produce accurate financial statements on a timely basis remains a costly and time-consuming effort that needs to be re-evaluated frequently.

Failure on our part to have effective internal financial and accounting controls would cause our financial reporting to be unreliable, could have a material adverse effect on our business, operating results, and financial condition, and could cause our stock price to decline as a result.

If we cannot conclude that we have effective internal control over our financial reporting, or if our independent registered public accounting firm is unable to provide an unqualified opinion regarding the effectiveness of our internal control over financial reporting, investors could lose confidence in the reliability of our financial statements. Failure to comply with reporting requirements could also subject us to sanctions and/or investigations by the SEC, The Nasdaq Global Market or other regulatory authorities.

Furthermore, stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, any new regulations or disclosure obligations may increase our legal and financial compliance costs and will make some activities more time-consuming and costly.

We or the parties upon whom we depend on may be adversely affected by earthquakes, fires, other natural disasters, or other sudden, unforeseen and severe adverse events, including public health epidemics or outbreaks, and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.*

Our headquarters and main research facility are located in the Greater San Diego Area, which in the past has experienced severe earthquakes and fires. If these earthquakes, fires, other natural disasters, terrorism and similar unforeseen events beyond our control prevented us from using all or a significant portion of our headquarters or research facility, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. We do not have a disaster recovery or business continuity plan in place and may incur substantial expenses as a result of the absence or limited nature of our internal or third party service provider disaster recovery and business continuity plans, which, particularly when taken together with our lack of earthquake insurance, could have a material adverse effect on our business. Furthermore, integral parties in our supply chain are operating from single sites, increasing their vulnerability to natural disasters or other sudden, unforeseen and severe adverse events, including public health epidemics or outbreaks, that could impact our business. If such an event were to affect our supply chain, it could have a material adverse effect on our ability to conduct our clinical studies, our development plans and business. For example, in March 2020, due to the spread of the coronavirus, the Indian government restricted the export of 26 active pharmaceutical ingredients and the medicines made from them. These export restrictions are indefinite and may be expanded. If the export restrictions are expanded to include itolizumab (EQ001), our supply of itolizumab (EQ001) may be disrupted, delayed or stopped indefinitely and our ability to continue development of itolizumab (EQ001), including our ongoing clinical studies, may be significantly impacted and may result in higher costs of drug product and adversely harm our business.

Changes in patent law in the United States and other jurisdictions could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.

As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents relating to our research programs and product candidates. Obtaining and enforcing patents in the biopharmaceutical industry involves both technological and legal complexity and is therefore costly, time consuming and inherently uncertain. Changes in either the patent laws or interpretation of the patent laws in the United States or USPTO rules and regulations could increase the uncertainties and costs. Recent patent reform legislation in the United States and other countries, including the Leahy-Smith America Invents Act, or the Leahy-Smith Act, signed into law on September 16, 2011, could increase those uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted, redefine prior art and provide more efficient and cost-effective avenues for competitors to challenge the validity of patents. These include allowing third-party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO administered post-grant proceedings, including post-grant review, inter partes review, and derivation proceedings. After March 2013, under the Leahy-Smith Act, the United States transitioned to a first inventor to file system in which, assuming that the other statutory requirements are met, the first inventor to file a patent application will be entitled to the patent on an invention regardless of whether a third party was the first to invent the claimed invention. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications, our ability to obtain future patents, and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. Depending on future actions by the U.S. Congress, the U.S. courts, the USPTO and the relevant law-making bodies in other countries, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.

Product liability lawsuits against us could cause us to incur substantial liabilities and could limit our commercialization of any product candidates that we may develop.

We face an inherent risk of product liability exposure related to the testing of EQ101, EQ102, itolizumab (EQ001) and any future product candidates in human clinical studies and will face an even greater risk if we commercially sell any products that we may develop. If we cannot successfully defend ourselves against claims that EQ101, EQ102, itolizumab (EQ001) or any future product candidates or products caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, product liability claims may result in:

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delay or termination of clinical studies;

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decreased demand for any product candidates or products that we may develop;

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injury to our reputation and significant negative media attention;

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withdrawal of clinical study subjects;

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initiation of investigations by regulators;

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significant costs to defend the related litigation and diversion of management’s time and our resources;

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substantial monetary awards to clinical study subjects or patients;

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product recalls, withdrawals or labeling, or marketing or promotional restrictions;

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loss of revenue; and

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the inability to commercialize any products that we may develop.

We currently have product liability insurance. However, the amount of insurance may not be adequate to cover all liabilities that we may incur. We anticipate that we will need to increase our insurance coverage as EQ101, EQ102, itolizumab (EQ001) and any future product candidates advance through clinical studies and if we successfully commercialize any products. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

Changes in tax laws or regulations that are applied adversely to us or our customers may have a material adverse effect on our business, cash flow, financial condition or results of operations.

New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, which could affect the tax treatment of our domestic and foreign earnings. Any new taxes could adversely affect our domestic and international business operations, and our business and financial performance. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us. For example, on December 22, 2017, U.S. federal income tax legislation was signed into law (H.R. 1, “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018”), informally titled the Tax Cuts and Jobs Act, that significantly revised the IRC. Future guidance from the Internal Revenue Service and other tax authorities with respect to the Tax Cuts and Jobs Act may affect us, and certain aspects of the Tax Cuts and Jobs Act could be repealed or modified in future legislation.

Effective January 1, 2022, the Tax Cuts and Jobs Act modified Internal Revenue Code Section 174 to require taxpayers’ U.S. based and non-U.S. based R&E expenditures to be capitalized and amortized over a period of five or fifteen years, respectively. Prior to the Tax Cuts and Job Act amendment, Section 174 allowed taxpayers to either immediately deduct R&E expenditures in the year paid or incurred, or elect to capitalize and amortize over a period of at least 60 months. Unless the United States Department of the Treasury issues regulations that narrow the application of this provision to a smaller subset of our research and development expenses or the provision is deferred, modified, or repealed by Congress, it could harm our future operating results by effectively increasing our future tax obligations. The actual impact of this provision will depend on multiple factors, including the amount of research and development expenses we will incur, whether we achieve sufficient income to fully utilize such deductions and whether we conduct our research and development activities inside or outside the United States.

Legislation enacted on March 27, 2020, entitled the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, modified certain provisions of the Tax Cuts and Jobs Act. In addition, the recently enacted IRA includes provisions that will impact the U.S. federal income taxation of corporations, including imposing a minimum tax on the book income of certain large corporations and an excise tax on certain corporate stock repurchases that would be imposed on the corporation repurchasing such stock.

It is uncertain if and to what extent various states will conform to the Tax Cuts and Jobs Act, the CARES Act or the IRA. We do not expect the Tax Cuts and Jobs Act or the CARES Act to have a material impact on our current projection of minimal cash taxes for the near future. However, we continue to examine the impact that the Tax Cuts and Jobs Act, the CARES Act and the IRA may have on our business in the longer term. We urge prospective investors to consult with their legal and tax advisors with respect to this legislation and the potential tax consequences of investing in or holding our common stock.

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

We, and the third parties with whom we share our facilities, are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Each of our operations involve the use of hazardous and flammable materials, including chemicals and biological and radioactive materials. Each of our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. We could be held liable for any resulting damages in the event of contamination or injury resulting from the use of hazardous materials by us or the third parties with whom we share our facilities, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.

Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.

In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research and development. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, our common stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our common stock price and trading volume to decline.

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

We are subject to the periodic reporting requirements of the Exchange Act. We designed our disclosure controls and procedures to reasonably assure that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.

We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. For example, our directors or executive officers could inadvertently fail to disclose a new relationship or arrangement causing us to fail to make any related party transaction disclosures. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected. In addition, we do not have a risk management program or processes or procedures for identifying and addressing risks to our business in other areas.

We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as amended, or JOBS Act, and we intend to take advantage of some of the exemptions from reporting requirements that are applicable to other public companies that are not emerging growth companies, including:

•

being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;

•

not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;

•

not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

•

reduced disclosure obligations regarding executive compensation; and

•

not being required to hold a non-binding advisory vote on executive compensation or obtain stockholder approval of any golden parachute payments not previously approved.

In addition, as an “emerging growth company” the JOBS Act allows us to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We have elected to use this extended transition period under the JOBS Act.

We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an emerging growth company. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of our initial public offering (i.e. December 31, 2023), (b) in which we have total annual gross revenue of at least $1.235 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

We do not intend to pay dividends for the foreseeable future.*

We have never declared nor paid cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. In addition, the terms of any future debt agreements may preclude us from paying dividends. Consequently, stockholders must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.

We could be subject to securities class action litigation.

In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biopharmaceutical companies have experienced significant stock price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.

Item 5. Other Information

Repricing of Outstanding Options

On August 7, 2023, our board of directors approved an option repricing, which will be effective on the third business day following the filing of this Quarterly Report on Form 10-Q, or the Effective Date. The repricing applies to outstanding options to purchase shares of our common stock that, as of the Effective Date, are held by our employees, officers and certain non-employee directors, or the Outstanding Options, to the extent such Outstanding Options have an exercise price in excess of the closing trading price of our common stock on the Effective Date, and were granted under our 2017 Equity Incentive Plan or 2018 Equity Incentive Plan, or the 2018 Plan. As of the Effective Date, all Outstanding Options will be immediately repriced such that the exercise price per share for such Outstanding Options will be reduced to the closing trading price of our common stock on the Effective Date, except that a premium exercise price will apply for certain exercises, as further described below. The Outstanding Options that are repriced on the Effective Date, or the Repriced Options, will include the Outstanding Options held by our executive officers and certain non-employee directors.

Our board of directors approved the repricing after careful consideration of various alternatives and a review of other applicable considerations with our independent compensation consultant, outside legal counsel, the recommendation of the compensation committee of our board of directors and the determination by a disinterested director who did not have any options subject to the repricing that the repricing was fair, just and reasonable as to us and our stockholders. Our board of directors effectuated the repricing, with the Retention Period End Date, which is permitted under the terms of our applicable equity plans, to realign the value of the Repriced Options with their intended purpose, which is to retain and motivate the holders of the Repriced Options to continue to work in the best interests of us and our stockholders. Prior to the repricing, many of the Repriced Options had exercise prices well above the recent market prices of our common stock.

Item 6. Exhibits

The following exhibits are filed as part of, or incorporated by reference into this Quarterly Report on Form 10-Q.


Exhibit Number		Description of Exhibit
2.1†#		Agreement and Plan of Merger, dated February 14, 2022, by and among the Registrant, Bioniz Therapeutics, Inc., Project JetFuel Merger Sub, Inc. and Kevin Green, solely in his capacity as Securityholders’ Representative, incorporated by reference by Exhibit 2.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 16, 2022.

3.1		Amended and Restated Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed on October 16, 2018.

3.2		Amended and Restated Bylaws of the Registrant, incorporated by reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K filed on October 16, 2018.

4.1		Form of Common Stock Certificate of the Registrant, incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-1 (File No. 333-227387), as amended, originally filed with the Securities and Exchange Commission on September 17, 2018.

4.2		Warrant to Purchase Common Stock, dated September 30, 2019, issued to Oxford Finance LLC, incorporated by reference to Exhibit 4.2 of the Registrant’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on November 12, 2019.

4.3		Warrant to Purchase Common Stock, dated September 30, 2019, issued to Silicon Valley Bank, incorporated by reference to Exhibit 4.3 of the Registrant’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on November 12, 2019.

4.4		Registration Rights Agreement, dated as of March 27, 2020, by and between the Registrant and Lincoln Park Capital Fund, LLC, incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed on March 30, 2020.

4.5		Form of Warrant, issued February 5, 2021, incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 4, 2021.

10.1#*		Collaboration and License Agreement, dated May 22, 2017, by and between the Registrant and Biocon SA (which was subsequently assigned to Biocon Limited effective March 2018).

10.2#*		Clinical Supply Agreement, dated May 22, 2017, by and between Registrant and Biocon SA (which was subsequently assigned to Biocon Limited effective March 2018).

31.1*		Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act, as amended.

31.2*		Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act, as amended.

32.1**		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rules 13a-14(b) or 15d-14(b) of the Securities Exchange Act, as amended, and 18 U.S.C. Section 1350.

101.INS*		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH*		Inline XBRL Taxonomy Extension Schema Document.

101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document.


101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104		The cover page for the Registrant's Quarterly Report on Form 10-Q has been formatted in Inline XBRL and contained in Exhibit 101.

† Certain exhibits and schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5). The Registrant hereby agrees to furnish a copy of any omitted exhibits and schedules to the SEC upon its request.

# Certain information in this exhibit has been omitted pursuant to Item 601 of Regulation S-K.

* Filed herewith.

** This certification will not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent specifically incorporated by reference into such filing.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Date: August 9, 2023	EQUILLIUM, INC.

	By:	/s/ Bruce D. Steel
		Bruce D. Steel
		President and Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ Jason A. Keyes
		Jason A. Keyes
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

EX-10.1 2 eq-ex10_1.htm EX-10.1 EX-10.1

CERTAIN INFORMATION CONTAINED IN THIS EXHIBIT, MARKED BY […***…], HAS BEEN EXCLUDED FROM THIS EXHIBIT BECAUSE THE REGISTRANT HAS DETERMINED THAT IT IS BOTH NOT MATERIAL AND IS THE TYPE THAT THE REGISTRANT TREATS AS PRIVATE OR CONFIDENTIAL.


Confidential	EXECUTION VERSION

Exhibit 10.1

COLLABORATION AND LICENSE AGREEMENT

THIS COLLABORATION AND LICENSE AGREEMENT (“Agreement”) is made and entered into effective as of May 22, 2017 (the “Effective Date”), by and between EQUILLIUM, INC., a corporation organized under the laws of the State of Delaware, USA, with its principal office at 2223 Avenida de la Playa, Suite 108, La Jolla, California 92037, USA (“Equillium”), and BIOCON SA, a company organized under the laws of Switzerland with its principal place of business at c/o BDO SA, Rue De l’Avenir 2, 2800 Delemont, Switzerland (“Biocon”).

RECITALS

WHEREAS, Biocon owns or controls rights and know-how relating to the humanized anti-CD6 monoclonal antibody itolizumab;

WHEREAS, Equillium is a newly-incorporated company formed for the purpose of developing and commercializing itolizumab in North America;

WHEREAS, concurrently with the execution of this Agreement, Equillium and Biocon are entering into: (i) a Common Stock Purchase Agreement dated as of the Effective Date (the “Stock Purchase Agreement”), together with the other Transaction Agreements (as such term is defined in the Purchase Agreement); and (ii) a Clinical Supply Agreement dated as of the Effective Date (the “Clinical Supply Agreement”); and

WHEREAS, Equillium desires to obtain from Biocon, and Biocon is willing to grant to Equillium, an exclusive license to develop and commercialize itolizumab in North America, on the terms and subject to the conditions set forth herein.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Equillium and Biocon hereby agree as follows:

1. DEFINITIONS

1.1 “Accounting Standards” shall mean (a) U.S. generally accepted accounting principles or (b) international financial reporting standards or (c) Indian Accounting Standards; in each case, as applicable, consistently applied throughout the organization of a particular entity and its Affiliates.

1.2 “Act” shall mean the United States Federal Food, Drug and Cosmetic Act, 21 U.S.C. §§301 et seq., as amended from time to time.

1.3 “Affiliate” shall mean, with respect to any Entity (including a party to this Agreement), any other Entity controlled by, controlling, or under common control with such Entity. For the purposes of this definition, the term “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”) shall mean the possession, directly or indirectly, of more than 50% of the outstanding voting securities of a corporation or comparable equity interest in any other type of Entity, or otherwise having the power to direct the management and policies of such Entity. For clarity, and notwithstanding the foregoing, Equillium and Biocon shall be deemed not to be Affiliates of each other for purposes of this Agreement.

1.4 “After-Acquired IP” shall mean any Patent Right, Information or other intellectual property right of a Third Party with respect to which a party first obtains a right to grant access, or a license or sublicense, from such Third Party after the Effective Date, under an agreement obligating such party to pay royalties and/or milestone payments to such Third Party with respect to products covered by or using such Patent Right, Information or other intellectual property right.

1.5 “Anti-Corruption Laws” shall mean the U.S. Foreign Corrupt Practices Act, as amended, the Organization for Economic Co-operation and Development (OECD) Convention on combating bribery of foreign public officials in international business transactions, and any other applicable anti-corruption laws.

1.6 “Applicable Laws” shall mean the applicable provisions of any and all national, supranational, regional, state and local laws, treaties, statutes, rules, regulations, administrative codes, guidances, ordinances, judgments, decrees, directives, injunctions, orders, permits of or from any court, arbitrator, regulatory authority or governmental agency or authority having jurisdiction over or related to the subject item, including the Act, Anti-Corruption Laws and Export Control Laws.

1.7 “Biocon FTE” shall mean the equivalent of a full-time Biocon’s employee’s work time over a 12-month period (including normal vacations, sick days and holidays).

1.8 “Biocon FTE Rate” shall mean (a) with respect to FTEs located in India, […***…] U.S. Dollars (U.S. $[…***…]) per Biocon FTE per year (the “India FTE Rate”) and (b) with respect to FTEs located outside India, […***…] U.S. Dollars (U.S. $[…***…]) per Biocon FTE per year (the “Ex-India FTE Rate”); in each case, subject to modification as set forth in this Section 1.8. The Biocon FTE Rates shall be subject to review and update annually on a calendar year basis by the JSC. In connection therewith, the Finance Representatives shall review the then-current India FTE Rate and Ex-India FTE Rate and consider, for the applicable country where such FTEs are located, (i) changes in Biocon’s compensation rates, generally applied to all of its personnel in the applicable country (other than increases commensurate with inflation in such country), (ii) inflation in the applicable country, and (iii) changes in the cost of standard reagents, supplies and equipment and standard services performed by Third Party subcontractors in such country (other than increases commensurate with inflation in such country); in each case, since the last such modification hereunder or, with respect to the first such modification, the Effective Date. Based on the foregoing, the Finance Representatives shall make a recommendation as to whether and how much to adjust the FTE Rate(s); provided, however, that notwithstanding any aggregate net year-over-year percentage increase in the cost items specified in the preceding clauses (i), (ii) and (iii), in no event shall the proposed annual increase to the Biocon FTE Rate to account for increases in the cost items specified in the preceding clauses (i), (ii) and (iii) exceed […***…]% of any increase in (A) the All India Consumer Price Index (Rural/Urban) for the same period in the case of the India FTE Rate or (B) the United States Consumer Price Index for All Urban Consumers (CPI-U): U.S. city average, published by the Bureau of Labor Statistics, United States Department of Labor, for the same period in the case of the Ex-India FTE Rate. For clarity, the Biocon FTE Rate is inclusive of the costs of standard reagents, supplies and equipment, and standard services performed by Third Party subcontractors of Biocon, but does not include the out-of-pocket costs of specialized reagents, supplies or equipment, or specialized services performed by Third Party subcontractors of Biocon, that, in each case, are needed specifically for the conduct of Biocon Preclinical Activities but are not generally required for similar activities Biocon performs on behalf of Third Parties or for its own account.

1.9 “Biocon Invention” shall mean any Invention made solely by one or more employees, consultants or contractors of Biocon. For clarity, Biocon Inventions exclude Joint Inventions.

1.10 “Biocon Know-How” shall mean all Information Controlled by Biocon as of the Effective Date or during the Term that is necessary or useful for the development, manufacture or commercialization of ITO or Product and all Biocon Inventions, including, without limitation, all Information licensed to Biocon or its Affiliates pursuant to the […***…] Agreement, but excluding Biocon’s interest in Joint Inventions.

1.11 “Biocon License” shall have the meaning provided in Section 2.2.

1.12 “Biocon Patents” shall mean all Patent Rights Controlled by Biocon as of the Effective Date or during the Term that claim inventions that are necessary or useful for the development, manufacture or commercialization of ITO or Product, including, without limitation, the patents and patent applications listed in Exhibit A hereto and the […***…] Patents, but excluding the Joint Patents.

1.13 “Biocon Preclinical Activities” shall mean Biocon’s activities under Section 4.2(a), the IND-Enabling Studies and the IND-Enabling CMC Activities.

1.14 “Biocon Preclinical Expenses” shall mean the internal and external costs and expenses incurred by Biocon or its Affiliate to the extent reasonably and fairly attributable or allocable to the conduct of the Biocon Preclinical Activities conducted in accordance with this Agreement, consisting solely of the following, in each case to the extent reasonably and fairly attributable or allocable to the conduct of the Biocon Preclinical Activities: (a) internal costs, calculated on the basis of the Biocon FTE Rate, incurred by Biocon or its Affiliate in conducting Biocon Preclinical Activities; and (b) reasonable and documented amounts paid to Third Parties for the conduct of Biocon Preclinical Activities by such Third Parties. Biocon Expenses shall in any event exclude: (i) all direct and indirect overhead costs of Biocon and its Affiliates, except to the extent that certain direct overhead costs are included in the Biocon FTE Rate; and (ii) the costs of standard reagents, supplies and equipment, and standard services performed by Third Party subcontractors of Biocon. By way of clarity, Biocon’s engagement of its Affiliates to perform any Biocon Preclinical Activities shall be at arm’s length transaction basis and hence Biocon Preclinical Expenses shall be computed accordingly.

1.15 “Biocon Technology” shall mean the Biocon Patents and the Biocon Know-How.

1.16 “Biocon Territory” shall mean countries listed in Exhibit C.

1.17 “Chair” shall have the meaning provided in Section 3.6.

1.18 “[ …***…]” shall mean […***…], a company organized and existing under the laws of […***…].

1.19 “[…***…] Agreement” shall mean that certain […***…], between BIOCON Biopharmaceuticals Private Limited, BIOCON Limited, and […***…].

1.20 “[…***…] Patents” shall mean all Patent Rights licensed to Biocon or its Affiliates pursuant to the […***…] Agreement.

1.21 “Clinical Material” shall have the meaning provided in Section 4.2(b).

1.22 “Clinical Supply Agreement” shall have the meaning provided in the recitals to this Agreement.

1.23 “CMC” shall mean chemistry, manufacturing and controls information.

1.24 “CMO” shall mean Third Party contract manufacturer.

1.25 “Combination Product” shall mean a Product or Supported Product (as applicable) that is sold in a finished dosage form containing ITO in combination with one or more Other Actives.

1.26 “Commercially Reasonable Efforts” shall mean, with respect to a party’s obligations under this Agreement, the efforts, commitments, and level of resources to be expended by a party in carrying out of its obligations (including, in the case of Equillium, its efforts to develop, register and commercialize the Product in Equillium Territory), the level of reasonable, diligent, good faith efforts that biopharmaceutical companies typically devote to products owned by them that are at a similar stage in their development or product life and are of similar market potential, taking into account […***…].

1.27 “Commercial Quality Agreement” shall have the meaning provided in Section 4.3.

1.28 “Commercial Supply Agreement” shall have the meaning provided in Section 4.3.

1.29 “Confidential Information” shall have the meaning provided in Section 8.1.

1.30 “Confidentiality Agreement” shall mean, collectively, any and all confidentiality or non-disclosure agreements between Equillium and Biocon entered into prior to the Effective Date relating to the subject matter of this Agreement.

1.31 “Control” or “Controlled by” shall mean, with respect to any Patent Rights, Information or other intellectual property rights, the possession by a party of the ability (whether by ownership, license or other right, other than pursuant to a license granted to such party under this Agreement) to grant access to, or a license or sublicense of, such Patent Rights, Information or other intellectual property rights without violating the terms of any agreement or other arrangement with any Third Party. Notwithstanding the foregoing, if a party determines in good faith that a particular item of After-Acquired IP may be necessary or useful for the development, manufacture or commercialization of ITO or Product in the other party’s Territory, such party shall promptly provide to the other party a reasonable description of such After-Acquired IP and shall disclose to the other party in writing such party’s royalty and/or milestone payment obligations to the applicable Third Party with respect to such item of After-Acquired IP. At the other party’s written request made within […***…] of the first party’s provision of such description and disclosure of payment obligations to the other party, the parties shall discuss in good faith the possibility of including such item of After-Acquired IP in the technology (i.e., Equillium Technology or Biocon Technology) licensed to the other party hereunder; provided, however, that such item of After-Acquired IP shall be deemed to be within the “Control” of the first party for purposes of this Agreement only upon the other party’s written agreement to pay all royalties and milestone payments arising under the agreement with the Third Party as a result of the other party’s development, manufacture or commercialization of Products.

1.32 “Cost of Goods” shall mean the fully burdened cost of the Clinical Material shipped to Equillium, expressed on a per unit manufactured basis, which will be the sum of the following:

(a) in the case of Clinical Material manufacturing activities performed by Biocon or its Affiliates (including manufacturing activities in support of Third Party manufacturing) […***…] […***…]; and

(b) in the case of goods and services acquired from Third Parties for the manufacture of Clinical Material [ …***…].

Any calculation of Cost of Goods will be based upon Accounting Standards, and methods for activity-based accounting thereunder, in each case, consistently applied throughout the organization of Biocon or its Affiliate. No cost item will be counted more than once in calculating Cost of Goods.

1.33 “Data” shall mean any and all results of research, preclinical studies, including in vitro and in vivo studies, clinical trials and other testing of ITO or Product conducted by or on behalf of a party or any of its Affiliates either before or during the Term, and any and all other data generated by or on behalf of a party related to the development, manufacture or commercialization of ITO or Product, including biological, chemical, pharmacological, toxicological, pharmacokinetic, clinical, CMC, analytical, quality control, and other data, results and descriptions.

1.34 “Entity” shall mean any corporation, general partnership, limited partnership, limited liability partnership, joint venture, estate, trust, company (including any limited liability company or joint stock company), firm or other enterprise, association, organization or entity.

1.35 “Equillium CMO” shall mean a CMO contracted by Equillium or its Affiliate or Sublicensee to manufacture and supply Product for the Equillium Territory, but specifically excluding any Third Party manufacturer contracted by Biocon or its Affiliate to manufacture and supply Product for the Equillium Territory.

1.36 “Equillium Invention” shall mean any Invention made solely by one or more employees, consultants or contractors of Equillium. For clarity, Equillium Inventions exclude Joint Inventions.

1.37 “Equillium Know-How” shall mean all Information Controlled by Equillium during the Term that is necessary or useful for the development, manufacture or commercialization of ITO or Product, including Equillium Inventions, but excluding Equillium’s interest in Joint Inventions.

1.38 “Equillium License” shall have the meaning provided in Section 2.1.

1.39 “Equillium Patents” shall mean all Patent Rights Controlled by Equillium during the Term that claim inventions that are necessary or useful for the development, manufacture or commercialization of ITO or Product, but excluding the Joint Patents.

1.40 “Equillium Technology” shall mean the Equillium Patents and the Equillium Know-How.

1.41 “Equillium Territory” shall mean the US, including its territories and possessions, and Canada.

1.42 “Export Control Laws” shall mean: (a) all applicable U.S. laws and regulations relating to sanctions and embargoes imposed by OFAC; (b) all applicable U.S. export control laws, including the Arms Export Controls Act (22 U.S.C. Ch. 39), the International Emergency Economic Powers Act (50 U.S.C. §§ 1701 et seq.), the Trading With the Enemy Act (50 U.S.C. app. §§ 1 et seq.), the Export Administration Act of 1979 (50 U.S.C. app. §§ 2401 et seq.), International Boycott Provisions of Section 999 of the U.S. Internal Revenue Code of 1986, and all rules, regulations and executive orders relating to any of the foregoing, including but not limited to the International Traffic in Arms Regulations (22 C.F.R. §§ 120 et seq.), the Export Administration Regulations (15 C.F.R. §§ 730 et. seq.), and the regulations administered by the Office of Foreign Assets Controls of the United States Department of the Treasury; and (c) all export controls imposed on any Product by any country or organization or nations within the jurisdiction of which a party operates or does business.

1.43 “FDA” shall mean the U.S. Food and Drug Administration, or any successor Regulatory Authority thereto in the US having substantially the same function.

1.44 “Field” shall mean:

(a) prior to the achievement of the Field Expansion Milestones, the Limited Field; and

(b) from and after the achievement of the Field Expansion Milestones (but subject to Section 4.8(b)(ii)), the Unlimited Field.

1.45 “Field Expansion Deadline” shall have the meaning provided in Section 2.3.

1.46 “Field Expansion Milestones” shall have the meaning provided in Section 2.3.

1.47 “Financial Representative” shall have the meaning provided in Section 3.7.

1.48 “First Commercial Sale” shall mean the first sale of a Product by a Selling Party or any of its Affiliates or Sublicensees to a Third Party for end use or consumption of such Product in a country after the applicable Regulatory Authority of such country has granted Regulatory Approval of such Product. Notwithstanding the foregoing, if, prior to Regulatory Approval of a Product in a country, aggregate gross invoiced amounts for Product used in named-patient programs in such country exceed US$[…***…], then “First Commercial Sale” of such Product in such country, solely for purposes of Sections 5.5(a) and 5.5(b) (but not for the purpose of Section 5.2 or any other purpose) shall be deemed to occur at the time aggregate gross invoiced amounts for Product used in named-patient programs in such country first exceed US$[…***…].

1.49 “First US Approval” shall have the meaning provided in Section 4.2(b)(ii).

1.50 “Fully-Burdened Manufacturing Cost” shall be defined in detail in the Commercial Supply Agreement and will be fundamentally consistent with the “Cost of Goods” definition in this Agreement. For clarity, Fully-Burdened Manufacturing Cost shall not include any costs for unusable batches resulting from Biocon’s failure to conduct its manufacturing activities in accordance with the terms of the Commercial Supply Agreement or any profit, mark-up or margin related to inter-company transfer pricing.

1.51 “GCP” shall mean current good clinical practices, as set forth in 21 C.F.R. Parts 50, 54, 56, 312 and 314 and as interpreted by relevant ICH guidelines; in each case, as amended from time to time.

1.52 “Generic Version” shall mean, on a country-by-country basis, with respect to a particular Product sold by a party or any of its Affiliates or Sublicensees in a country, a pharmaceutical product sold by a Third Party (other than a Sublicensee or any other Third Party in a chain of distribution originating from such party or any of its Affiliates or Sublicensees) in such country: (a) that contains ITO (and, if applicable, the same Other Active(s) as such Product) in the same dosage form as such Product; and (b) has received Regulatory Approval from the relevant Regulatory Authority in such country in reliance on the Regulatory Approval for such Product in such country.

1.53 “GLP” shall mean current good laboratory practices, as set forth in 21 C.F.R. Part 58 and as interpreted by relevant ICH guidelines; in each case, as amended from time to time.

1.54 “GMP” shall mean the current good manufacturing practices and standards for the production of drugs and finished pharmaceuticals, as set forth in 21 C.F.R. Parts 210 and 211 and as interpreted by relevant ICH guidelines; in each case, as amended from time to time.

1.55 “ICH” shall mean the International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use.

1.56 “IND” shall mean an investigational new drug application, clinical study application, clinical trial exemption, or similar application or submission filed with or submitted to a Regulatory Authority in a jurisdiction that is necessary to commence human clinical trials in such jurisdiction, including any such application filed with the FDA pursuant to 21 C.F.R. Part 312.

1.57 “IND-Enabling CMC Activities” shall mean all activities necessary to generate the IND-Enabling CMC Data.

1.58 “IND-Enabling CMC Data” shall mean all data and information required to be included in the chemistry, manufacturing and controls section of an IND for Product in the US.

1.59 “IND-Enabling Studies” shall have the meaning provided in Section 4.2(a)(ii)(1).

1.60 “Indication” shall mean a separate and distinct disease, disorder or condition in humans (a) which a Product is intended to treat or prevent, as evidenced by the protocol for a clinical trial of such Product or by the proposed Product labeling in an NDA filed with a Regulatory Authority for such Product; or (b) which is contained in a Product’s labeling approved by a Regulatory Authority as part of the Regulatory Approval for such Product. However, the parties agree that the treatment of a disease, disorder or condition in a particular patient population and the treatment of the same disease, disorder or condition in a different population (e.g., adult and pediatric, or first-line and second-line) will not be treated as separate Indications.

1.61 “Information” shall mean any and all tangible and intangible (a) techniques, technology, practices, trade secrets, inventions (whether patentable or not), methods, knowledge, know-how, skill, experience, test data and results (including pharmacological, toxicological and clinical test data and results), analytical and quality control data, results or descriptions, software and algorithms, and (b) compositions of matter, cells, cell lines, assays, animal models and physical, biological or chemical material; that, in each case, are not in the public domain.

1.62 “Invention” shall mean any invention, whether or not patentable, made conceived, generated or reduced to practice in the course and as a result of the conduct of activities conducted pursuant to this Agreement.

1.63 “ITO” shall mean the humanized anti-CD6 monoclonal antibody known by the INN itolizumab, as further described in Exhibit B hereto.

1.64 “IV” shall mean intravenously administered.

1.65 “JIPC” shall have the meaning provided in Section 7.2.

1.66 “Joint Invention” shall mean any Invention made jointly by, on the one hand, one or more employees, consultants or contractors of Equillium and, on the other hand, one or more employees, consultants or contractors of Biocon.

1.67 “Joint Patents” shall mean Patent Rights claiming Joint Inventions.

1.68 “JSC” shall have the meaning provided in Section 3.1.

1.69 “Limited Field” shall mean the diagnosis, treatment, prevention and palliation of Orphan Indications.

1.70 “NDA” shall mean: (a) in the United States, as applicable, a New Drug Application (as more fully described in 21 CFR Part 314.50, et seq., or its successor regulation) or a Biologics License Application (as more fully described in 21 CFR Part 601, et seq., or its successor regulation), filed with the FDA, or any successor application to either of the foregoing; or (b) in any other country or group of countries, the equivalent application or submission for approval to market a pharmaceutical product filed with the governing Regulatory Authority in such country or group of countries.

1.71 “Net Sales” shall mean the gross amounts invoiced for sales or other dispositions of Products or Supported Product, as applicable, by or on behalf of a party or any of its Affiliates or Sublicensees (each, a “Selling Party”), to Third Parties (other than another Selling Party), less the following deductions actually incurred, allowed, paid, accrued or otherwise specifically allocated to Products by the Selling Party:

(a) [ …***…];.

(b) […***…];.

(d) […***…];.

(e) […***…];.

(f) […***…];.

(g) […***…]; and.

(h) […***…].

In no event shall any particular amount identified above be deducted more than once in calculating Net Sales (i.e., no “double counting” of deductions).

For clarification, sale of Product by a Selling Party to another Selling Party for resale by such entity to a Third Party (other than a Selling Party) shall not be deemed a sale for purposes of this definition of “Net Sales,” provided that the subsequent resale is included in the computation of Net Sales. In addition, neither sales of Clinical Material by Biocon or its Affiliate to Equillium or its Affiliate or Sublicensee pursuant to the Clinical Supply Agreement nor sales of Product by Biocon or its Affiliate to Equillium or its Affiliate or Sublicensee for commercial distribution in the Equillium Territory pursuant to the Commercial Supply Agreement, shall be deemed a sale for purposes of this definition of “Net Sales.” Further, transfers or dispositions of Products as free promotional samples in commercially reasonable amounts, consistent with prevailing pharmaceutical industry standards, or in any patient assistance, test marketing program, named-patient program or compassionate use program (so long as such Products are provided without charge or at or below the Selling Party’s cost) and Products donated to non-profit institutions or government agencies, or used in research, development or regulatory activities, including, without limitation, clinical trials, shall be disregarded in determining Net Sales.

On a country-by-country basis, if a Product under this Agreement is sold in the form of a Combination Product in a country, Net Sales for the purpose of determining royalties due hereunder shall be calculated as follows:

(i) Where both Product containing ITO as its sole active pharmaceutical ingredient (“Single-Agent Product”) and all Other Active(s) in such Combination Product are sold separately in such country, Net Sales shall be calculated by multiplying actual Net Sales of such Combination Product in such country as determined under the preceding provisions of this Section 1.71, by the fraction […***…].

(ii) If Single-Agent Product is sold in such country, but none of the Other Active(s) is sold separately in such country, Net Sales shall be calculated by multiplying actual Net Sales of such Combination Product in such country as determined under the preceding provisions of this Section 1.71, by the fraction […***…].

(iii) If no Single-Agent Product is sold in such country, but the Other Active(s) are sold separately in such country, Net Sales shall be calculated by multiplying actual Net Sales of such Combination Product in such country as determined under the preceding provisions of this Section 1.71, by the fraction […***…].

(iv) If neither Single-Agent Product nor the Other Active(s) are sold separately in such country, Net Sales for the purpose of determining royalties due hereunder for the Combination Product shall be determined by mutual agreement of the parties in good faith taking into account the relative value contributions of the ITO portion of the Combination Product and the Other Active(s) in the Combination Product; provided, however, that in no event shall the relative value contribution of the ITO portion of the Combination Product be less than […***…]%.

1.72 “OFAC” shall mean the U.S. Department of Treasury’s Office of Foreign Assets Control (or its successor office or other body having substantially the same function).

1.73 “Ongoing Biocon Study” shall mean the clinical trial described in Biocon Protocol No. […***…], titled […***…].

1.74 “Orphan Designation” shall mean the grant by FDA of a request for orphan-drug designation under Section 526 of the Act, as amended (or its successor regulation), for a drug for a particular Orphan Indication.

1.75 “Orphan Indication” shall mean any disease or condition that (a) affects less than 200,000 persons in the US or (b) affects more than 200,000 persons in the US and for which there is no reasonable expectation that the cost of developing and making available in the United States a drug for such disease or condition will be recovered from sales in the United States of such drug.

1.76 “Other Active” shall mean any active pharmaceutical ingredient other than ITO.

1.77 “Patent Rights” shall mean (a) all national, regional and international patents and patent applications filed in any country of the world, including without limitation provisional patent applications, (b) all patent applications filed either from such patents and patent applications or from a patent application claiming priority from either of these, including any continuation, continuation-in-part, division, provisional, converted provisional and continued prosecution applications, or any substitute applications, (c) any patent issued with respect to or in the future issued from any such patent applications including utility models, petty patents and design patents and certificates of invention, and (d) any and all extensions or restorations by existing or future extension or restoration mechanisms, including revalidations, reissues, reexaminations and extensions (including any supplementary protection certificates and the like) of the foregoing patents or patent applications.

1.78 “Person” shall mean any individual, Entity or Governmental Body.

1.79 “Pivotal Trial” shall mean: (a) a human clinical trial that would satisfy the requirements for a Phase 3 study as defined in 21 CFR § 312.21(c) (or any amended or successor regulations); or (b) any other human clinical trial that the applicable Regulatory Authority has agreed, whether before first dosing of the first patient in such trial (e.g., pursuant to a special protocol assessment agreement with the FDA) or after first dosing of the first patient in such trial (e.g., based on an interim data analysis), is sufficient to form the primary basis of an efficacy claim in an NDA submission, regardless of whether the sponsor of such trial characterizes or refers to such trial as a “Phase 3,” “Phase 2b” or “Phase 2b/3” trial (or otherwise) in the applicable protocol, on clinicaltrials.gov, or in any other context. If a human clinical trial does not constitute a Pivotal Trial at the time of first dosing of the first patient in such trial, but is later determined by the applicable Regulatory Authority to be sufficient to form the primary basis of an efficacy claim in an NDA submission, then, for purposes of Section 10.2(a) hereof, “initiation” of such Pivotal Trial shall be deemed to have occurred on the date of such determination by the applicable Regulatory Authority.

1.80 “PoC Study” shall mean the first human clinical trial of a Product in a particular Indication that is designed to establish clinical proof of concept for such Indication.

1.81 “Product” shall mean any pharmaceutical composition or preparation containing or comprising CHO-derived ITO, including all formulations and dosage forms thereof.

1.82 “Regulatory Approval” shall mean all approvals from the relevant Regulatory Authority in a given country necessary to market and sell a pharmaceutical product in such country, including pricing and reimbursement approvals if required for marketing or sale of such product in such country.

1.83 “Regulatory Authority” shall mean any country, federal, supranational, state or local regulatory agency, department, bureau or other governmental or regulatory authority having the administrative authority to regulate the development or marketing of pharmaceutical products in any country or other jurisdiction.

1.84 “Regulatory Exclusivity” shall mean marketing or manufacturing exclusivity conferred by the applicable Regulatory Authority in a country or jurisdiction on the holder of a Regulatory Approval for a pharmaceutical product in such country or jurisdiction, including, by way of example and not of limitation, regulatory data exclusivity, orphan drug exclusivity, new chemical entity exclusivity and pediatric exclusivity.

1.85 “Regulatory Filing” shall mean any and all INDs, NDAs, drug dossiers or drug master files filed, requests for Orphan Designation, and Regulatory Approvals and Orphan Designations obtained, with respect to ITO or Product in the Field, including all amendments, supplements, annual reports and the like filed with or otherwise provided to the applicable Regulatory Authority.

1.86 “SC” shall mean subcutaneously administered.

1.87 “Selling Party” shall have the meaning provided in Section 1.71.

1.88 “Stage 2 Study” shall mean that portion of the Ongoing Biocon Study comprising a […***…].

1.89 “Stage 2 Study Completion” shall mean the delivery by Biocon to Equillium of the final study report from the Stage 2 Study; provided, however, that […***…], then “Stage 2 Study Completion” shall be deemed to have occurred on the earlier of (a) […***…] […***…] and (b) […***…].

1.90 “Stock Purchase Agreement” shall have the meaning provided in the recitals to this Agreement.

1.91 “Sublicensee” shall mean: (a) with respect to Equillium, a Third Party sublicensee under the Equillium License, whether such Third Party’s sublicense was granted to it directly by Equillium or its Affiliate or indirectly through one or more tiers of sublicense; and (b) with respect to Biocon, a Third Party sublicensee under the Biocon License, whether such Third Party’s sublicense was granted to it directly by Biocon or its Affiliate or indirectly through one or more tiers of sublicense.

1.92 “Supported Product” shall mean, in any country of the Biocon Territory, a Product that has received Regulatory Approval in such country on the basis of approval of an NDA (or any amendment or supplement thereto) that included or referenced Data within the Equillium Know-How from a PoC Study, other Phase 2 clinical trial, or Pivotal Trial conducted by or on behalf of Equillium.

1.93 “Term” shall have the meaning provided in Section 10.1.

1.94 “Territory” shall mean (a) the Equillium Territory in the case of Equillium and (b) the Biocon Territory in the case of Biocon.

1.95 “Third Party” shall mean an Entity other than Equillium or Biocon or an Affiliate of Equillium or Biocon.

1.96 “Third Party License” shall mean, with respect to a Product sold by Equillium or its Affiliate or Sublicensee in a country of the Equillium Territory, a license under Patent Rights of a Third Party that are reasonably necessary for the manufacture, use or sale of such Product in such country; provided, however, that if such Product is manufactured (a) by Equillium or its Affiliate or Sublicensee or (b) by an Equillium CMO on behalf of Equillium or its Affiliate or Sublicensee, then, for purposes of Section 5.6, the term “Third Party License” shall apply only to Patent Rights of a Third Party that are reasonably necessary for the manufacture, use or sale of the ITO contained in such Product and shall exclude Patent Rights of a Third Party that cover such Product in the formulation manufactured by Equillium, its Affiliate or Sublicensee, or the Equillium CMO, but that do not cover the ITO contained therein.

1.97 “Unlimited Field” shall mean the diagnosis, treatment, prevention and palliation of any and all Indications.

1.98 “US” shall mean the United States of America.

1.99 “Valid Claim” shall mean a claim contained in (a) an issued and unexpired patent which has not been held unenforceable, unpatentable or invalid by a decision of a court or other governmental agency of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, and which has not been admitted to be invalid or unenforceable through abandonment, reissue, disclaimer or otherwise or (b) a patent application that has not been irretrievably cancelled, withdrawn or abandoned and that has been pending for less than seven (7) years from the filing date from which such claim takes priority. If a claim of a patent application that ceased to be a Valid Claim under clause (b) of the preceding sentence because of the passage of time later issues as a part of a patent within clause (a) of the preceding sentence, then it shall again be considered a Valid Claim effective as of the issuance of such patent.

2. LICENSE GRANTS

2.1 Equillium License. Subject to the terms and conditions of this Agreement, Biocon hereby grants to Equillium: (a) an exclusive (even as to Biocon, except as expressly set forth below), royalty-bearing license, with the right to sublicense through multiple tiers of sublicense, under the Biocon Technology and Biocon’s interest in the Joint Patents to develop, make, have made, use, sell, have sold, offer for sale, import and otherwise exploit ITO and Products in the Field in the Equillium Territory; and (b) solely in connection with the practice of the license in the preceding clause (a), a non-exclusive, royalty-free license, with the right to sublicense through multiple tiers of sublicense, under the Biocon Technology and Biocon’s interest in the Joint Patents, to develop, and to use and import for the purpose of developing, ITO and Products in the Field in the Biocon Territory ((a) and (b), collectively, the “Equillium License”); provided, however, that, prior to the earlier of (i) achievement of the Field Expansion Milestones and (ii) the Field Expansion Deadline, and notwithstanding the definition of the Field prior to achievement of the Field Expansion Milestones, the Equillium License shall include the right to develop, and to use and import for the purpose of developing, ITO and Products in the Unlimited Field.

2.2 Biocon License. Subject to the terms and conditions of this Agreement, Equillium hereby grants to Biocon: (a) an exclusive (even as to Equillium, except as expressly set forth below), royalty-bearing license, with the right to sublicense through multiple tiers of sublicense, under the Equillium Technology and Equillium’s interest in the Joint Patents, to develop, make, have made, use, sell, have sold, offer for sale, import and otherwise exploit ITO and Products in the Unlimited Field in the Biocon Territory; and (b) a non-exclusive, royalty-free license, with the right to sublicense through multiple tiers of sublicense, under the Equillium Technology and Equillium’s interest in the Joint Patents, to develop, and to use and import for the purpose of developing, ITO and Products in the Unlimited Field in the Equillium Territory ((a) and (b), collectively, the “Biocon License”).

2.3 Field Expansion. In the event that, within […***…] years of Stage 2 Study Completion (subject to extension as described below, the “Field Expansion Deadline”), Equillium has achieved both of the following milestones (collectively, the “Field Expansion Milestones”), then, effective as of the achievement of the second to be achieved of the Field Expansion Milestones, the Field shall automatically be expanded to mean the Unlimited Field, subject to Section 4.8(b)(ii):

(a) receipt of Orphan Designation for Product in two Orphan Indications; and

(b) completion of a PoC Study of Product in each of two Indications (i.e., two PoC Studies in different Indications) in patient populations approved by the JSC.

The Field Expansion Deadline shall be extended to the extent of any delay directly attributable to events beyond the reasonable control of Equillium, including, by way of example and not of limitation, delays due to unavailability of Clinical Material, imposition of a clinical hold, Biocon’s failure or delay in performing those of its obligations under Section 4.2 that are a prerequisite for Equillium’s achievement of the Field Expansion Milestones, or delays in receiving required OFAC license(s).

2.4 Sublicensing. Any sublicense granted by Equillium under the Equillium License, and any sublicense granted by Biocon under the Biocon License (in each case, directly or indirectly through its Affiliate), to a Third Party shall be in writing and subject and subordinate in all respects to, and consistent with, the terms and conditions of this Agreement. Each party shall be responsible for the compliance of its Sublicensees with the applicable terms and conditions of this Agreement. A copy of each sublicense, redacted as appropriate for confidential information of the Third Party, shall be provided to the other party within […***…] of execution, from which copy such party may redact confidential information of such party or the Third Party that is not necessary for the other party to ascertain the compliance of such sublicense with such party’s obligations under this Agreement. For clarity, this Section 2.4 shall not be construed as imposing any limitation or restriction on Biocon’s right to grant licenses under, or any other obligation on Biocon with respect to, the licensing of Biocon Technology outside the Equillium Territory.

2.5 Reservation of Rights; License Exclusion.

(a) Notwithstanding the exclusivity and territorial restrictions of the Equillium License, Biocon reserves the non-exclusive right under the Biocon Technology and Biocon’s interest in the Joint Patents: (i) to make and have made ITO and Products in the Equillium Territory solely for the purpose of development, manufacture, use, sale, offer for sale, import and other exploitation of Products in the Biocon Territory; (ii) to develop, and to use and import for the purpose of developing, ITO and Products in the Unlimited Field in the Equillium Territory; and (iii) as necessary to perform Biocon’s obligations under Section 4.2 of this Agreement and under the Clinical Supply Agreement and any Commercial Supply Agreement.

(b) Notwithstanding the exclusivity and territorial restrictions of the Biocon License, Equillium reserves the non-exclusive right under the Equillium Technology and Equillium’s interest in the Joint Patents, to develop, and to use and import for the purpose of developing, ITO and Products in the Field in the Biocon Territory.

(c) For the avoidance of doubt, neither party grants to the other party any license or other right with respect to any Other Active.

2.6 Negative Covenants.

(a) By Equillium. Except as expressly provided herein, Equillium hereby covenants: (i) not to develop, make, have made, use, sell, have sold or offer for sale ITO or Product outside of the Equillium Territory; (ii) not to practice any Biocon Technology for any purpose other than as expressly authorized in this Agreement; and (iii) not to cause or permit, or grant any license or other right to, any of its Affiliates or any Third Party to engage in any of the activities prohibited by the preceding clauses (i) and (ii) of this Section 2.6(a).

(b) By Biocon. Except as expressly provided herein, Biocon hereby covenants: (i) not to develop, make, or obtain any Regulatory Filing with respect to, sell, have sold or offer for sale ITO (however derived) or Product in the Equillium Territory, whether in or outside of the Field; (ii) without limiting the generality of the preceding clause (i), not to develop, make, or obtain any Regulatory Filing with respect to, sell, have sold or offer for sale ITO (however derived) or Product in the Equillium Territory for veterinary use; (iii) not to practice any Equillium Technology for any purpose other than as expressly authorized in this Agreement; and (iv) not to cause or permit, or grant any license or other right to, any of its Affiliates or any Third Party to engage in any of the activities prohibited by the preceding clauses (i) and (ii) of this Section 2.6(b).

2.7 No Implied Licenses. No right or license under any Information, Patent Rights or other intellectual property rights is granted or shall be granted by implication. All rights or licenses are or shall be granted only as expressly provided in the terms of this Agreement.

3. GOVERNANCE

3.1 JSC Formation and Composition. Within 30 days after the Effective Date, the parties shall establish a Joint Steering Committee (“JSC”) composed of [ …***…] representatives of Equillium and […***…] representatives of Biocon, each of whom shall have appropriate technical credentials, experience, knowledge regarding such party’s development, registration and commercialization activities with respect to Product in the Field in such party’s Territory, and authority within such party’s organization. Each party may change its representatives to the JSC from time to time in its sole discretion, effective upon written notice to the other party of such change. The JSC shall be chaired by a representative of Equillium. The chairperson shall set agendas for JSC meetings in advance, provided that the agendas will include any matter requested by either party.

3.2 Responsibilities and Authority. The JSC’s overall responsibility shall be to encourage and facilitate information sharing and ongoing cooperation and coordination between the parties in the development, registration and commercialization of Product in the Field in the Equillium Territory and the Biocon Territory, subject to the limitations set forth in this Article 3. In particular, the JSC shall:

(a) approve all clinical development activities to be conducted by Equillium with respect to Product, including review of protocols for clinical trials of Product to be performed by Equillium;

(b) review the ITO and Product development activities to be conducted by each party;

(c) serve as the principal means by which: (i) Equillium keeps Biocon reasonably informed regarding Equillium’s development, registration and commercialization plans, efforts and results with respect to Product; and (ii) Biocon keeps Equillium reasonably informed regarding (A) Biocon’s performance of its obligations under Section 4.2 of this Agreement and (B) Biocon’s development, registration and commercialization plans, efforts and results with respect to Product in the Biocon Territory;

(d) seek harmonization in development, regulatory approval, marketing, promotion and commercialization efforts with respect to Product in the Field in the Equillium Territory and the Biocon Territory;

(e) facilitate the exchange of Equillium Know-How and Biocon Know-How;

(f) resolve disputes referred to it by the JIPC; and

(g) perform such other duties as are specifically assigned to the JSC in this Agreement, the Clinical Supply Agreement or any Commercial Supply Agreement.

Each party shall be responsible for ensuring that, at all times, its representatives on the JSC act reasonably and in good faith in carrying out their respective responsibilities hereunder.

3.3 Meetings. The JSC shall meet as deemed necessary by the JSC members, but at least semi-annually for so long as either party is conducting clinical development of Product. JSC meetings may be conducted in person at times and places to be determined by the JSC members. Alternatively, the JSC may meet by means of teleconference, videoconference or other similar communications equipment. A reasonable number of additional representatives of a party may attend meetings of the JSC in a non-voting capacity. Each party shall bear its own expenses of participating in meetings of the JSC.

3.4 Minutes. Equillium shall be responsible for preparing definitive minutes of each JSC meeting. Equillium shall circulate a draft of the minutes of each meeting to all members of the JSC for comments within […***…] after such meeting. Such minutes shall provide a description, in reasonable detail, of the discussions at the meeting and shall document all actions and determinations approved by the JSC at such meeting, including the approval of the Development Plan or any amendment thereto, which shall be attached to the minutes as an exhibit. The parties shall promptly discuss any comments on such minutes and finalize the minutes no later than the date of the next JSC meeting.

3.5 Decision-Making. Decisions of the JSC shall be made by majority vote, with each representative of a party on the JSC having one vote. No vote of the JSC may be taken unless at least one of each party’s representatives is present for the JSC vote, and if less than all of a party’s representatives are present for a JSC vote, then the representative(s) of such party who are present may cast votes on behalf of all of such party’s representatives on the JSC (i.e., the Equillium JSC representative(s) present at any JSC meeting shall collectively have […***…] votes, and the Biocon JSC representative(s) present at any JSC meeting shall collectively have […***…] votes). The JSC’s decision-making authority shall be limited to those matters expressly delegated to it in this Agreement. Notwithstanding the foregoing or any other provision of this Agreement to the contrary, the JSC’s decision-making authority shall be limited to development, regulatory approval, marketing, promotion or commercialization activities with respect to ITO and Product for the Equillium Territory, and the JSC shall have no decision-making authority whatsoever with regard to Biocon’s development, regulatory approval, marketing, promotion or commercialization activities with respect to ITO and Product for the Biocon Territory.

3.6 Dispute Resolution. If the JSC’s decision on any matter is not unanimous, then Biocon shall have the right, in its discretion, to request that such matter be referred to the Chairperson of the Board of Equillium and the Chairperson of the Board of Biocon, or their respective designees with decision-making authority (each, a “Chair”), who shall promptly meet and confer in good faith regarding such matter, and Equillium’s Chair shall give good faith consideration to Biocon’s position and make reasonable efforts to take Biocon’s position into account in deciding whether to uphold the majority decision of the JSC or to agree with Biocon’s Chair on an alternative outcome. Notwithstanding the foregoing or any other provision of this Agreement to the contrary, neither the JSC nor Equillium’s Chair shall have any power to: (A) determine any issue in a manner that would conflict with the express terms and conditions of this Agreement; or (B) modify or amend the terms and conditions of this Agreement.

3.7 Financial Representative. Each party shall appoint one (1) representative with expertise in the areas of accounting, cost allocation, budgeting and financial reporting (each, a “Financial Representative”) no later than [ …***…] after the Effective Date. Such Financial Representatives shall consult with the JSC, in order to address the financial, budgetary and accounting issues that arise in connection with the Biocon Preclinical Activities. Each Financial Representative may be replaced at any time by the represented party by providing notice thereof to the other party. The Financial Representatives will meet as they or the parties, through the JSC, may agree is appropriate.

4. DEVELOPMENT AND COMMERCIALIZATION

4.1 Equillium Responsibility. Except as expressly set forth in Sections 4.2 and 4.3 or in the Clinical Supply Agreement or any Commercial Supply Agreement, Equillium shall be solely responsible for the development, manufacturing, registration and commercialization of Products in the Field in the Equillium Territory, at Equillium’s sole expense. Without limiting the generality of the foregoing, Equillium shall:

(a) conduct Indication-specific preclinical studies of ITO in JSC-approved Indications to support the submission of Regulatory Filings, at Equillium’s sole expense;

(b) prepare and submit all required Regulatory Filings in connection with obtaining and maintaining Regulatory Approvals and Orphan Designation with respect to Products in the Equillium Territory, at Equillium’s sole expense. All of such Regulatory Filings relating to Products in the Equillium Territory shall be submitted in the name of, and owned by, Equillium (or its Affiliate or Sublicensee, as applicable);

(c) be responsible for obtaining funding (which may include, without limitation, government funding) for the development of ITO and Products for the Equillium Territory (whether Equillium conducts such development activities in the Equillium Territory or the Biocon Territory); and

(d) review the need for, and, if required, seek and use Commercially Reasonable Efforts to obtain OFAC license(s) necessary for clinical development and/or commercialization of ITO and Product in the US.

4.2 Biocon Responsibility. Notwithstanding the provisions of Section 4.1 to the contrary, and without limiting the generality of Section 4.5:

(a) Biocon Preclinical Activities.

(i) Available Materials. Promptly after the Effective Date, Biocon shall provide to Equillium true and complete copies of Biocon’s updated Investigator’s Brochure for all available CHO-derived ITO formulations and related supporting materials, and all preclinical, toxicology and CMC Data existing as of the Effective Date for all available CHO-derived ITO formulations; in each case, at Biocon’s sole expense, subject to Section 4.2(a)(iii).

(ii) Preclinical Studies and CMC Activities. Biocon shall:

(1) guided by the JSC-approved initial Indication for which Product will be developed in the Equillium Territory, perform, in accordance with JSC-approved protocols and GLP, all IND-enabling preclinical studies of CHO-derived ITO and Product necessary for the filing of INDs for Product in the Equillium Territory (collectively, “IND-Enabling Studies”); provided, however, that the IND-Enabling Studies shall exclude Indication-specific preclinical animal models, which shall be the sole responsibility of Equillium;

(2) perform all IND-Enabling CMC Activities; and

(3) deliver to Equillium all Data and other Information generated in performance of the IND-Enabling Studies and IND-Enabling CMC Activities in a form and format suitable for inclusion in INDs for Product in the Equillium Territory;

in each case, at […***…] expense, subject to Section 4.2(a)(iii). Biocon shall maintain complete and accurate records of the performance of all IND-Enabling Studies and IND-Enabling CMC Activities, including all Data, Inventions and other Information generated or made in the course of such performance, which records shall be maintained in accordance with Biocon’s standard practices and shall in any event be maintained in a manner sufficient for Equillium’s filing of INDs for Product in the Equillium Territory. Upon reasonable prior written notice, Biocon shall permit Equillium to inspect such records, and, upon Equillium’s request, shall provide copies of such records.

Biocon shall deliver to Equillium the draft and final reports for each IND-Enabling Study and all IND-Enabling CMC Activities promptly following the availability thereof.

(iii) Biocon Preclinical Expenses. Biocon shall maintain records of Biocon Preclinical Expenses, including the number of Biocon FTEs devoted by Biocon to Biocon Preclinical Activities, which shall be made available to Equillium for inspection through the Financial Representatives from time to time upon the request of Equillium’s Financial Representative. Notwithstanding the foregoing provisions of this Section 4.2(a) to the contrary, if Biocon determines in good faith that total Biocon Preclinical Expenses are likely to exceed $[…***…], Biocon shall provide prompt written notice thereof to Equillium, and the parties shall promptly convene a meeting of the JSC to discuss the matter and in no case shall Biocon be responsible for Biocon Preclinical Expenses in excess of $[…***…].

(b) Supply of ITO and Product. Notwithstanding the provisions of Section 4.1 to the contrary, Biocon shall be responsible for manufacturing, or having manufactured, and supplying to Equillium:

(i) ITO (both NS0-derived and CHO-derived) and ITO surrogate monoclonal antibodies suitable for use in general research and IND-enabling, GLP-compliant preclinical studies in quantities sufficient for the conduct of the preclinical studies contemplated by the Development Plan, at Biocon’s sole expense;

(ii) sufficient quantities of ITO finished drug product (all current and future CHO-derived IV and SC formulations), manufactured in accordance with GMP, for use in the conduct of clinical trials of Product in three (3) Orphan Indications in the Equillium Territory, at Biocon’s sole expense until FDA approval of the first NDA for Product in any Indication (“First US Approval”). For clarity, if Equillium discontinues clinical development of Product in a particular Orphan Indication and instead pursues clinical development of Product in a different Orphan Indication prior to First US Approval, Biocon shall remain obligated to supply ITO finished drug product pursuant to this Section 4.2(b)(ii) for such replacement Orphan Indication, provided that at no time will Biocon be obligated to supply ITO finished drug product pursuant to this Section 4.2(b)(ii) for use in clinical trials of more than three (3) Orphan Indications at any given time;

(iii) after First US Approval, sufficient quantities of ITO finished drug product (all current and future CHO-derived IV and SC formulations), manufactured in accordance with GMP, for use in the conduct of clinical trials of Product for Orphan Indications in the Equillium Territory, at a price equal to Biocon’s Cost of Goods of such ITO finished drug product; and

(iv) sufficient quantities of ITO finished drug product (all current and future CHO-derived IV and SC formulations), manufactured in accordance with GMP, for use in the conduct of clinical trials of Product for Indications other than Orphan Indications in the Equillium Territory, at a price equal to Biocon’s Cost of Goods of such ITO finished drug product.

All ITO finished drug product to be supplied for the purposes set forth in the preceding clauses (ii), (iii) and (iv) of this Section 4.2(b) (collectively, “Clinical Material”) will be manufactured and supplied by Biocon pursuant to, and in accordance with the terms and conditions of, the Clinical Supply Agreement. Biocon shall keep complete and accurate records related to the manufacture of the Clinical Material and the methods and facilities used by it for such manufacture as necessary to comply with GMP and Applicable Laws and to permit the Clinical Material to be used in humans. Upon reasonable notice by Equillium, Biocon shall make such records available to Equillium or its designated representatives for inspection, examination and copying, and, if requested by Equillium, Biocon shall deliver to Equillium, as promptly as practicable, copies of such records. All such documentation shall be provided in English, and in the case of translations, the original un-translated document shall also be provided. All original records shall be retained and archived by Biocon in accordance with GMP and Applicable Laws for the minimum retention period under Applicable Laws. Upon Equillium’s written request, Biocon shall provide to Equillium such information, documentation and data, including, without limitation, CMC Data, in Biocon’s possession relating to the Clinical Material or Product or the manufacture of Clinical Material or Product (or true and complete copies thereof) as Equillium may require for IND, NDA and other submissions to Regulatory Authorities in the Equillium Territory. Biocon represents and warrants to Equillium that all Clinical Material will: (i) upon delivery to Equillium, conform to the applicable specifications for Clinical Material in effect at the time of delivery; (ii) have been manufactured in compliance with GMP, as applicable to investigational drugs; and (iii) upon delivery to Equillium, be free and clear of all liens and encumbrances.

(c) Stage 2 Study. Biocon shall, at its sole expense, conduct the Stage 2 Study, in accordance with Biocon’s protocol until the Stage 2 Study is completed or terminated, at its sole expense.

(d) Diligence. Biocon shall use Commercially Reasonable Efforts to perform its obligations under this Section 4.2 in an expeditious manner.

4.3 Commercial Supply for the Equillium Territory. Subject to the terms and conditions of this Agreement, during the Term, Biocon agrees to Manufacture and supply to Equillium such quantities of Product for commercial use and distribution in the Equillium Territory as may be set forth on purchase orders placed by Equillium in accordance with the provisions of the Commercial Supply Agreement, and Equillium agrees that Biocon shall be Equillium’s exclusive supplier for the Product for the Equillium Territory on the terms set forth in the Commercial Supply Agreement. No later than six (6) months prior to the anticipated initiation of the first Pivotal Trial conducted by or on behalf of Equillium, the parties shall negotiate in good faith and enter into a separate written manufacturing and supply agreement containing commercially reasonable terms (the “Commercial Supply Agreement”) pursuant to which the purchase price for the commercial supply of Product shall be equal to […***…]% of Biocon’s Fully-Burdened Manufacturing Cost, as well as a commercially reasonable and customary quality assurance agreement (the “Commercial Quality Agreement”), pursuant to which Biocon shall manufacture and supply to Equillium, or have manufactured and supplied to Equillium, and Equillium shall accept such manufacture and supply from Biocon as Equillium’s exclusive supplier, Product for commercialization in the Field in the Equillium Territory. Without limiting the generality of the foregoing, the Commercial Supply Agreement shall provide as follows:

(a) Forecasts and Ordering. On a basis to be agreed between the parties following good faith discussions, the Commercial Supply Agreement shall contain a mechanism by which Equillium provides Biocon with rolling forecasts of its estimated requirements of Product to be supplied to it during the term of the Commercial Supply Agreement. Such forecasting mechanism will stipulate that the Products estimated to be supplied during a particular time frame in the rolling period (not to exceed the first […***…] calendar quarter periods of each forecast) will constitute a firm binding purchase order by Equillium for those Products. The parties shall also agree on an upper maximum limit (measured as a percentage beyond […***…]% of the quantity of Products set out in a binding forecast (“Additional Quantities”)) of Products to be supplied pursuant to a binding forecast, subject to Biocon’s facility having the capacity to manufacture more than […***…]% of the quantity of Products set out in a binding forecast at the relevant time.

(b) Shortfalls and Allocation of Supply. If Biocon is, or anticipates that it will be, unable to supply to Equillium, in whole or in part, Equillium’s forecasted requirements of Product on a timely basis due to a shortage of production capacity, shortage of raw materials, or any other reason, Biocon shall promptly notify Equillium in writing of such shortage of production capacity or production problem or other reason, within […***…], and if possible, the date such shortage or production problem is expected to end. The parties will discuss the matter and shall use good faith efforts to achieve an equitable solution with the least impact on both parties’ ability to commercialize and market Product in their respective territories. Biocon shall use Commercially Reasonable Efforts to remedy any shortfall of Product as soon as practicable, and Biocon shall allocate its available production capacity for the production of Product in a manner proportional to the number of units of Product sold in the previous […***…] in the Biocon Territory and Equillium Territory, respectively, or, should such sales have not been commenced, in proportion to the number of units of Product in then-scheduled production runs for the Biocon Territory and the Equillium Territory, respectively.

(c) Second Site/Source. Biocon shall have the right to use the services of its Affiliates and Third Party contractors, including CMOs, to assist such Biocon in fulfilling its obligations and exercising its rights under the Commercial Supply Agreement; provided that (i) the JSC approves any contractor in advance, such approval not to be unreasonably withheld or delayed by the Equillium representatives on the JSC; (ii) none of Equillium’s rights under the Commercial Supply Agreement or this Agreement are diminished or otherwise adversely affected as a result of Biocon’s use of Affiliates or contractors; and (iii) the contractor or Affiliate has entered into a written agreement with Biocon binding such Person to the obligations Biocon has to Equillium, including obligations of intellectual property assignment and confidentiality and non-use, and containing any other provisions normal and customary for similar types of agreements consistent with the Commercial Supply Agreement and this Agreement; and provided, further, that Biocon shall at all times be responsible for the satisfactory accomplishment of its obligations under and in accordance with, and the contractor’s or Affiliate’s compliance with, the terms and conditions of the Commercial Supply Agreement and this Agreement. For clarity, for purposes of clause (i) of the preceding sentence, it shall not be unreasonable for the Equillium representatives on the JSC to withhold approval of a proposed contractor if such contractor (A) has received any Form FD-483 notice (or foreign equivalent) or any FDA or other Regulatory Authority refusal to file, rejection or warning letter that has not been fully addressed by such contractor to the satisfaction of the applicable Regulatory Authority, (B) is debarred under Applicable Laws in the US, including 21 U.S.C. §335a, or any comparable Applicable Laws outside of the US. Without prejudice to the generality of the foregoing, in the event of a Failure to Supply on Biocon’s part, the parties will evaluate alternative approaches to source the shortfall in supply, which may include, without limitation, Biocon’s performance of a manufacturing technology transfer (the reasonable costs of such technology transfer to be borne by Biocon) to a CMO identified by the JSC and appointed by the JSC with Biocon’s prior written consent, such consent not to be unreasonably withheld, to permit such CMO to manufacture ITO and Product, using the manufacturing process developed and used by Biocon, for use and distribution in the Field in the Equillium Territory.

(d) Failure to Supply. A Failure to Supply as used in this Section 4.3 means that Biocon does not supply according to the terms of the Commercial Supply Agreement at least […***…] percent ([…***…]%) of the quantity of all Products (excluding, for the avoidance of doubt, Additional Quantities) ordered by Equillium pursuant to valid and binding purchase orders placed in accordance with the ordering procedure agreed in the Commercial Supply Agreement during any two consecutive calendar quarters, except to the extent such failure has been caused by a force majeure event which is beyond Biocon’s reasonable control, and subject to the limitations on the maximum amount Equillium is entitled to order which will be described in the Commercial Supply Agreement.

(e) Right of Biocon to Resume Manufacturing. On a basis to be agreed between the parties following good faith discussions, the Commercial Supply Agreement shall contain a mechanism by which, following a Failure to Supply and the enabling of a CMO to provide a secondary source of supply of Product pursuant to Section 4.3(c), Biocon may resume its supply obligations if it provides Equillium with a commercially reasonable proposal and evidence that it is ready, willing and able, directly or through subcontractors, to resume its supply obligations under the Commercial Supply Agreement, in which case the Parties will work together in good faith to develop and mutually agree upon a transition plan that achieves the following objectives: (i) minimizes disruption to the continued manufacture and supply of Product; (ii) enables Biocon to resume operation of its facility(ies) as the primary source of Product as soon as reasonably practicable; and (iii) maintains on an ongoing basis the Third Party facility established following a Failure to Supply and the enabling of a CMO to provide a secondary source of supply of Product pursuant to Section 4.3(c).

4.4 Performance Standards. Each party shall conduct, or have conducted, all ITO and Product development, manufacture, registration and commercialization activities performed by it or on its behalf in good scientific manner and in compliance with all Applicable Laws and, as applicable, GLP, GCP and/or GMP.

4.5 Technology Transfer; Exchange of Information.

(a) Commencing promptly after the Effective Date, Biocon shall disclose to Equillium all existing and available (in recorded form) Biocon Know-How as reasonably required for the development, registration or commercialization of ITO and Product in the Field in the Equillium Territory. Thereafter, on an ongoing basis, Biocon shall also disclose to Equillium all additional Biocon Know-How generated after the Effective Date as reasonably required for the development, registration or commercialization of ITO and Product in the Field in the Equillium Territory. Without limiting the generality of the foregoing, Biocon shall provide to Equillium true and complete copies of all written, graphic or electronic embodiments of Data within the Biocon Know-How. The Biocon Know-How shall be transferred to Equillium in a format to be agreed upon by the parties, such agreement not to be unreasonably withheld. With respect to any of the foregoing that is in a language other than English, Biocon shall also provide Equillium with English translations thereof.

(b) On an ongoing basis during the Term, Equillium shall disclose to Biocon all Equillium Know-How as reasonably required for the development, registration, manufacturing or commercialization of ITO and Product in the Field in the Biocon Territory. Without limiting the generality of the foregoing, Equillium shall provide to Biocon true and complete copies of all written, graphic or electronic embodiments of Data within the Equillium Know-How. The Equillium Know-How shall be transferred to Biocon in a format to be agreed upon by the parties, such agreement not to be unreasonably withheld.

4.6 Rights of Access and Reference to Regulatory Documents.

(a) Equillium hereby grants to Biocon the right to access and reference all Regulatory Filings submitted to, and Regulatory Approvals obtained from, any Regulatory Authority in the Equillium Territory by Equillium for Products and to use the Data therein; in each case, solely for the purposes of Biocon and […***…] (and their respective affiliates and sublicensees) (i) obtaining and maintaining Regulatory Approvals for, and conducting business development with respect to, ITO and Products outside the Equillium Territory, and (ii) complying with applicable pharmacovigilance and other regulatory requirements with respect to ITO and Products outside the Equillium Territory. Equillium shall, promptly upon Biocon’s request, file with the applicable Regulatory Authority(ies) such letters of access or reference as may be necessary to accomplish the intent of this Section 4.6(a).

(b) Biocon hereby grants to Equillium the right to access and reference all Regulatory Filings submitted to, and Regulatory Approvals obtained from, any Regulatory Authority in the Biocon Territory by Biocon for Products and to use the data, including but not limited to any non-clinical and clinical data, therein; in each case, solely for the purposes of (i) obtaining and maintaining Regulatory Approvals for Products in the Field in the Equillium Territory, and (ii) complying with applicable pharmacovigilance and other regulatory requirements with respect to such Products in the Equillium Territory. Biocon shall, promptly upon Equillium’s request, file with the applicable Regulatory Authority(ies) such letters of access or reference as may be necessary to accomplish the intent of this Section 4.6(b).

4.7 Safety Data Exchange. Each party shall be solely responsible, at its own expense, for complying with all applicable regulatory requirements with respect to Products in such party’s Territory, including all safety reporting to Regulatory Authorities in such party’s Territory. The parties shall, promptly upon reasonable request by either party, negotiate in good faith and enter into a pharmacovigilance/safety data exchange agreement for Products (the “PV Agreement”), which shall set forth standard operating procedures governing the collection, investigation, reporting, and exchange of information concerning adverse drug reactions/experiences. The terms of the PV Agreement shall be sufficient to permit each party to comply with its regulatory and legal requirements for the management and reporting of safety data regarding such Products by providing for the exchange of relevant information in appropriate format within applicable timeframes.

4.8 Diligence.

(a) General Diligence Obligation. Equillium (directly or through its Affiliates or Sublicensees) shall use Commercially Reasonable Efforts to develop and seek Regulatory Approval for, and, if Regulatory Approval is obtained, to commercialize Product in the Field in the Equillium Territory. In addition, Equillium shall use Commercially Reasonable Efforts to secure funding for the development of Product in two or more Indications.

(b) Specific Diligence Requirements. Notwithstanding the generality of Section 4.8(a), the following shall be considered, without limitation, to represent a failure of Equillium to comply with Section 4.8(a):

(i) If, following Stage 2 Study Completion, Equillium fails either (A) within two (2) years to dose the first patient in a PoC Study, and/or (B) to use Commercially Reasonable Efforts to pursue clinical development of Product in at least one Indication for any continuous period greater than three (3) years (subject to extension as described below), Biocon shall have the right to terminate this Agreement in accordance with Section 10.2(b), subject to Section 10.2(c). The two-year and three-year periods in (A) and (B) above shall be extended to the extent of any delays directly attributable to events beyond the reasonable control of Equillium. By way of example and not of limitation, for purposes of this Section 4.8(b)(i), “events beyond the reasonable control of Equillium” include Biocon’s failure to supply Product in accordance with the Clinical Supply Agreement (except to the extent directly attributable to Equillium’s failure to comply with its obligations under the Clinical Supply Agreement), imposition of a clinical hold, Biocon’s failure or delay in performing its obligations under Article 4 that are a prerequisite for Equillium’s clinical development of Product, or delays in receiving required OFAC license(s). However, the foregoing two-year period in (A) and three-year period in (B) above shall not be extended by more than one (1) year in each case by reason of any and all events beyond the reasonable control of Equillium, unless, and only to the extent that, any such delay beyond three (3) years (in the case of (A)) and four (4) years (in the case of (B)) is directly attributable to Biocon’s failure to supply Product in accordance with the Clinical Supply Agreement (except to the extent directly attributable to Equillium’s failure to comply with its obligations thereunder) or Biocon’s failure or delay in performing its obligations under Article 4 that are a prerequisite for Equillium’s clinical development of Product. This Section 4.8(b)(i) and Biocon’s rights hereunder shall automatically terminate and be of no further force or effect upon First US Approval.

(ii) If Equillium has not completed one PoC Study of Product in an Indication that is not an Orphan Indication by the seventh (7th) anniversary of Stage 2 Study Completion (subject to extension as described below), then the Field (if previously expanded pursuant to Section 2.3) shall automatically be restricted to mean the treatment, prevention and/or diagnosis of Orphan Indications for the remainder of the Term. The foregoing seven-year period shall be extended to the extent of any delays directly attributable to events beyond the reasonable control of Equillium (as described in Section 4.8(b)(i)); provided, however, that the foregoing seven-year period shall not be extended by more than one (1) year by reason of any and all events beyond the reasonable control of Equillium, unless, and only to the extent that, any such delay beyond eight (8) years is directly attributable to Biocon’s failure to supply Product in accordance with the Clinical Supply Agreement (except to the extent directly attributable to Equillium’s failure to comply with its obligations thereunder) or Biocon’s failure or delay in performing its obligations under Article 4 that are a prerequisite for Equillium’s clinical development of Product.

5. FINANCIAL TERMS

5.1 Upfront Equity Issuance. On the Effective Date, and subject to the execution and delivery by Biocon of the Stock Purchase Agreement and the Related Agreements, Equillium shall issue to Biocon the number of shares of Equillium common stock that represents 19.5% of the outstanding shares of Equillium common stock immediately after such issuance, in accordance with the Stock Purchase Agreement.

5.2 Approval and First Commercial Sale Milestone Payments. Within [ …***…] of the first achievement of each of the milestone events set forth in the table below by the first Product to achieve such milestone event, Equillium shall provide Biocon with written notice of such achievement and shall pay to Biocon the corresponding one-time, non-refundable, non-creditable milestone payment set forth below:


Milestone Event	Milestone Payment

First FDA approval of US NDA for Product for first Indication	$[…***…]

First FDA approval of US NDA for Product for second Indication	$[…***…]

First FDA approval of US NDA for Product for third Indication	$[…***…]

First Commercial Sale of Product in the Equillium Territory	$[…***…]

Each of the foregoing milestone payments shall be payable only one time, for the first achievement of the applicable milestone event.

5.3 Net Sales Milestone Payments. Within […***…] of the end of the first calendar year in which each of the milestone events set forth in the table below is achieved, Equillium shall provide Biocon with written notice of such achievement and shall pay to Biocon the corresponding one-time, non-refundable, non-creditable milestone payment set forth below:


Milestone Event	Milestone Payment

First calendar year in which aggregate annual Net Sales of Products in the Equillium Territory exceed $[…***…]	$[…***…]

First calendar year in which aggregate annual Net Sales of Products in the Equillium Territory exceed $[…***…]	$[…***…]

First calendar year in which aggregate annual Net Sales of Products in the Equillium Territory exceed $[…***…]	$[…***…]

First calendar year in which aggregate annual Net Sales of Products in the Equillium Territory exceed $[…***…]	$[…***…]

Each of the foregoing milestone payments shall be payable only one time, for the first achievement of the applicable milestone event. Notwithstanding the foregoing, if more than one of the foregoing milestone events is achieved in a single calendar year, Equillium shall pay all such milestone payments corresponding to the milestone events achieved within […***…] of the end of such calendar year.

5.4 Royalties.

(a) Royalties Payable by Equillium. Equillium shall pay to Biocon royalties on tiers of aggregate annual Net Sales of Products by Equillium and its Affiliates and Sublicensees in the Equillium Territory in each calendar year at the applicable rate(s) set forth below:


Tiers of Aggregate Annual Net Sales in Equillium Territory	Royalty Rate

That portion of aggregate annual Net Sales of Products in the Equillium Territory in a calendar year that is less than or equal to $[…***…]	[…***…]%

That portion of aggregate annual Net Sales of Products in the Equillium Territory in a calendar year that is greater than $[…*…] and less than or equal to $[…*…]	[…***…]%

That portion of aggregate annual Net Sales of Products in the Equillium Territory in a calendar year that is greater than $[…*…] and less than or equal to $[…*…]	[…***…]%

That portion of aggregate annual Net Sales of Products in the Equillium Territory in a calendar year that is greater than $[…***…]	[…***…]%

(b) Royalties Payable by Biocon. Biocon shall pay to Equillium royalties on tiers of aggregate annual Net Sales of Supported Products by Biocon and its Affiliates and Sublicensees in the Biocon Territory in each calendar year at the applicable rate(s) set forth below:


Tiers of Aggregate Annual Net Sales in Biocon Territory	Royalty Rate

That portion of aggregate annual Net Sales of Supported Products in the Biocon Territory in a calendar year that is less than or equal to $[…***…]	[…***…]%

That portion of aggregate annual Net Sales of Supported Products in the Biocon Territory in a calendar year that is greater than $[…*…] and less than or equal to $[…*…]	[…***…]%


That portion of aggregate annual Net Sales of Supported Products in the Biocon Territory in a calendar year that is greater than $[…*…] and less than or equal to $[…*…]	[…***…]%

That portion of aggregate annual Net Sales of Supported Products in the Biocon Territory in a calendar year that is greater than $[…***…]	[…***…]%

5.5 Royalty Term.

(a) Equillium Royalties. Royalties under Section 5.4(a) shall be payable on a Product-by-Product and country-by-country basis in the Equillium Territory from First Commercial Sale of a Product in a country until the latest of (i) 10 years from First Commercial Sale of such Product in such country, (ii) expiration of all Regulatory Exclusivity for such Product in such country and (iii) expiration of the last-to-expire Valid Claim of the Biocon Patents covering the manufacture, use or sale of such Product in such country (the “Equillium Royalty Term”); provided, however, that during any portion of the Equillium Royalty Term for a Product in a country when there is no Valid Claim of the Biocon Patents covering the manufacture, use or sale of such Product in such country but such Product has Regulatory Exclusivity in such country, Equillium’s royalty payment obligations with respect to Net Sales of such Product in such country shall be reduced by […***…]%; and provided, further, that during any portion of the Equillium Royalty Term for a Product in a country when there is no Valid Claim of the Biocon Patents covering the manufacture, use or sale of such Product in such country and such Product has no Regulatory Exclusivity in such country, Equillium’s royalty payment obligations with respect to Net Sales of such Product in such country shall be reduced by […***…]%. On a Product-by-Product and country-by-country basis, upon expiration of the Equillium Royalty Term with respect to a Product in a country, the Equillium License with respect to such Product in such country shall become royalty-free, fully-paid, irrevocable and perpetual.

(b) Biocon Royalties. Royalties under this Section 5.4(b) shall be payable only with respect to sales of a Product that is a Supported Product in the country of sale. Subject to the previous sentence, royalties under this Section 5.4(b) shall be payable on a Product-by-Product and country-by-country basis in the Biocon Territory from First Commercial Sale of a Product in a country until the latest of (i) 10 years from First Commercial Sale of such Product in such country, (ii) expiration of all Regulatory Exclusivity for such Product in such country and (iii) expiration of the last-to-expire Valid Claim of the Equillium Patents covering the manufacture, use or sale of such Product in such country (the “Biocon Royalty Term”); provided, however, that during any portion of the Biocon Royalty Term for a Product in a country when there is no Valid Claim of the Equillium Patents covering the manufacture, use or sale of such Product in such country but such Product has Regulatory Exclusivity in such country, Biocon’s royalty payment obligations with respect to Net Sales of such Product in such country shall be reduced by […***…]%; and provided, further, that during any portion of the Biocon Royalty Term for a Product in a country when there is no Valid Claim of the Equillium Patents covering the manufacture, use or sale of such Product in such country and such Product has no Regulatory Exclusivity in such country, Biocon’s royalty payment obligations with respect to Net Sales of such Product in such country shall be reduced by […***…]%. On a Product-by-Product and country-by-country basis, upon expiration of the Biocon Royalty Term with respect to a Product in a country, the Biocon License with respect to such Product in such country shall become royalty-free, fully-paid, irrevocable and perpetual.

5.6 Third Party Licenses. In the event that Equillium (or its Affiliate or Sublicensee, as applicable) is required to obtain one or more Third Party Licenses reasonably necessary for the manufacture, use or sale of a Product in a country, […***…]% of the royalties actually paid under such Third Party Licenses by Equillium (or by such Affiliate or Sublicensee, as applicable) for sale of such Product in such country for a calendar quarter will be creditable against the royalty payments payable by Equillium to Biocon with respect to Net Sales of such Product in such country; provided, however, that in no event will the royalties owed by Equillium to Biocon hereunder with respect to Net Sales of such Product for such calendar quarter be reduced by more than […***…]%; and provided, further, that Equillium will not be entitled to credit any portion of royalties paid by Equillium or its Affiliate or Sublicensee to Third Parties with respect to any Other Active in any Combination Product.

5.7 Generic Competition. On a Product-by-Product and country-by-country basis, if, during the Royalty Term for a Product in a country within a party’s Territory, one or more Generic Versions of such Product account for […***…]% or more of aggregate unit sales of such Product and such Generic Version(s) in such country in a calendar quarter, as determined by reference to applicable sales data obtained from a reputable independent source (e.g., IMS Health), then for the remainder of the Royalty Term for such Product in such country, such party’s royalty payment obligations with respect to Net Sales of such Product in such country shall be reduced by […***…]%.

5.8 Limitation on Royalty Reductions. In no event shall the royalties payable by one party to the other party under Section 5.4 with respect to Net Sales of Products be reduced by more than an aggregate of […***…] percent ([…***…]%) in any calendar quarter as a result of any and all reductions or offsets pursuant to Section 5.6 and Section 5.7 in the aggregate.

6. PAYMENTS; RECORDS; AUDITS

6.1 Payment; Reports. Royalties under Section 5.4 shall be calculated and reported for each calendar quarter during the Royalty Term and shall be paid within […***…] after the end of the calendar quarter. Each such payment shall be accompanied or preceded by a report of Net Sales and royalties in sufficient detail to permit confirmation of the accuracy of the payment made, including gross sales and Net Sales of Products on a Product-by-Product and country-by-country basis, details of any royalty credits taken pursuant to Section 5.6 on a Third Party Patent License-by-Third Party Patent License basis, any applicable adjustments made pursuant to Section 5.7, the amounts payable, and the exchange rates used.

6.2 Exchange Rate; Manner and Place of Payment. All payment amounts in this Agreement are expressed in U.S. dollars, and all payments hereunder shall be payable in U.S. dollars. When conversion of payments from any foreign currency is required, such conversion shall be calculated at the rate of exchange for such currency used throughout the accounting system in conformity with Accounting Standards of the party obligated to make such payment for financial reporting purposes for the calendar quarter for which payment is due. All payments owed by one party (the “Paying Party”) to the other party (the “Payee”) under this Agreement

shall be made by wire transfer in immediately available funds to the bank and account designated in writing by the Payee.

6.3 Income Tax Withholding. The Payee will pay any and all taxes levied on account of any payment made to it under this Agreement. If any taxes are required to be withheld by the Paying Party from any payment made to the Payee under this Agreement, the Paying Party shall (a) deduct such taxes from the payment made to the Payee, (b) timely pay the taxes to the proper taxing authority, (c) send proof of payment to the Payee within 30 days following such payment, and (d) cooperate with the Payee in any lawful way reasonably requested by the Payee, to obtain available reductions, credits or refunds of such taxes. Without limiting the generality of the foregoing, upon request by the Payee, the Paying Party shall provide the Payee such information in the Paying Party’s possession as may be reasonably necessary for the Payee to obtain the benefit of any present or future treaty against double taxation which may apply to payments made to the Payee under this Agreement.

6.4 Audits. Each party shall keep (and shall cause its Affiliates and Sublicensees to keep) complete and accurate records pertaining to the sale or other disposition of Products in sufficient detail to permit the other party to confirm the accuracy of all Net Sales-based milestone payments (if applicable) due under Section 5.3 (if applicable) and royalties due under Section 5.4, for at least […***…] following the end of the calendar year to which they pertain. Each party shall have the right, once annually, to cause an independent, certified public accountant of international standing and reasonably acceptable to the other party (the “Audited Party”) to audit such records solely to confirm Net Sales, Net Sales-based milestone payments (if applicable) and royalties for a period covering not more than the preceding […***…]. No calendar year shall be subject to audit under this section more than once. Such audits may be exercised during normal business hours upon at least […***…] prior written notice to the Audited Party in the location where the records are maintained. The auditor will execute a reasonable written confidentiality agreement with the Audited Party and will disclose to the other party only such information as is reasonably necessary to provide the other party with information regarding any actual or potential discrepancies between amounts reported and actually paid and amounts payable under this Agreement. The auditor will send a copy of the report to the Audited Party at the same time it is sent to the other party. The report sent to both parties will include the methodology and calculations used to determine the results. Prompt adjustments shall be made by the parties to reflect the results of such audit. The party exercising its audit right under this Section shall bear the full cost of such audit unless such audit discloses an underpayment by the Audited Party of more than […***…]% of the amount due for any calendar year under this Agreement, in which case, the Audited Party shall bear the cost of such audit which cost shall not exceed […***…] percent ([…***…]%) of the underpayment and shall promptly remit to the other party the amount of any underpayment. If such audit discloses an overpayment by the Audited Party, then the Audited Party will deduct the amount of such overpayment from amounts otherwise owed to the other party under this Agreement.

6.5 Late Payments. In the event that any payment due under this Agreement is not made when due, the payment shall accrue interest at a rate per annum that is […***…] basis points (i.e., […***…] percentage points) above the then-current prime rate quoted by Citibank in New York City for the period from the due date for payment until the date of actual payment; provided, however, that in no event shall such rate exceed the maximum legal annual interest rate. The payment of such interest shall not limit the party entitled to payment from exercising any other rights it may have as a consequence of the lateness of any payment.

7. INTELLECTUAL PROPERTY

7.1 Ownership of Inventions. Inventorship of Inventions shall be determined in accordance with the rules of inventorship under U.S. patent laws. Biocon shall solely own all Biocon Inventions. Equillium shall solely own all Equillium Inventions. The parties shall jointly own all Joint Inventions. Subject to the terms and conditions of this Agreement, and except to the extent that a party has granted the other party an exclusive license under such party’s joint ownership interest in Joint Inventions and Joint Patents, each party shall have the right to practice, and to grant licenses under, such party’s own joint ownership interest in Joint Inventions and Joint Patents without the other party’s consent, and shall have no duty to account to the other party for such practice or license, and each party hereby waives any right it may have under the laws of any country to require such consent or accounting.

7.2 JIPC. Within […***…] after the Effective Date, the parties shall form a Joint Intellectual Property Committee (the “JIPC”) composed of at least one qualified representative designated by each Party, with the primary objective of defining and supporting patent filing and prosecution strategies to enhance the protection and value of ITO, Product and Inventions in the Equillium Territory. The JIPC shall develop and mutually agree in good faith on patent filing, prosecution, maintenance and defense strategy for Patent Rights claiming Inventions in the Equillium Territory. If the JIPC is unable to reach unanimous agreement on any matter relating to patent filing, prosecution, maintenance and defense strategy for Patent Rights claiming Inventions in the Equillium Territory, such matter will be referred to the JSC for resolution, provided that Biocon shall have final decision-making authority with respect to Patent Rights claiming Biocon Inventions in the Equillium Territory.

7.3 Prosecution and Maintenance. For purposes of this Section 7.3, the terms “prosecution” and “maintenance” (including variations such as “prosecute” and “maintain”) shall mean, with respect to a Patent Right, the preparation, filing, prosecution and maintenance (including payment of any patent annuity fees) of such Patent Right, as well as re-examinations, reissues, appeals, post grant reviews (PGR), inter partes reviews (IPR) and requests for patent term adjustments and patent term extensions with respect to such Patent Right, together with the initiation or defense of interferences, oppositions and other similar proceedings with respect to the particular Patent Right, and any appeals therefrom. For clarification, “prosecution” and “maintenance” (including variations such as “prosecute” and “maintain”) shall not include any other enforcement actions taken with respect to a Patent Right.

(a) Biocon Patents. The rights and obligations of the parties set forth in this this Agreement, including this Article 7, with respect to Biocon Patents that are […***…] Patents shall be subject to […***…]’s rights and Biocon’s obligations under the […***…] Agreement.

(i) Equillium Territory. Equillium shall have the first right, but not the obligation, to prosecute and maintain any Biocon Patents in the Equillium Territory, in Biocon’s name and at Equillium’s sole cost and expense using counsel reasonably acceptable to Biocon. Equillium shall consult with Biocon as to the prosecution and maintenance of Biocon Patents in the Equillium Territory reasonably prior to any deadline or action with any patent office, and shall furnish to Biocon copies of all relevant drafts and documents reasonably in advance of such consultation. Equillium shall keep Biocon reasonably informed of progress with regard to the prosecution and maintenance of Biocon Patents in the Equillium Territory and shall provide to Biocon copies of all material patent office submissions within a reasonable amount of time following submission thereof by Equillium. Equillium shall consider the comments of Biocon in good faith. If Equillium desires to abandon or cease prosecution or maintenance of any Biocon Patent in any country of the Equillium Territory, Equillium shall provide written notice to Biocon of such intention promptly after Equillium makes such determination (which notice shall be given no later than 45 days prior to the next deadline for any action that must be taken with respect to such Biocon Patent in the relevant patent office), and Biocon shall have the right, but not the obligation, to assume responsibility for prosecution and maintenance of such Biocon Patent at its sole cost and expense. If Biocon continues prosecuting and maintaining such Biocon Patent in such country following abandonment or cessation of prosecution or maintenance by Equillium, such Biocon Patent in such country shall be excluded from the Equillium License, and all rights to such Biocon Patent in such country shall terminate and revert to Biocon.

(ii) Biocon Territory. Biocon shall have the sole right, but not the obligation, to prosecute and maintain the Biocon Patents in the Biocon Territory, at its sole cost and expense.

(b) Equillium Patents.

(i) Equillium Territory. Equillium shall have the sole right, but not the obligation, to prosecute and maintain the Equillium Patents in the Equillium Territory, at its sole cost and expense.

(ii) Biocon Territory. Biocon shall have the first right, but not the obligation, to prosecute and maintain any Equillium Patents in the Biocon Territory, in Equillium’s name and at Biocon’s sole cost and expense using counsel reasonably acceptable to Equillium. Biocon shall consult with Equillium as to the prosecution and maintenance of Equillium Patents in the Biocon Territory reasonably prior to any deadline or action with any patent office, and shall furnish to Equillium copies of all relevant drafts and documents reasonably in advance of such consultation. Biocon shall keep Equillium reasonably informed of progress with regard to the prosecution and maintenance of Equillium Patents in the Biocon Territory and shall provide to Equillium copies of all material patent office submissions within a reasonable amount of time following submission thereof by Equillium. Biocon shall consider the comments of Equillium in good faith. If Biocon desires to abandon or cease prosecution or maintenance of any Equillium Patent in any country of the Biocon Territory, Biocon shall provide written notice to Equillium of such intention promptly after Biocon makes such determination (which notice shall be given no later than 45 days prior to the next deadline for any action that must be taken with respect to such Equillium Patent in the relevant patent office), and Equillium shall have the right, but not the obligation, to assume responsibility for prosecution and maintenance of such Equillium Patent at its sole cost and expense. If Equillium continues prosecuting and maintaining such Equillium Patent in such country following abandonment or cessation of prosecution or maintenance by Biocon, such Equillium Patent in such country shall be excluded from the Equillium License, and all rights to such Equillium Patent in such country shall terminate and revert to Equillium.

(i) Equillium Territory. Equillium shall have the first right, but not the obligation, to prosecute and maintain Joint Patents in the Equillium Territory, at its sole cost and expense and by counsel of its own choice.

(ii) Biocon Territory. Biocon shall have the first right, but not the obligation, to prosecute and maintain Joint Patents in the Biocon Territory, at its sole cost and expense and by counsel of its own choice.

(iii) Responsible Party. Each party shall keep the other party reasonably informed of progress with regard to the prosecution and maintenance of Joint Patents for which such party (the “Responsible Party”) is responsible under Section 7.3(c)(i) or Section 7.3(c)(ii), and shall consult with, and consider in good faith the requests and suggestions of, the other party. In the event that the Responsible Party desires not to file, or desires to abandon or cease prosecution or maintenance of, any Joint Patent in any country of such party’s Territory, the Responsible Party shall provide written notice to the other party of such intention promptly after the Responsible Party makes such determination (which notice shall be given no later than 45 days prior to the next deadline for any action that must be taken with respect to such Joint Patent in the relevant patent office). In such case, at the other party’s sole discretion, upon written notice to the Responsible Party from the other party, the other party may elect to continue prosecution or maintenance of any such Joint Patent, at its sole cost and expense and by counsel of its own choice.

7.4 Cooperation of the Parties. Each party agrees to cooperate fully in the prosecution and maintenance of Patent Rights under Section 7.3. Such cooperation includes, but is not limited to: (a) executing all papers and instruments, or requiring its employees or contractors, to execute such papers and instruments, so as to effectuate the ownership of Inventions set forth in Section 7.1, and Patent Rights claiming or disclosing such Inventions, and to enable the other party to apply for and to prosecute patent applications in any country as permitted by Section 7.3; and (b) promptly informing the other party of any matters coming to such party’s attention that may affect the prosecution or maintenance of any such Patent Rights, including by providing copies of all substantive office actions or any other substantive documents that such party receives from any patent office, including notice of any reexamination, reissue, appeal, post grant review (PGR), inter partes review (IPR), interference, opposition or other similar proceeding.

7.5 Enforcement and Defense of Patent Rights. Each party shall notify the other party in writing within 14 days (except as expressly set forth below) of becoming aware of any alleged or threatened infringement by a Third Party of any of the Biocon Patents or Joint Patents (“Infringement”), including (x) any such alleged or threatened Infringement on account of a Third Party’s manufacture, use or sale of ITO or Product, (y) any certification filed in the United States under 21 U.S.C. §355(b)(2) or 21 U.S.C. §355(j)(2) or similar provisions in other jurisdictions in connection with an ANDA (an Abbreviated New Drug Application in the United States or a comparable application for Regulatory Approval under Applicable Law in any country other than the United States) or other NDA for a Product (a “Patent Certification”), and (z) any declaratory judgment action filed by a Third Party that is developing, manufacturing or commercializing ITO or Product alleging the invalidity, unenforceability or non-infringement of any of the Biocon Patents or Joint Patents ((x)-(z), collectively, “Competitive Infringement”); provided, however, that each party shall notify the other party of any Patent Certification regarding any Biocon Patent or Joint Patent that it receives, and provide the other party with a copy thereof, within […***…] days of receipt.

(a) Biocon Patents. The rights and obligations of the parties set forth in this Section 7.5(a) with respect to Biocon Patents that are […***…] Patents shall be subject to […***…]’s rights and Biocon’s obligations under the […***…] Agreement.

(i) Equillium Territory. Equillium shall have the first right, but not the obligation, to bring (or defend) and control any action or proceeding with respect to Competitive Infringement of a Biocon Patent in the Equillium Territory, at Equillium’s own expense and by counsel of its own choice, and Biocon shall have the right to be represented in any such action or proceeding, at Biocon’s own expense (subject to Section 7.5(d)) and by counsel of its own choice. If Equillium fails to bring any such action or proceeding with respect to Competitive Infringement of any Biocon Patent in the Equillium Territory within […***…] following the notice of alleged Competitive Infringement, Biocon shall have the right to bring (or defend) and control any such action at its own expense and by counsel of its own choice, and Equillium shall have the right, at its own expense (subject to Section 7.5(d)), to be represented in any such action by counsel of its own choice.

(ii) Biocon Territory. Biocon shall have the sole right, in its discretion, to bring (or defend) and control any action or proceeding with respect to Competitive Infringement of a Biocon Patent in the Biocon Territory, at Biocon’s own expense and by counsel of its own choice, and Equillium shall have no rights in connection therewith.

(b) Equillium Patents.

(i) Equillium Territory. Equillium shall have the sole right, in its discretion, to bring (or defend) and control any action or proceeding with respect to Competitive Infringement of an Equillium Patent in the Equillium Territory, at Equillium’s own expense and by counsel of its own choice, and Biocon shall have no rights in connection therewith.

(ii) Biocon Territory. Biocon shall have the first right, but not the obligation, to bring (or defend) and control any action or proceeding with respect to Competitive Infringement of an Equillium Patent in the Biocon Territory, at Biocon’s own expense and by counsel of its own choice, and Equillium shall have the right to be represented in any such action or proceeding, at

Equillium’s own expense (subject to Section 7.5(d)) and by counsel of its own choice. If Biocon fails to bring any such action or proceeding with respect to Competitive Infringement of any Equillium Patent in the Biocon Territory within […***…] following the notice of alleged Competitive Infringement, Equillium shall have the right to bring (or defend) and control any such action at its own expense and by counsel of its own choice, and Biocon shall have the right, at its own expense (subject to Section 7.5(d)), to be represented in any such action by counsel of its own choice.

(i) Competitive Infringement.

(1) Equillium Territory. Equillium shall have the first right, but not the obligation, to bring (or defend) and control any action or proceeding with respect to Competitive Infringement of any Joint Patent in the Equillium Territory, at its own expense and by counsel of its own choice, and Biocon shall have the right, at its own expense (subject to Section 7.5(d)), to be represented in any such action by counsel of its own choice. If Equillium fails to bring any such action or proceeding with respect to Competitive Infringement of any Joint Patent in the Equillium Territory within [ …***…] following the notice of alleged infringement, Biocon shall have the right to bring (or defend) and control any such action at its own expense and by counsel of its own choice, and Equillium shall have the right, at its own expense (subject to Section 7.5(d)), to be represented in any such action by counsel of its own choice; provided, however, that if the applicable Competitive Infringement is the result of a party’s receipt of a Patent Certification with respect to a Joint Patent in the Equillium Territory, Equillium shall notify Biocon of Equillium’s decision to bring (or defend) and control any action or proceeding within 10 days of Equillium’s receipt of such Patent Certification with respect to such Joint Patent, after which time Biocon shall have the right to bring (or defend) and prosecute such action, and Equillium shall have the right, at its own expense (subject to Section 7.5(d)), to be represented in any such action by counsel of its own choice.

(2) Biocon Territory. Biocon shall have the first right, but not the obligation, to bring (or defend) and control any action or proceeding with respect to Competitive Infringement of any Joint Patent in the Biocon Territory, at its own expense and by counsel of its own choice, and Equillium shall have the right, at its own expense, to be represented in any such action by counsel of its own choice. If Biocon fails to bring any such action or proceeding with respect to Competitive Infringement of any Joint Patent in the Biocon Territory within […***…] following the notice of alleged infringement, Equillium shall have the right to bring (or defend) and control any such action at its own expense and by counsel of its own choice, and Biocon shall have the right, at its own expense, to be represented in any such action by counsel of its own choice; provided, however, that if the applicable Competitive Infringement is the result of a party’s receipt of a Patent Certification with respect to a Joint Patent in the Biocon Territory, Biocon shall notify Equillium of Biocon’s decision to bring (or defend) and control any action or proceeding within 10 days of Biocon’s receipt of such Patent Certification with respect to such Biocon Patent, after which time Equillium shall have the right to bring (or defend) and prosecute such action, and Biocon shall have the right, at its own expense, to be represented in any such action by counsel of its own choice.

(ii) Other Infringement. The parties shall mutually agree on a case-by-case basis (A) whether to bring (or defend) and control any action or proceeding with respect to Infringement of any Joint Patent anywhere in the world to the extent the Infringement is not Competitive Infringement, (B) which party would bring (or defend) and control such action, and (C) how the expenses of, and any recovery from, any such action would be allocated.

(d) Cooperation. In the event a party brings (or defends) an infringement action in accordance with this Section 7.5, or in the event a party is entitled to bring (or defend) an infringement action in accordance with this Section 7.5 but lacks standing to do so, the other party shall cooperate fully, including, if required to bring (or defend) such action, the furnishing of a power of attorney or being named as a party, provided that the party bringing (or defending) or entitled to bring (or defend) such action shall pay or reimburse the reasonable out-of-pocket costs incurred by the other party in providing such cooperation. Neither party shall enter into any settlement or compromise of any action under this Section 7.5 which would in any manner alter, diminish, or be in derogation of the other party’s rights under this Agreement without the prior written consent of such other party, which shall not be unreasonably withheld.

(e) Recovery. Except as otherwise agreed by the parties in connection with a cost-sharing arrangement, any recovery realized by a party as a result of any action or proceeding pursuant to this Section 7.5, whether by way of settlement or otherwise, shall be applied first to reimburse the parties’ documented out-of-pocket legal expenses incurred in connection with such action or proceeding (which amounts will be allocated pro rata if insufficient to cover the totality of such expenses), and any remaining amounts shall be […***…]; provided, however, that:

(i) any recovery realized by Equillium as a result of any action brought (or defended) and controlled by Equillium pursuant to Section 7.5(a)(i) or Section 7.5(c)(i)(1) (after reimbursement of the parties’ documented out-of-pocket legal expenses relating to the action or proceeding) shall be allocated as follows:

(1) compensatory damages shall be treated as […***…]; and

(2) non-compensatory damages shall be […***…]; and

(ii) any recovery realized by Biocon as a result of any action brought and controlled by Biocon pursuant to Section 7.3(b)(ii) or Section 7.5(c)(i)(2) (after reimbursement of the parties’ documented out-of-pocket legal expenses relating to the action or proceeding) shall be allocated as follows:

(1) compensatory damages attributable to lost sales or lost profits, or a reasonable royalty, with respect to Supported Products shall be treated as […***…];

(2) all compensatory damages other than those described in Section 7.5(e)(ii)(1) shall […***…]; and

(3) non-compensatory damages shall be […***…].

7.6 Infringement of Third Party Rights. Each party shall promptly notify the other in writing of any allegation by a Third Party that the activity of either party pursuant to this Agreement infringes or may infringe the intellectual property rights of such Third Party, provided that in the event such Third Party also alleges the invalidity, unenforceability or non-infringement of any of the Biocon Patents or Joint Patents, such allegation or claim shall be handled as a Competitive Infringement. Neither party shall have the right to settle any patent infringement litigation under this Section 7.6 in a manner that diminishes the rights or interests of the other party without the written consent of such other party (which shall not be unreasonably withheld).

8. CONFIDENTIALITY

8.1 Confidential Information. Except to the extent expressly authorized by this Agreement, each party agrees that, during the Term, and for five years thereafter, such party (the “Receiving Party”) shall keep confidential, and shall not publish or otherwise disclose and shall not use for any purpose other than as expressly provided for in this Agreement, any Information furnished to it by the other party (the “Disclosing Party”) pursuant to this Agreement or any Confidentiality Agreement (collectively, “Confidential Information”). The Receiving Party may use Confidential Information only to the extent required to accomplish the purposes of this Agreement. The Receiving Party shall use at least the same standard of care as it uses to protect proprietary or confidential information of its own (but in no event less than reasonable care) to ensure that its, and its Affiliates’, employees, agents, consultants and other representatives (“Representatives”) do not disclose or make any unauthorized use of the Confidential Information. The Receiving Party shall promptly notify the Disclosing Party upon discovery of any unauthorized use or unauthorized disclosure of the Disclosing Party’s Confidential Information.

8.2 Exceptions. Confidential Information shall not include any information which the Receiving Party can prove by competent evidence: (a) is now, or hereafter becomes, through no act or failure to act on the part of the Receiving Party in violation of this Article 8, generally known or available; (b) is known by the Receiving Party or any of its Affiliates at the time of receiving such information, as evidenced by its records; (c) is hereafter furnished to the Receiving Party or any of its Affiliates by a Third Party, as a matter of right and without restriction on disclosure; or (d) is independently discovered or developed by the Receiving Party or any of its Affiliates, independently of the activities undertaken by the Receiving Party pursuant to this Agreement and without the use or knowledge of Confidential Information of the Disclosing Party.

8.3 Authorized Disclosure. Notwithstanding the provisions of Section 8.1, the Receiving Party may disclose Confidential Information of the Disclosing Party as expressly permitted by this Agreement, or if and to the extent such disclosure is reasonably necessary in the following instances:

(a) filing or prosecuting Patent Rights as permitted by this Agreement;

(b) enforcing such party’s rights under this Agreement and in performing its obligations under this Agreement;

(c) prosecuting or defending litigation as permitted by this Agreement, subject to the final paragraph of this Section 8.3;

(d) complying with applicable court orders, applicable laws, rules or regulations, subject to the final paragraph of this Section 8.3;

(e) as determined in the Receiving Party’s reasonable discretion, the listing rules of any exchange on which the Receiving Party’s securities are traded;

(f) disclosure in Regulatory Filings that the Receiving Party has the right to make under this Agreement;

(g) disclosure to the Receiving Party’s Affiliates, to actual or potential Sublicensees, and to the Receiving Party’s and its Affiliates’ Representatives who, in each case, have a need to know such information in order for the Receiving Party to exercise its rights or fulfill its obligations under this Agreement, provided, in each case, that any such Affiliate, actual or potential Sublicensee, or Representative agrees to be bound by terms of confidentiality and non-use at least as restrictive as those set forth in this Article 8; and

(h) disclosure to Third Parties in connection with due diligence or similar investigations by such Third Parties, and disclosures to potential Third Party investors in confidential financing documents, provided, in each case, that any such Third Party agrees to be bound by reasonable obligations of confidentiality and non-use.

Notwithstanding the foregoing, in the event the Receiving Party is required to make a disclosure of the Disclosing Party’s Confidential Information pursuant to Section 8.3(c) or 8.3(d), it will, except where impracticable, (i) give reasonable advance notice to the Disclosing Party of such disclosure, (ii) use efforts to secure confidential treatment of such information at least as diligent as the Receiving Party would use to protect its own confidential information, but in no event less than reasonable efforts, and (iii) cooperate with any efforts by the Disclosing Party, at the Disclosing Party’s request and expense, to secure confidential treatment of such Confidential Information. Disclosure by the Receiving Party of Confidential Information in accordance with any of the foregoing provisions of this Section 8.3 shall not, in and of itself, cause the information so disclosed to cease to be treated as Confidential Information under this Agreement, except to the extent that, by virtue of disclosure by the Receiving Party in full compliance with this Section 8.3, such information becomes generally known or available.

8.4 Publications. Each party and its Affiliates shall be free to publish, and to authorize Sublicensees to publish, the results of any preclinical study or clinical trial of a Product conducted by or on behalf of such party or its Affiliate or Sublicensee, provided that the other party has a reasonable opportunity not less than […***…] prior to the date of publication to review the proposed publication and provide comments. If such comments involve a redaction of Confidential Information of such reviewing party, the publishing party shall incorporate such comments. If such comments involve the identification of patentable material in such proposed publication, the publishing party shall delay publication for up to […***…] until the appropriate party seeks patent protection for such information. Any such publication shall acknowledge, as appropriate, the contribution of the other party, its employees, agents and representatives, or if appropriate.

8.5 Public Announcements.

(a) Press Releases. It is understood that each party may desire or be required to issue press releases relating to this Agreement or activities hereunder. Neither party may issue any press release without the prior review and approval of the other party during the first […***…] after the Effective Date. Notwithstanding the foregoing, each party shall be free to issue such subsequent press releases without the prior review or approval of the other party, that such party determines are reasonably necessary to comply with Applicable Laws, including disclosure requirements of the U.S. Securities and Exchange Commission or foreign counterpart, or with the requirements of any stock exchange on which securities issued by such party is traded. In addition, each party may make public statements regarding this Agreement in response to questions by the press, analysts, investors or those attending industry conferences or financial analyst calls, so long as the contents of any such public statement or press release do not reveal non-public information about the other party.

(b) Filing of this Agreement. The parties shall coordinate in advance with each other in connection with the filing of this Agreement (including redaction of certain provisions of this Agreement) with any securities authority or with any stock exchange on which securities issued by a party or its Affiliate are traded, and each party will use reasonable efforts to seek and obtain confidential treatment for the terms proposed to be redacted; provided that each party will ultimately retain control over what terms are disclosed to any securities authority or stock exchange, as the case may be, to the extent such party determines, on the advice of legal counsel, that disclosure is reasonably necessary to comply with Applicable Laws, including disclosure requirements of the U.S. Securities and Exchange Commission or foreign counterpart, or with the requirements of any stock exchange on which securities issued by a party or its Affiliates are traded, and provided further that the parties will use their reasonable efforts to file redacted versions with any governing bodies which are consistent with redacted versions previously filed with any other governing bodies.

9. REPRESENTATIONS AND WARRANTIES

9.1 Mutual Representations and Warranties. Each party represents and warrants to the other that, as of the Effective Date: (a) it is duly organized and validly existing under the laws of its jurisdiction of incorporation or formation, and has full corporate or other power and authority to enter into this Agreement and to carry out the provisions hereof; (b) it is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder, and the person or persons executing this Agreement on its behalf has been duly authorized to do so by all requisite corporate or partnership action; and (c) this Agreement is legally binding upon it, enforceable in accordance with its terms, and does not conflict with any agreement, instrument or understanding, oral or written, to which it is a party or by which it may be bound (including, with respect to Biocon, the […***…] Agreement), nor violate any material law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it.

9.2 Biocon Representations and Warranties. Biocon represents and warrants to Equillium that as of the Effective Date:

(a) Exhibit A attached hereto contains a true and complete list of the Biocon Patents existing on the Effective Date in the Equillium Territory. The Biocon Patents listed in Exhibit A include all of the Patent Rights Controlled by Biocon as of the Effective Date that claim or disclose ITO or Product, or the manufacture, use, sale, offer for sale or import of ITO or Product, in the Equillium Territory;

(b) Biocon (i) has the right to grant the Equillium License; and (ii) has not granted to any Third Party any license or other right with respect to ITO, Product or Biocon Technology that conflicts with the Equillium License and other rights granted to Equillium herein;

(c) other than the […***…] Agreement, there are no agreements in effect as of the Effective Date between Biocon and a Third Party under which rights with respect to the Biocon Technology are being licensed to Biocon;

(d) Biocon is the sole and exclusive owner of all right, title and interest in and to the Biocon Patents in existence on the Effective Date, other than the […***…] Patents;

(e) to Biocon’s actual knowledge, […***…] is the sole and exclusive owner of all right, title and interest in and to the […***…] Patents in existence on the Effective Date;

(f) to Biocon’s actual knowledge, the issued and unexpired claims included in the Biocon Patents existing as of the Effective Date are valid and enforceable;

(g) to Biocon’s actual knowledge, no reexamination, interference, invalidity, opposition, nullity or similar claim or proceeding is pending or threatened with respect to any Biocon Patent;

(h) Biocon has not received written notice from any Third Party claiming that the manufacture, use, sale, offer for sale or import of ITO or Product infringes or would infringe the patent or other intellectual property rights of any Third Party;

(i) there are no judgments or settlements against or owed by Biocon (or any of its Affiliates) with respect to the Biocon Technology, and Biocon is not a party to any legal action, suit or proceeding relating to the Biocon Technology, nor has Biocon received any written communication from any Third Party, including, without limitation, any Regulatory Authority or other government agency, threatening such action, suit or proceeding;

(j) the […***…] Agreement is legal, valid, enforceable and is in full force and effect, and Biocon has provided Equillium a true and complete copy of the […***…] Agreement, including any and all amendments thereto;

(k) Biocon is not in material violation of or material default under (nor does there exist any condition which upon the passage of time or the giving of notice or both, would reasonably be expected to cause such a material violation of or material default under or permit termination, modification or acceleration of) the […***…] Agreement;

(l) all tangible or recorded information and data provided by or on behalf of Biocon to Equillium related to ITO or Product on or before the Effective Date in contemplation of this Agreement was and is true, accurate and complete in all material respects, and Biocon has not failed to disclose, or failed to cause to be disclosed, any such information or data related to ITO or Product in its possession and Control that would cause the information and data that has been disclosed to be misleading in any material respect;

(m) neither Biocon nor any of its Affiliates has filed any Regulatory Filing for ITO or Product in the Equillium Territory;

(n) neither Biocon nor any of its Affiliates is debarred under the Act or comparable Applicable Laws outside of the United States; and

(o) neither Biocon nor any of its Affiliates has employed or otherwise used in any capacity, in connection with the development or manufacture of ITO or Product, the services of any person debarred or disqualified under United States law, including 21 U.S.C. §335a, or any foreign equivalent thereof.

9.3 Equillium Representations and Warranties. Equillium represents and warrants to Biocon that as of the Effective Date of this Agreement neither Equillium nor any of its Affiliates is debarred under the Act or comparable Applicable Laws outside of the United States.

9.4 Biocon Covenants. In addition to any covenants made by Biocon elsewhere in this Agreement, Biocon hereby covenants to Equillium as follows:

(a) during the Term, Biocon will not grant any Third Party any license or other right with respect to ITO, Product or Biocon Technology in derogation of the Equillium License or the rights granted to Equillium hereunder;

(b) Biocon will not terminate the […***…] Agreement;

(c) Biocon will not amend or waive, or take any action or omit to take any action that would alter, any of Biocon’s rights under the […***…] Agreement in any manner that would adversely affect Equillium’s rights under this Agreement; and

(d) Biocon shall promptly notify Equillium of the receipt or delivery of any notice of any default under, or any termination or amendment of, the […***…] Agreement.

9.5 Equillium Covenants. In addition to any covenants made by Equillium elsewhere in this Agreement, Equillium hereby covenants to Biocon that, during the Term, Equillium will not grant any Third Party any license or other right with respect to ITO, Product or Equillium Technology in derogation of the Biocon License or the rights granted to Biocon hereunder;

9.6 Mutual Covenants. In addition to any covenants made by it elsewhere in this Agreement, each party hereby covenants to the other party that:

(a) neither such party nor any of its Affiliates will employ or use the services of any Person who is debarred or disqualified under United States law, including 21 U.S.C. §335a, or any foreign equivalent thereof, in connection with activities relating to ITO or Product; and in the event that such party becomes aware of the debarment or disqualification or threatened debarment or threatened disqualification of any Person providing services to such party or any of its Affiliates with respect to any activities relating to ITO or Product, such party will immediately notify the other party in writing and such party will cease, or cause its Affiliate to cease (as applicable), employing, contracting with, or retaining any such Person to perform any services relating to ITO or Product;

(b) neither such party nor any of its Affiliates will, in connection with the exercise of such party’s rights or performance of its obligations under this Agreement, directly or indirectly through Third Parties, pay, promise or offer to pay, or authorize the payment of, any money or give any promise or offer to give, or authorize the giving of anything of value to a public official or entity or other Person for purpose of obtaining or retaining business for or with, or directing business to, any Person, including such party and its Affiliates, nor will such party or any of its Affiliates directly or indirectly promise, offer or provide any corrupt payment, gratuity, emolument, bribe, kickback, illicit gift or hospitality or other illegal or unethical benefit to a public official or entity or any other Person in connection with the exercise of such party’s rights or performance of such party’s obligations under this Agreement;

(c) neither such party nor any of its Affiliates (or any of their respective employees and contractors), in connection with the exercise of such party’s rights or performance of such party’s obligations under this Agreement, shall cause the other party to be in violation of Anti-Corruption Laws or Export Control Laws; and

(d) such party shall immediately notify the other party if such party has any information or suspicion that there may be a violation of Anti-Corruption Laws or Export Control Laws in connection with the exercise of such party’s rights or performance of such party’s obligations under this Agreement.

9.7 Performance by Affiliates and Contractors. The parties recognize that each party may perform some or all of its obligations or exercise some or all of its rights under this Agreement through one or more Affiliates or Third Party contractors; provided, in each case, that (a) none of the other party’s rights hereunder are diminished or otherwise adversely affected as a result of such delegation or contracting, and (b) each such Affiliate and Third Party contractor undertakes in writing obligations of confidentiality and non-use regarding Confidential Information and ownership of Inventions which are substantially the same as those undertaken by the parties pursuant to Article 8 and Section 7.1; and provided, further, that such party shall at all times be fully responsible for the performance and payment of such Affiliate or Third Party Contractor.

9.8 Disclaimer. Except as expressly set forth in this Agreement, THE TECHNOLOGY AND INTELLECTUAL PROPERTY RIGHTS PROVIDED BY EACH PARTY HEREUNDER ARE PROVIDED “AS IS.” Except as expressly set forth in this Agreement, EACH PARTY EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE WARRANTIES OF DESIGN, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, VALIDITY OF PATENTS, NON-INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES, OR ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICES.

9.9 Limitation of Liability. EXCEPT FOR LIABILITY FOR BREACH OF ARTICLE 8, NEITHER PARTY SHALL BE ENTITLED TO RECOVER FROM THE OTHER PARTY ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES IN CONNECTION WITH THIS AGREEMENT OR ANY LICENSE GRANTED HEREUNDER; provided, however, that this Section 9.9 shall not be construed to limit either party’s indemnification obligations under Article 11.

10. TERM; TERMINATION

10.1 Term. The term of this Agreement (the “Term”) shall begin on the Effective Date and, unless earlier terminated in accordance with this Article 10, expire upon expiration of the last-to-expire Royalty Term for any and all Products and Supported Products.

10.2 Termination for Material Breach.

(a) Material Breach Other Than Breach of Equillium Diligence Obligations. Subject to Section 10.2(c), and except in the case of a material breach covered by Section 10.2(b), each party shall have the right, in the event of material breach of this Agreement by the other party, to terminate this Agreement upon written notice to the other party if such other party is in material breach of this Agreement and has not cured such breach within 90 days after notice from the terminating party requesting cure of the breach. Any such termination shall become effective at the end of such 90-day period unless the breaching party has cured such breach prior to the end of such period. Notwithstanding the foregoing or Section 10.4 to the contrary, but without limiting Biocon’s rights under Section 10.2(b), after initiation of the first Pivotal Trial of Product, Biocon may not terminate this Agreement pursuant to this Section 10.2(a), except in the case of uncured material breach by Equillium of its payment obligations hereunder or uncured material breach of Section 2.1, Section 2.4, Section 2.6, Section 4.3, Section 7.5, Section 8.1 or Section 9.6 but for clarity, Biocon may pursue any and all remedies that may be available to it at law or in equity as a result of such breach by Equillium.

(b) Material Breach of Equillium Diligence Obligation. If Biocon in good faith believes that Equillium has failed to comply with its obligations under Section 4.8 (“Diligence Obligations”), Biocon shall notify Equillium, and Equillium shall have 60 days from the date of such notice (the “Diligence Notice Period”) in which to provide information to Biocon reasonably demonstrating Equillium’s compliance with its Diligence Obligations. If Equillium provides such information to Biocon prior to expiration of the Diligence Notice Period, but Biocon continues to believe in good faith that Equillium is not complying with its Diligence Obligations, then Biocon may so notify Equillium in writing, in which event Equillium and Biocon shall promptly meet to discuss the matter in good faith and attempt to agree upon a mutually agreeable plan for Equillium to regain compliance with its Diligence Obligations. Following such meeting, if either (i) the parties do not agree upon a plan to address such failure by Equillium within 30 days after expiration of the Diligence Notice Period, or (ii) Equillium fails to comply with its obligations under any mutually agreed upon plan to address such failure by Equillium, then, subject to Section 10.2(c) below, Biocon shall have the right, at its sole discretion, to terminate this Agreement.

(c) Dispute Regarding Breach. Any right to terminate this Agreement under this Section 10.2 shall be stayed and the cure period tolled in the event that, during any cure period, the party alleged to have been in material breach shall have initiated dispute resolution in accordance with Article 12 with respect to the alleged breach, which stay and tolling shall continue until such dispute has been resolved in accordance with Article 12.

10.3 At-Will Termination by Equillium. Equillium shall have the right to terminate this Agreement on a country-by-country basis for any reason or for no reason at any time upon 120 days’ prior written notice to Biocon. Within 10 days after delivery of written notice pursuant to this Section 10.3, the JSC shall convene to discuss transition planning, subject to Section 10.4(d).

10.4 Effect of Expiration or Termination.

(a) Expiration. Upon expiration (but not earlier termination) of this Agreement, the Equillium License and the Biocon License shall survive on a royalty-free, fully-paid, irrevocable and perpetual basis.

(b) Effect of Termination on Fully-Paid Licenses. If the Royalty Term with respect to a Product or Supported Product (as applicable) in any country has expired on or before any termination of this Agreement prior to the expiration hereof, the license granted to the applicable party hereunder with respect to such Product or Supported Product in such country (i.e., the Equillium License or the Biocon License, as applicable) shall survive such termination of this Agreement.

(c) Termination by Equillium Pursuant to Section 10.2. Solely in the event of termination of this Agreement by Equillium pursuant to Section 10.2, the Equillium License and the Biocon License shall automatically terminate and revert to the granting party; in each case, except as expressly provided in Section 10.4(b).

(d) Termination by Biocon Pursuant to Section 10.2 or by Equillium Pursuant to Section 10.3. Solely in the event of termination of this Agreement by Biocon pursuant to Section 10.2, or by Equillium pursuant to Section 10.3, and without prejudice to Biocon’s other rights and remedies, the following provisions (in addition to the provisions of Section 10.4(b)) shall apply:

(i) the Equillium License shall automatically terminate and revert to Biocon, except as expressly provided in Section 10.4(b);

(ii) effective as of such termination, Equillium shall, and it hereby does, covenant, during the period beginning on the effective date of such termination and expiring, on a country-by-country basis, upon the later to occur of: (A) expiration of the last-to-expire Valid Claim of the Biocon Patents, Equillium Patents and Joint Patents covering the manufacture, use or sale of Product in each country of the Equillium Territory; and (B) expiration of all Regulatory Exclusivity for all Products in such country: (A) not to develop, make, have made, sell, have sold, offer for sale, import or otherwise exploit ITO or Product in the Unlimited Field in such country; and (B) not to cause or permit, or grant any license or other right to, any of its Affiliates or any Third Party to engage in any of the activities prohibited by the preceding clause (A) of this Section 10.4(d)(ii); except, in each case, as expressly provided in Section 10.4(b).

(iii) effective as of such termination, Equillium shall, and it hereby does, grant to Biocon a non-exclusive, royalty-free license, with the right to sublicense through multiple tiers of sublicense, under Equillium Technology and Equillium’s interest in the Joint Patents, solely to develop, make, have made, use, sell, offer for sale, have sold and import ITO and Products in the Unlimited Field in the Equillium Territory;

(iv) effective as of such termination, Equillium shall, and it hereby does, grant to Biocon, a right of first negotiation, exercisable within 60 days after the termination date, upon commercially reasonable terms and conditions to be negotiated in good faith by the parties for up to 90 days from the date of exercise:

(1) to obtain an exclusive, royalty-bearing license, with the right to sublicense through multiple tiers of sublicense, under Equillium Technology and Equillium’s interest in the Joint Patents, solely to develop, make, have made, use, sell, offer for sale, have sold and import ITO and Products in the Unlimited Field in the Equillium Territory; and

(2) to have transferred or assigned to Biocon or its designee all Regulatory Filings for Products in the Unlimited Field in the Equillium Territory held in the name of Equillium or any of its Affiliates.

(v) Biocon shall have the right, but not the obligation, to purchase from Equillium any or all usable inventory of ITO and Product in Equillium’s or its Affiliates’ possession as of the date of expiration. Such inventory shall be provided at a transfer price equal to Equillium’s cost of such inventory (as reflected on Equillium’s books and records used to prepare its financial statements), plus freight, insurance, transportation, postage and handling.

(vi) the Biocon License shall survive; provided that, if Biocon grants a Third Party an exclusive license to develop and commercialize Product in the Equillium Territory and the terms of such Third Party license require Biocon to pay royalties to such Third Party licensee on Biocon’s net sales of Product in a country of the Biocon Territory, then 100% of the royalties actually paid by Biocon to such Third Party licensee on sales of Product in such country for a calendar quarter will be creditable against the royalty payments payable by Biocon to Equillium pursuant to Section 5.4(b) in such country for such calendar quarter; provided, however, that in no event will the royalties owed by Biocon to Equillium hereunder pursuant to Section 5.4(b) in such country for any calendar quarter be reduced to less than 0% (i.e., in no event shall Equillium owe any royalties to Biocon with respect to Net Sales of Product in the Biocon Territory); and provided, further, that Biocon will not be entitled to credit any portion of royalties paid by Biocon to such Third Party licensee with respect to any Other Active in any Combination Product.

10.5 Accrued Obligations; Survival. Upon any termination or any expiration of this Agreement, all rights and obligations of the parties under this Agreement shall terminate, except as expressly provided in this Section 10.5 or elsewhere in this Article 10. Neither expiration nor any termination of this Agreement shall relieve either party of any obligation or liability accruing prior to such expiration or termination, nor shall expiration or any termination of this Agreement preclude either party from pursuing all rights and remedies it may have under this Agreement, at law or in equity, with respect to breach of this Agreement. In addition, the parties’ rights and obligations under Sections 2.7, 7.1, 8.1, 8.2, 8.3, 9.8, 9.9, 10.4, 10.5, 10.6 and 10.7 and Articles 6, 11, 12 and 13 of this Agreement shall survive expiration or any termination of this Agreement.

10.6 Return of Confidential Information. Within 30 days following the expiration or termination of this Agreement, except to the extent that a party retains a license from the other party as provided in this Article 10, each party shall promptly return to the other party, or delete or destroy, all relevant records and materials in such party’s possession or control containing Confidential Information of the other party; provided that such party may keep one copy of such materials for archival purposes only subject to Article 8.

10.7 Damages; Relief. Termination of this Agreement shall not preclude either party from claiming any other damages, compensation or relief that it may be entitled to hereunder as a result of the other party’s breach of this Agreement.

11. INDEMNIFICATION

11.1 Indemnification by Equillium. Equillium hereby agrees to save, defend, indemnify and hold harmless Biocon, its Affiliates, its and their respective officers, directors, agents, employees, successors and assigns (the “Biocon Indemnitees”), from and against any and all losses, damages, liabilities, expenses and costs, including reasonable legal expense and attorneys’ fees (“Losses”), to which any Biocon Indemnitee may become subject as a result of any claim, demand, action or other proceeding by any Third Party (each, a “Claim”) to the extent such Losses arise out of or relate to: (a) the development, manufacture, use, handling, storage, sale, offer for sale, import or other disposition by or on behalf of Equillium, its Affiliates or Sublicensees of ITO or Products, or any other exercise of the Equillium License by or on behalf of Equillium, its Affiliates or Sublicensees; (b) the gross negligence or willful misconduct of any Equillium Indemnitee (defined below); or (c) the breach by Equillium of any warranty, representation, covenant or agreement made by Equillium in this Agreement; except, in each case, to the extent such Losses result from the gross negligence or willful misconduct of any Biocon Indemnitee or the breach by Biocon of any warranty, representation, covenant or agreement made by Biocon in this Agreement.

11.2 Indemnification by Biocon. Biocon hereby agrees to save, defend, indemnify and hold harmless Equillium, its Affiliates and their respective officers, directors, employees, consultants and agents (the “Equillium Indemnitees”) from and against any and all Losses to which any Equillium Indemnitee may become subject as a result of any Claim to the extent such Losses arise out of or relate to: (a) the exercise of the Biocon License by or on behalf of Biocon or any of its Affiliates or Sublicensees; (b) the gross negligence or willful misconduct of any Biocon Indemnitee; or (c) the breach by Biocon of any warranty, representation, covenant or agreement made by Biocon in this Agreement; in each case except to the extent such Losses result from the gross negligence or willful misconduct of any Equillium Indemnitee or the breach by Equillium of any warranty, representation, covenant or agreement made by Equillium in this Agreement.

11.3 Control of Defense. In the event a party (the “Indemnified Party”) seeks indemnification under Section 11.1 or 11.2, it shall inform the other party (the “Indemnifying Party”) of a claim as soon as reasonably practicable after it receives notice of the claim (it being understood and agreed, however, that the failure by an Indemnified Party to give notice of a claim as provided in this Section 11.3 shall not relieve the Indemnifying Party of its indemnification obligation under this Agreement except and only to the extent that such Indemnifying Party is actually damaged as a result of such failure to give notice), shall permit the Indemnifying Party to assume direction and control of the defense of the claim (including the right to settle the claim solely for monetary consideration) using counsel reasonably satisfactory to the Indemnified Party, and shall cooperate as requested (at the expense of the Indemnifying Party) in the defense of the claim. If the Indemnifying Party does not assume control of such defense within 30 days after receiving notice of the claim from the Indemnified Party, the Indemnified Party shall control such defense and, without limiting the Indemnifying Party’s indemnification obligations, the Indemnifying Party shall reimburse the Indemnified Party for all costs, including reasonable attorney fees, incurred by the Indemnified Party in defending itself within 30 days after receipt of any invoice therefor from the Indemnified Party. The party not controlling such defense may participate therein at its own expense. The party controlling such defense shall keep the other party advised of the status of such action, suit, proceeding or claim and the defense thereof and shall consider recommendations made by the other party with respect thereto. The Indemnified Party shall not agree to any settlement of such action, suit, proceeding or claim without the prior written consent of the Indemnifying Party, which shall not be unreasonably withheld, delayed or conditioned. The Indemnifying Party shall not agree to any settlement of such action, suit, proceeding or claim or consent to any judgment in respect thereof that does not include a complete and unconditional release of the Indemnified Party from all liability with respect thereto, that imposes any liability or obligation on the Indemnified Party or that acknowledges fault by the Indemnified Party without the prior written consent of the Indemnified Party. If the parties cannot agree as to the application of Section 11.1 or 11.2 to any claim, pending resolution of the dispute pursuant to Article 12, the parties may conduct separate defenses of such claims, with each party retaining the right to claim indemnification from the other party in accordance with Section 11.1 or 11.2, as applicable, upon resolution of the underlying claim.

11.4 Insurance. Each party shall procure and maintain insurance, including comprehensive or commercial general liability insurance (including contractual liability and product liability), in amounts that are commercially reasonable in light of the activities and obligations undertaken by such party pursuant to this Agreement, which amounts shall be consistent with normal business practices of prudent companies similarly situated. It is understood that such insurance shall not be construed to create a limit of either party’s liability with respect to its indemnification obligations under this Article 11 or otherwise. Each party shall provide the other party with written evidence of such insurance upon request.

12. DISPUTE RESOLUTION

12.1 Disputes. Subject to Section 12.3, and except as expressly set forth in Article 3, any claim, dispute, or controversy as to the breach, enforcement, interpretation or validity of this Agreement (each, a “Dispute”) will be referred to Equillium’s Chair and Biocon’s Chair for attempted resolution. In the event the Chairs are unable to resolve such Dispute within 30 days of such Dispute being referred to them, then, upon the written request of either party to the other party, the Dispute shall be subject to arbitration in accordance with Section 12.2, except as expressly set forth in Section 12.3.

12.2 Arbitration.

(a) Claims. Subject to Section 12.3 below, any Dispute that is not resolved under Section 12.1 within the applicable 30-day period shall be resolved by final and binding arbitration administered by JAMS (the “Administrator”) in accordance with its then-effective Comprehensive Arbitration Rules and Procedures (the “Rules”), including its then-effective Expedited Procedures, except to the extent any such Rule conflicts with the express provisions of this Section 12.2. (Capitalized terms used but not otherwise defined in this Agreement shall have the meanings provided in the Rules.) The Arbitration shall be conducted by one neutral arbitrator (unless the parties mutually agree to have the Arbitration conducted by a panel of three neutral arbitrators), selected in accordance with the Rules, provided that no such individual shall be a current or former employee or director, or a current stockholder, of either party or any of their respective Affiliates (or any Sublicensee of the rights granted to such party under this Agreement). The arbitration and all associated discovery proceedings and communications shall be conducted in English, and the arbitration shall be held in New York City, New York. The Arbitrator(s) shall have the authority to grant preliminary or temporary injunctive relief pending the outcome of the Arbitration in the context of a bona fide emergency or prospective irreparable harm.

(b) Discovery. Within 30 days after selection of the Arbitrator(s), the Arbitrator(s) shall conduct the Preliminary Conference. In addressing any of the subjects within the scope of the Preliminary Conference, the Arbitrator(s) shall take into account both the desirability of making discovery efficient and cost-effective and the needs of the parties for an understanding of any legitimate issue raised in the Arbitration. In that regard, the parties agree to the application of the E-Discovery procedures set forth in Rule 16.2(c) of the JAMS Expedited Procedures.

(c) Hearing; Decision. The Arbitrator(s) shall require that each party submit concise written statements of position and shall permit the submission of rebuttal statements, subject to reasonable limitations on the length of such statements to be established by the Arbitrator(s). The Arbitrator(s) shall also permit the submission of expert reports. The Award shall include a written statement describing the essential findings and conclusions on which the Award is based, including the calculation of any damages awarded. The Arbitrator(s) will, in rendering their decision, apply the substantive law of the State of New York, USA, excluding its conflicts of laws principles with the exception of sections 5-1401 and 5-1402 of New York General Obligations Law. The Arbitrator’s(s’) authority to award special, incidental, consequential or punitive damages shall be subject to the limitation set forth in Section 9.9. The Award rendered by the Arbitrator(s) shall be final, binding and non-appealable, and judgment may be entered upon it in any court of competent jurisdiction.

(d) Costs. Each party shall bear its own attorney’s fees, costs, and disbursements arising out of the arbitration, and shall pay an equal share of the fees and costs of the Arbitrator(s); provided, however, the Arbitrator(s) shall be authorized to determine whether a party is the prevailing party, and if so, to award to that prevailing party reimbursement for any or all of its reasonable attorneys’ fees, costs and disbursements (including, for example, expert witness fees and expenses, photocopy charges, travel expenses, etc.), and/or the fees and costs of the Administrator and the Arbitrator(s).

12.3 Court Actions. Nothing contained in this Agreement shall deny either party the right to seek injunctive or other equitable relief, including specific performance, from a court of competent jurisdiction in the context of a bona fide emergency or prospective irreparable harm, including with respect to any breach of Article 8 or the ownership provisions of Section 7.1, and such an action may be filed and maintained notwithstanding any ongoing discussions between the parties or any ongoing arbitration proceeding. In addition, either party may bring an action in any court of competent jurisdiction to resolve disputes pertaining to the validity, construction, scope, enforceability, infringement or other violations of Patent Rights or other intellectual property rights, and no such claim shall be subject to arbitration pursuant to Section 12.2.

13. GENERAL PROVISIONS

13.1 Rights Upon Bankruptcy. All rights and licenses granted under or pursuant to this Agreement are, and shall otherwise be deemed to be, for purposes of Section 365(n) of Title 11 of the United States Code and other similar laws in any jurisdiction outside the US (collectively, the “Bankruptcy Laws”), licenses of rights to be “intellectual property” as defined under the Bankruptcy Laws. If a case is commenced during the Term by or against a party under Bankruptcy Laws then, unless and until this Agreement is rejected as provided in such Bankruptcy Laws, such party (in any capacity, including debtor-in-possession) and its successors and assigns (including a trustee) shall perform all of the obligations provided in this Agreement to be performed by such party. If a case is commenced during the Term by or against a party under the Bankruptcy Laws, this Agreement is rejected as provided in the Bankruptcy Laws and the other party elects to retain its rights hereunder as provided in the Bankruptcy Laws, then the party subject to such case under the Bankruptcy Laws (in any capacity, including debtor-in-possession) and its successors and assigns (including a Title 11 trustee), shall provide to the other party copies of all Information necessary for such other party to prosecute, maintain and enjoy its rights under the terms of this Agreement promptly upon such other party’s written request therefor. All rights, powers and remedies of the non-bankrupt party as provided herein are in addition to and not in substitution for any and all other rights, powers and remedies now or hereafter existing at law or in equity (including, without limitation, the Bankruptcy Laws) in the event of the commencement of a case by or against a party under the Bankruptcy Laws.

13.2 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, USA, excluding its conflicts of laws principles with the exception of sections 5-1401 and 5-1402 of New York General Obligations Law. THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE, AND AGREE TO CAUSE THEIR RESPECTIVE AFFILIATES TO WAIVE, THE RIGHT TO TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF, OR RELATING TO THIS AGREEMENT, ANY RELATED AGREEMENTS OR ANY TRANSACTIONS CONTEMPLATED HEREBY.

13.3 Entire Agreement; Amendments. This Agreement (including the Exhibits hereto), the Purchase Agreement, the Related Agreements and the Clinical Supply Agreement, collectively, are both a final expression of the parties’ agreement and a complete and exclusive statement with respect to all of their respective terms. This Agreement supersedes all prior and contemporaneous agreements and communications, whether oral, written or otherwise, concerning any and all matters contained herein, including any Confidentiality Agreement, but specifically excluding the Purchase Agreement, the Related Agreements and the Clinical Supply Agreement. The Exhibits to this Agreement are incorporated herein by reference and shall be deemed a part of this Agreement. This Agreement may be amended, or any term hereof modified, only by a written instrument duly executed by authorized representatives of both parties hereto.

13.4 Non-Waiver. The failure of a party to insist upon strict performance of any provision of this Agreement or to exercise any right arising out of this Agreement shall neither impair that provision or right nor constitute a waiver of that provision or right, in whole or in part, in that instance or in any other instance. Any waiver by a party of a particular provision or right shall be in writing, shall be as to a particular matter and, if applicable, for a particular period of time and shall be signed by such party.

13.5 Assignment. Except as expressly provided hereunder, neither this Agreement nor any rights or obligations hereunder may be assigned or otherwise transferred by either party without the prior written consent of the other party (which consent shall not be unreasonably withheld); provided, however, that either party may assign this Agreement and its rights and obligations hereunder without the other party’s consent:

(a) in connection with the transfer or sale of all or substantially all of the business of such party to which this Agreement relates to a Third Party (“Third Party Acquirer”), whether by merger, sale of stock, sale of assets or otherwise (each, a “Sale Transaction”), provided that in the event of a Sale Transaction (whether this Agreement is actually assigned or is assumed by the Third Party Acquirer or the surviving corporation resulting from such Sale Transaction by operation of law (e.g., in the context of a reverse triangular merger)), intellectual property rights of the Third Party Acquirer that existed prior to the Sale Transaction shall not be included in the technology licensed hereunder or otherwise subject to this Agreement; or

(b) to an Affiliate, provided that the assigning party shall remain liable and responsible to the non-assigning party hereto for the performance and observance of all such duties and obligations by such Affiliate.

The rights and obligations of the parties under this Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the parties, and the name of a party appearing herein will be deemed to include the name of such party’s successors and permitted assigns to the extent necessary to carry out the intent of this section. Any assignment not in accordance with this Agreement shall be void.

13.6 Force Majeure. Each party shall be excused from liability for the failure or delay in performance of any obligation under this Agreement by reason of any event beyond such party’s reasonable control, including but not limited to Acts of God, fire, flood, explosion, earthquake, or other natural forces, war, civil unrest, acts of terrorism, accident, destruction or other casualty, any lack or failure of transportation facilities, any lack or failure of supply of raw materials, any strike or organized labor disturbance, or any other event similar to those enumerated above. Such excuse from liability shall be effective only to the extent and duration of the event(s) causing the failure or delay in performance and provided that the party has not caused, in whole or in part, such event(s) to occur. The affected party shall notify the other party of such force majeure circumstances as soon as reasonably practical, and shall promptly undertake all reasonable efforts necessary to cure such force majeure circumstances.

13.7 Severability. If any one or more of the provisions contained in this Agreement is held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby, unless the absence of the invalidated provision(s) adversely affects the substantive rights of the parties. The parties shall in such an instance use their best efforts to replace the invalid, illegal or unenforceable provision(s) with valid, legal and enforceable provision(s) which, insofar as practical, implement the purposes of this Agreement.

13.8 Notices. Any notice to be given under this Agreement must be in writing and delivered either in person, or by internationally-recognized express courier, to the party to be notified at its address(es) given below, or at any address such party has previously designated by prior written notice to the other. Notice shall be deemed sufficiently given for all purposes upon the earliest of: (a) the date of actual receipt; or (b) if delivered by express courier, the second business day the express courier regularly makes deliveries following deposit.


If to Equillium, to:	Equillium, Inc. 2223 Avenida de la Playa, Suite 108 La Jolla, CA 92037 USA Attn: Daniel M. Bradbury Email: […***…]

If to Biocon, to:	Biocon SA Attention: Director c/o BDO SA Rue de l’Avenir 2 2800 Delémont Switzerland

With a copy to:

Head – Legal
Biocon Limited
20th K.M. Hosur Road
Electronics City P.O.
Bangalore 560100
India

13.9 Interpretation. The headings of clauses contained in this Agreement preceding the text of the sections, subsections and paragraphs hereof are inserted solely for convenience and ease of reference only and shall not constitute any part of this Agreement, or have any effect on its interpretation or construction. All references in this Agreement to the singular shall include the plural where applicable. The term “including” or “includes” as used in this Agreement means including, without limiting the generality of any description preceding such term, and the word “or” has the inclusive meaning represented by the phrase “and/or.” Unless otherwise specified, references in this Agreement to any section shall include all subsections and paragraphs in such Section and references in this Agreement to any subsection shall include all paragraphs in such subsection. All references to days in this Agreement shall mean calendar days, unless otherwise specified. Ambiguities and uncertainties in this Agreement, if any, shall not be interpreted against either party, irrespective of which party may be deemed to have caused the ambiguity or uncertainty to exist. This Agreement has been prepared in the English language, and the English language shall control its interpretation. In addition, all notices required or permitted to be given hereunder, and all written, electronic, oral or other communications between the parties regarding this Agreement shall be in the English language.

13.10 Relationship between the Parties. The parties’ relationship, as established by this Agreement, is solely that of independent contractors. This Agreement does not create any partnership, joint venture or similar business relationship between the parties. Neither party is a legal representative of the other party, and neither party may assume or create any obligation, representation, warranty or guarantee, express or implied, on behalf of the other party for any purpose whatsoever.

13.11 No Third Party Rights. The provisions of this Agreement are for the exclusive benefit of the parties, and no other person or entity shall have any right or claim against any party by reason of these provisions or be entitled to enforce any of these provisions against any party.

13.12 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original document, and all of which, together with this writing, shall be deemed one instrument. This Agreement may be executed by facsimile or PDF signatures, which signatures shall have the same force and effect as original signatures.

[Signature page follows.]

IN WITNESS WHEREOF, the parties have duly executed this Collaboration and License Agreement as of the Effective Date.


EQUILLIUM, INC.	BIOCON SA

By: /s/ Daniel M. Bradbury Name: Daniel M. Bradbury Title: President	By: /s/ Raman S. Name: Raman S. Title: Authorized Signatory

Confidential

Exhibit A

BIOCON PATENTS AS OF THE EFFECTIVE DATE


PCT Pub. No./First Pub. No.	Filing Date	Title	Status	Expected Exp. date
[…***…]	[…***…]	[…***…]	NP entered US-Granted EP-granted	24 Dec 2027

[…***…]	[…***…]	[…***…]	NP entered US, EP-Pending	26 Dec 2027

[…***…]	[…***…]	[…***…]	NP entered US-Granted EP-Pending	14 Mar 2028

[…***…]	[…***…]	[…***…]	NP entered US, EP-Pending	19 Nov 2030

[…***…]	[…***…]	[…***…]	NP entered in Jan 2016	23 Jul 2034

Confidential

Exhibit B

ITO

[…***…]

Confidential

Exhibit C

BIOCON TERRITORY

A. Europe

Albania, Andorra, Austria, Belgium, Bosnia-Herzegovina, Bulgaria, Croatia, Czech Republic, Cyprus, Denmark, Estonia Finland, France, Germany, Greece, Hungary Iceland, Ireland, Italy, Latvia, Liechtenstein Lithuania, Luxembourg, Macedonia, Malta, Moldova, Monaco, Netherlands, Norway, Poland, Portugal, Romania, San Marino, Serbia and Montenegro (Former Yugoslavia), Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, United Kingdom, Vatican City.

B. Australasia

Afghanistan, Armenia, Australia, Azerbaijan, Bangladesh, Bhutan, Georgia, India, Japan, South Korea, Kyrgyzstan, Nepal, New Zealand, Pakistan, Sri Lanka, Tajikistan, Turkmenistan, Uzbekistan.

C. Arabic/Middle East Countries

Bahrain, Egypt, Iraq, Israel, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Saudi Arabia, Syria, Tunisia, United Arab Emirates, Yemen, Sudan, Mauritania, Comoros.

D. Africa

Benin, Botswana, Burundi, Cameroon, Central African Republic, Chad, Congo, Cote d’lvoire, Djibouti, Equatorial Guinea, Gabon, Gambia, Ghana, Guinea, Kenya, Lesotho, Liberia, Libya, Madagascar, Malawi, Mali, Mauritius, Niger, Nigeria, Rwanda, Senegal, Seychelles, Sierra Leone, Somalia, Swaziland, Tanzania, Togo, Uganda, Western Sahara, Zambia.

EX-10.2 3 eq-ex10_2.htm EX-10.2 EX-10.2


Confidential	EXECUTION VERSION

Exhibit 10.2

CLINICAL SUPPLY AGREEMENT

THIS CLINICAL SUPPLY AGREEMENT (the “Agreement”) is entered into effective as of May 22, 2017 (the “Effective Date”), by and between EQUILLIUM, INC., a corporation organized under the laws of the State of Delaware, USA, with its principal office at 2223 Avenida de la Playa, Suite 108, La Jolla, California 92037, USA (“Equillium”), and BIOCON SA, a company organized under the laws of Switzerland with its principal place of business at c/o BDO SA, Rue De l’Avenir 2, 2800 Delemont, Switzerland (“Biocon”).

RECITALS

WHEREAS, Biocon and Equillium are parties to that certain Collaboration and License Agreement dated as of the Effective Date (the “License Agreement”), pursuant to which Biocon granted Equillium an exclusive license to develop and commercialize Products in the Field in the Equillium Territory (all as defined in the License Agreement); and

WHEREAS, pursuant to Section 4.2(b) of the License Agreement, Biocon has agreed to supply Clinical Material (as defined in the License Agreement) to Equillium for use in the development of Products in accordance with the terms of the License Agreement.

AGREEMENT

NOW THEREFORE, in consideration of the foregoing premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Equillium and Biocon hereby agree as follows:

1. DEFINITIONS

The following capitalized terms used but not defined in this Agreement shall have the meanings set forth in the License Agreement:


Accounting Standards	IND
Affiliate	Information
Applicable Laws	Invention
[…***…] Agreement	ITO
CMC Activities	IV
Control or Controlled by	NDA
Cost of Goods	Product
Data	Regulatory Approval
FDA	Regulatory Authority
Field	Regulatory Filing
First US Approval	SC
ICH	Third Party

In addition, for the purposes of this Agreement, the following terms shall have the following meanings:

1.1 “Batch” shall mean a defined quantity of Clinical Material that is intended to be of uniform character and quality within specified limits and that is manufactured in a single production run in the same cycle of manufacturing.

1.2 “Batch Records” shall mean, with respect to a particular production run conducted by Biocon for the Manufacture of a single Batch of Clinical Material, the completed batch records, in the form of the Master Batch Records, documenting the details of, and other information associated with, such production run, including any deviations, in accordance with GMP.

1.3 “Certificate of Analysis” shall mean a document signed by an authorized representative of Biocon, describing the applicable Specifications for, and testing methods applied to, a Batch of Clinical Material and the results of such testing, and confirming that such Batch conforms to the applicable Specifications.

1.4 “Certificate of Compliance” shall mean a document, signed by an authorized representative of Biocon, attesting that a particular Batch of Clinical Material was Manufactured in accordance with GMP, the applicable Manufacturing Process for such Clinical Material and Applicable Laws.

1.5 “Clinical Material” shall mean finished, labeled Product (or matched placebo and/or comparator drug, as applicable) suitable for use in human clinical trials, as further described on Exhibit A attached hereto, as amended from time to time to include all future IV and SC formulations thereof.

1.6 “Clinical Material Warranty” shall have the meaning set forth in Section 8.2.

1.7 “CMC Data” shall mean all chemistry, manufacturing and controls information related to Clinical Material, ITO or Product that is required to be included in Equillium’s Regulatory Filings for such Product.

1.8 “Facility” shall mean the facility or facilities at which Biocon or its Affiliate performs its Manufacturing obligations hereunder.

1.9 “GMP” shall mean the then-current good manufacturing practices as described in: (a) relevant United States regulations in Title 21 of the United States Code of Federal Regulations (including Parts 11, 210, 211, 600 and 610) and all applicable rules, regulations and orders thereunder; (b) Division 2 of Part C of the Food and Drug Regulations (Canada) and all applicable rules, regulations and orders thereunder; (c) International Conference on Harmonization (ICH) ICH Q7 Good Manufacturing Practice Guide for Active Pharmaceutical Ingredients; and (d) current FDA, Health Canada and other mutually-agreed guidance documents pertaining to manufacturing and quality control practice; in each case, as updated, amended and revised from time to time and as interpreted by relevant ICH guidelines.

1.10 “Health Canada” shall mean the section of the Canadian Government known as Health Canada, which includes, among other departments, the Therapeutic Products Directorate and the Health Products and Food Branch Inspectorate or any successor agency thereto which may regulate pharmaceutical products in Canada.

1.11 “ICH” shall mean the International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use.

1.12 “Latent Defect” shall mean a defect that causes Clinical Material to fail to conform to the Clinical Material Warranty, which defect is not discoverable upon reasonable physical inspection and testing performed pursuant to Article 7 but is discovered at a later time (e.g., in the course of long-term stability studies or during clinical use).

1.13 “Manufacture” and “Manufacturing” shall mean any steps, processes and activities necessary to produce Clinical Material, including, without limitation, the manufacturing, processing, formulation, handling, labeling, packaging, inspection, quality control testing, release and storage of Clinical Material.

1.14 “Manufacturing Process” shall mean any and all processes (or any step in any process) used or planned to be used by Biocon to Manufacture Clinical Material, as evidenced in the Master Batch Record.

1.15 “Manufacturing SOPs” shall mean the specific methods, techniques, processes and standard operating procedures that are to be used by Biocon in Manufacturing Clinical Material under this Agreement.

1.16 “Master Batch Records” shall mean the electronic or paper template document approved in writing by both parties that contains the complete set of formal instructions for the Manufacture of Clinical Material to be used by Biocon hereunder (including the applicable Manufacturing SOPs, descriptions of Materials, the Manufacturing Process, in-process testing specifications, Specifications and packaging, storage and shipping specifications) and meets the requirements of GMP, as such document may be amended from time to time in accordance with the Quality Agreement.

1.17 “Materials” shall mean starting materials, solvents, reagents, catalysts, components, Excipients, ITO, other ingredients and packaging and labelling materials used in the Manufacture of Clinical Material in accordance with the Specifications.

1.18 “Quality Agreement” shall mean a written quality agreement entered into by the parties with respect to Clinical Material to be supplied under this Agreement that defines the quality roles and responsibilities of each party in connection with the Manufacture of Clinical Material, as the same may be amended or modified from time to time by mutual written agreement of the parties.

1.19 “Specifications” shall mean, with respect to Clinical Material, the written specifications and quality standards, including tests, analytical procedures and acceptance criteria, that establish the set of criteria to which such Clinical Material should conform to be considered acceptable for its intended use, as initially agreed upon and set forth in the Quality Agreement and as amended from time to time by written agreement of the parties in accordance with the procedures set forth in the Quality Agreement.

1.20 “Term” shall have the meaning provided in Section 11.1.

2. SUPPLY

2.1 Supply Agreement. Subject to the terms and conditions of this Agreement, during the Term, Biocon agrees to Manufacture and supply to Equillium such quantities of Clinical Material as may be set forth on purchase orders placed by Equillium in accordance with the provisions of Section 2.3, and Equillium agrees that Biocon shall be Equillium’s exclusive supplier for the Product, including Clinical Material, for the Equillium Territory. Equillium shall use all Clinical Material supplied under this Agreement solely to conduct development in the Field in the Equillium Territory (and, solely to the extent permitted by the License Agreement, in the Biocon Territory) in accordance with the terms of the License Agreement.

2.2 Forecasts. No later than [ …***…] before the first day of the first calendar quarter in which Equillium in good faith anticipates it will first require Clinical Material (“Initial Quarter”), Equillium shall provide Biocon with an initial written forecast of its requirements of Clinical Material for the […***…]-calendar quarter periods beginning on the first day of the Initial Quarter (the “Initial Forecast”). On or before the first day of each calendar quarter after delivery of the Initial Forecast during the Term, Equillium shall provide Biocon an updated rolling, forecast of the quantities of Clinical Material that Equillium expects to order during each calendar quarter of the subsequent […***…]-calendar quarter periods commencing with the calendar quarter in which such forecast is provided (each, a “Forecast”). Such Forecasts (including the Initial Forecast) represent Equillium’s reasonable estimates of the quantity of Clinical Material it may require during the applicable […***…]-calendar quarter period. Such Forecasts (including the Initial Forecast) are provided for the convenience of Biocon only and shall not constitute commitments by Equillium to purchase any quantity of Clinical Material; provided, however, that, Equillium shall place binding purchase orders for at least the quantity of Clinical Material specified in the first […***…] calendar quarter periods of each Forecast, including the Initial Forecast (such specified quantity, the “Binding Forecast”); it being understood and agreed that, once a calendar quarter period is included in any Binding Forecast, that forecasted amount for such calendar quarter period may not be changed in any subsequent Binding Forecast submitted to Biocon. Each Forecast shall therefore add an additional binding calendar quarter period, but not revise the preceding binding calendar quarter periods.

2.3 Ordering. To order Clinical Material, Equillium shall provide Biocon with a written purchase order specifying the quantities of Clinical Material (Product, matched placebo and/or comparator drug) ordered, the requested delivery date, the delivery destination and the price (if any) to be paid for such Clinical Material. In any such purchase order, the delivery date requested by Equillium must be at least […***…] after the date the purchase order is submitted to Biocon. Within […***…] after its receipt of a particular purchase order placed by Equillium pursuant to this Section 2.3, Biocon shall acknowledge the receipt of, and accept in writing, such purchase order by providing a written confirmation to Equillium. If no such confirmation is received within such […***…] period, then Biocon shall be deemed to have acknowledged and accepted such purchase order. Biocon shall not be obligated to accept any purchase orders placed by Equillium pursuant to this Section 2.3 for more than […***…]% of the applicable forecasted amount of Clinical Materials. Any purchase orders for Clinical Material submitted by Equillium shall reference this Agreement and shall be governed exclusively by the terms contained herein and in the License Agreement. Any terms or conditions contained in a purchase order or acceptance that are inconsistent or in conflict with this Agreement or the License Agreement shall be deemed not to be a part of such purchase order.

2.4 Shortfalls and Allocation of Supply. If Biocon is, or anticipates that it will be, unable to supply to Equillium, in whole or in part, Equillium’s forecasted requirements of Clinical Material on a timely basis due to a shortage of production capacity, shortage of raw materials, or any other reason, Biocon shall promptly notify Equillium in writing of such shortage of production capacity or production problem or other reason, within […***…], and if possible, the date such shortage or production problem is expected to end. The parties will discuss the matter in the JSC and shall use good faith efforts to achieve an equitable solution with the least impact on both parties’ ability to clinically develop Product in their respective territories. Biocon shall use Commercially Reasonable Efforts to remedy any shortfall of Clinical Material as soon as practicable, and Biocon shall allocate its available production capacity for the production of Clinical Material in a manner proportional to the parties’ respective percentages of the combined Clinical Material requirements of the parties represented by Equillium’s forecasted requirements of Clinical Material for use in clinical trials conducted by or on behalf of Equillium and Biocon’s forecasted requirements of Clinical Material for use in clinical trials conducted by or on behalf of Biocon.

2.5 Second Site/Source. Biocon shall have the right to use the services of its Affiliates and Third Party contractors, including CMOs, to assist such Biocon in fulfilling its obligations and exercising its rights under this Agreement; provided that (i) the JSC approves any contractor in advance; (ii) none of Equillium’s rights under this Agreement or the License Agreement are diminished or otherwise adversely affected as a result of Biocon’s use of Affiliates or contractors; and (iii) the contractor or Affiliate has entered into a written agreement with Biocon binding such Person to the obligations Biocon has to Equillium, including obligations of intellectual property assignment and confidentiality and non-use, and containing any other provisions normal and customary for similar types of agreements consistent with this Agreement and the License Agreement; and provided, further, that Biocon shall at all times be responsible for the satisfactory accomplishment of its obligations under and in accordance with, and the contractor’s or Affiliate’s compliance with, the terms and conditions of this Agreement and the License Agreement. Without prejudice to the generality of the foregoing, in the event Biocon is unable to meet Equillium’s orders submitted in accordance with this Agreement for more than […***…] consecutive calendar quarter periods (a “Failure to Supply”), the JSC (or a manufacturing subcommittee thereof) will evaluate alternative approaches to source the shortfall in supply, which may include, without limitation, Biocon’s performance of a manufacturing technology transfer (the reasonable costs of such technology transfer to be borne by Biocon) to a CMO identified by the JSC and appointed by the JSC with Biocon’s prior written consent, such consent not to be unreasonably withheld, to permit such CMO to manufacture ITO and Product, using the manufacturing process developed and used by Biocon, for use and distribution in the Field in the Equillium Territory.

2.6 Right of Biocon to Resume Manufacturing. Following a Failure to Supply and the enabling of a CMO as a secondary source of supply pursuant to Section 2.5, should Biocon provide Equillium with a commercially reasonable proposal and evidence that it is ready, willing and able, directly or through subcontractors, to resume its supply obligations hereunder, the Parties will work together in good faith to develop and mutually agree upon a transition plan that achieves the following objectives: (i) minimizes disruption to the continued manufacture and supply of the Clinical Material; (ii) enables Biocon to resume operation of its facility(ies) as the primary source of Clinical Material as soon as reasonably practicable; and (iii) maintains on an ongoing basis the Third Party facility established following a Failure to Supply and the enabling of a CMO to provide a secondary source of supply of Clinical Material pursuant to Section Section 2.5.

3. MANUFACTURING

3.1 Manufacture of Clinical Material. Biocon shall Manufacture Clinical Material ordered by Equillium in compliance with GMP and all other Applicable Laws. Biocon shall maintain and follow a quality control and testing program to confirm that all Clinical Material supplied hereunder conforms to the Specifications and is manufactured in accordance with GMP and all Applicable Laws.

3.2 Materials and Equipment. Biocon shall be responsible for procuring […***…] all Materials and resources needed for the Manufacture of Clinical Material ordered under this Agreement, including all Materials and resources needed for manufacturing all ITO needed to Manufacture such Clinical Material. Biocon shall use only qualified vendors for purchase of Materials and consumables as specified in the Quality Agreement and as per Biocon quality systems. Biocon shall be responsible for procuring […***…] all equipment, personnel and other resources needed for the Manufacture of Clinical Material ordered under this Agreement. Biocon shall be responsible for allocating appropriate space in the Facility, and for obtaining, installing and maintaining in such Facility all capital equipment, as needed to manufacture the quantities of Clinical Material ordered by Equillium in accordance with the terms of this Agreement. Biocon shall allocate sufficient time, effort, equipment and facilities to the Manufacture of Clinical Material, and shall dedicate and use personnel with sufficient skills and experience as are required to accomplish the Manufacturing tasks, so as to Manufacture and deliver Clinical Material on a timely basis and in accordance with the terms of this Agreement.

3.3 Facility. Clinical Material shall be manufactured only at a Facility that has been previously designated to Equillium in writing. Subject to Section 5.4, any planned change in the Facility shall be made following at least […***…] prior written notice to Equillium, and any unanticipated change in a Facility shall be made following verbal notification to Equillium and an agreement in writing on the timeline for implementing the change.

3.4 Facility Licenses. Biocon shall obtain and maintain for the Facility, […***…], all permits, licenses and approvals (including facilities licenses) needed for Biocon to be able to Manufacture and supply all Clinical Material in compliance with GMP and all Applicable Laws (the “Facilities Licenses”), in a timely manner such that Biocon is able to meet is Manufacturing and supply obligations under this Agreement. Biocon shall keep Equillium regularly informed about the status of all such Facilities Licenses and shall provide Equillium copies thereof upon request. Biocon shall use commercially reasonable efforts to resolve as soon as possible any issues that arise in its seeking or maintaining Facilities Licenses, including completely addressing and rectifying any deviations or other issues raised in any warning letter from the FDA or any similar warning or objection by any Regulatory Authority.

4. QUALITY CONTROL

4.1 Quality Agreement. No later than September 30, 2017, the parties shall negotiate in good faith and enter into the Quality Agreement on commercially reasonable and customary terms. In the event of any conflict between the terms of the Quality Agreement and the terms of this Agreement, the terms of the Quality Agreement shall control with respect to quality control or quality assurance matters, and this Agreement shall control with respect to all other matters. Any breach of the Quality Agreement shall be deemed to be a breach of this Agreement, including, without limitation, with respect to indemnity and other remedies hereunder.

4.2 Specifications; Testing. All Clinical Material supplied hereunder shall conform to the Specifications, and Biocon shall verify such conformity in accordance with the testing standards and procedures specified in the Quality Agreement. Biocon will test each Batch of Clinical Material to be delivered hereunder and supply Equillium with a Certificate of Analysis and a Certificate of Compliance. Equillium shall have the right to rely upon the Certificate of Analysis and the Certificate of Compliance provided by Biocon.

4.3 Samples. Biocon shall retain samples of ITO and Clinical Material and isolated intermediates for each Batch of Clinical Material for a period of […***…] (or, if longer, the minimum period required by Applicable Laws) after Equillium’s acceptance of such Batch. The sample size shall be twice the size necessary to conduct quality control testing. Upon Equillium’s written request, Biocon shall provide Equillium with up to one-half (1/2) the original amount of the retained samples.

4.4 Documentation.

(a) Manufacturing Records. Biocon shall keep complete, accurate and authentic accounts, notes, data and records pertaining to the Manufacture, processing, testing, storage, and distribution of Clinical Material and of the work performed under this Agreement, including, without limitation, all quality control documentation and the Master Batch Records, for the longer of (i) a period of […***…] after delivery of such Clinical Material to Equillium or (ii) the period of time required by Applicable Law. Biocon shall make available to Equillium copies of such records and shall permit Equillium to inspect the originals of such records as maintained by Biocon, on reasonable notice. After the time period set forth in this Section 4.4(a), Biocon shall notify Equillium prior to the destruction of any records retained under this Section 4.4(a) and, at Equillium’s request and expense, shall transfer such records to Equillium.

(b) Lot Documentation. Biocon shall make arrangements for, and shall implement, the imprinting of lot numbers for Clinical Material shipped hereunder. Such lot numbers shall be affixed on Clinical Material containers and on the shipping cartons of Clinical Material as required by Applicable Laws.

4.5 Inspections by Equillium. Biocon shall permit Equillium to inspect, as reasonably needed, that portion of the Facility where Clinical Material is Manufactured or stored and review such Clinical Material documents as is reasonably necessary for the purpose of assessing Biocon’s compliance with GMP, the Specifications, and all Applicable Laws. Such inspection and document review shall be conducted upon reasonable prior written notice by Equillium (except in the event of a reasonable, urgent concern by Equillium regarding the quality of Clinical Material, in which case Equillium may conduct the inspection as soon as practicable), at a time and date mutually agreeable to the parties and in accordance with the Quality Agreement. In addition, Equillium shall have the right to have an employee or agent present at the Facility during the preparation for or conduct of any Manufacturing run for a Batch of Clinical Material, and such employee or agent shall be free to inspect and oversee all aspects of such preparation or Manufacturing run and to comment to Biocon thereupon. Biocon shall provide such Equillium employee or agent a suitable office equipped with a phone line and high-speed internet connection and other standard office equipment and supplies as needed, for use by such employee or agent in conducting the inspection and oversight activities during such production run.

5. REGULATORY MATTERS

5.1 Information for Regulatory Applications. Upon Equillium’s written request, Biocon shall provide to Equillium copies of the complete Master Batch Records and specific Manufacturing SOPs and updates as defined in the Quality Agreement, copies of the relevant documents identifying any Biocon technology used in the Manufacture of Clinical Material under the Manufacturing SOPs, and all CMC Data. Equillium has the right to review and copy the executed, completed Batch Records for each Batch, as needed for Equillium to prepare the Chemistry, Manufacturing and Controls (CMC) sections for any Regulatory Filing that Equillium (or its Affiliate or Sublicensee) intends to file or for any other appropriate regulatory purpose relating to ITO or Product. All such Information shall be provided in English. Biocon shall prepare and maintain the Batch Records for each Batch of Clinical Material Manufactured hereunder, and shall provide Equillium access to such Batch Records for review and inspection, and shall provide copies thereof to Equillium, at Equillium’s expense for actual out-of-pocket copying costs, if so requested by Equillium.

5.2 Regulatory Assistance. Without limiting Section 5.1, with respect to any application, registration or filings reasonably needed by Equillium (or its Affiliate or Sublicensee) to obtain or maintain Regulatory Approvals for any Product, and any record-keeping, audits, inspections and audits required by Regulatory Authorities relating to the Manufacture and/or supply of Clinical Material by Biocon hereunder, Biocon shall reasonably cooperate with and assist Equillium in all such matters, including providing any additional information needed for such applications, filings or activities and any additional support relating to Clinical Material as reasonably requested by Equillium (or its Affiliate or Sublicensee), and Equillium shall reimburse Biocon for any actual out-of-pocket costs of providing such Information and assistance, in amounts to be agreed prior to the services.

5.3 Regulatory Inspections.

(a) Inspection by Regulatory Authorities. Upon the request of any Regulatory Authority having jurisdiction over the Manufacture of Clinical Material hereunder, Biocon shall provide such Regulatory Authority with access to observe and inspect Biocon’s facilities and procedures used for the Manufacture, release and stability testing, and/or warehousing of all Clinical Material and to audit such facilities for compliance with GMP and/or other Applicable Laws. Biocon specifically agrees to cooperate with any inspection by a Regulatory Authority, whether prior to or after Regulatory Approval of a Product, and to provide Equillium a copy of any inspection or audit report resulting from any such inspection. If Biocon is purchasing raw materials from a Third Party manufacturer for use in manufacturing Clinical Material, Biocon shall use commercially reasonable diligent efforts to ensure that such manufacturer’s facilities and procedures are similarly subject to the provisions of this Section 5.3(a) as to the manufacture of such raw materials, and to ensure that Equillium is provided copies of any inspection or audit report of such Third Party relating to such raw materials.

(b) Notification of Inspections. Biocon agrees to notify Equillium within […***…] of any written or oral inquiries, notifications or inspection activity by any Regulatory Authority in regard to Clinical Material supplied or to be supplied to Equillium hereunder. Biocon shall provide a reasonable description of any such governmental inquiries, notifications or inspections promptly, but in no event later than […***…] after such notification, inquiry or inspection. Biocon shall furnish to Equillium (i) within […***…] after receipt, any report or correspondence issued by any Regulatory Authority in connection with such notification, inquiry or inspection, including any FDA Form 483 (List of Inspectional Observations) or applicable portions of any FDA warning letters (or any equivalent in another country or jurisdiction) which pertain to ITO or Product, and (ii) not later than […***…] prior to the time it provides to any Regulatory Authority (unless any such response is due to such Regulatory Authority within […***…], in which case Biocon shall furnish to Equillium as soon as reasonably practical, but in any event within […***…] prior to the time it provides to any Regulatory Authority), copies of proposed responses or explanations relating to items set forth above (each, a “Proposed Response”), in each case redacted of trade secrets or other confidential or proprietary information of Biocon that is unrelated to the obligations under this Agreement and is unrelated to Clinical Material or its Manufacture. Biocon shall discuss with Equillium and consider in good faith any comments provided by Equillium on the Proposed Response. Biocon shall provide a copy of the final response submitted to the FDA or other Regulatory Authority no later than […***…] after filing. After the filing of a response with the FDA or other Regulatory Authority, Biocon shall notify Equillium of any further contacts with such Regulatory Authority relating to the subject matter of the response.

(c) Remedial Actions. Biocon shall notify Equillium immediately in writing in the event any action is taken or threatened by a Regulatory Authority relating to the Manufacture of Clinical Material by or on behalf of Biocon or any of its Affiliates, or relating to the Facility in which such Manufacture occurs, or which may impair the ability of Biocon to Manufacture and supply Clinical Material (including, without limitation, any impairment to Biocon’s ability to Manufacture and supply Clinical Material conforming to the applicable Specifications) in accordance with this Agreement. In any event, Biocon shall use commercially reasonable efforts to address and resolve as soon as possible any issues, concerns or warnings from any Regulatory Authority that might affect Biocon’s ability to Manufacture and supply Clinical Material in accordance with this Agreement. To the extent Biocon must implement a plan of remediation or other modifications or changes to its Facility or its manufacturing processes, as may be mutually agreed, in order to address and resolve any such issues, concerns or warnings from any Regulatory Authority, Biocon shall prepare such plan as soon as possible, shall provide a draft of the plan to Equillium for review and comment, and shall implement all reasonable comments of Equillium as soon as possible, and shall implement and complete all aspects of the agreed plan as soon as possible.

5.4 Changes in Manufacturing Process. Biocon shall not change or modify any of the Specifications or Manufacturing SOPs, or otherwise make any change in the facilities, materials, equipment, processes or procedures used to Manufacture Clinical Material that would require a filing with a Regulatory Authority and/or that would reasonably be expected to affect Biocon’s ability to Manufacture and supply the Clinical Material in accordance with the Specifications and the terms of this Agreement, without Equillium’s prior written approval. No changes to the Specifications, the Manufacturing SOPs or the Master Batch Records shall be made except in accordance with the change control procedures of the Quality Agreement. Biocon shall disclose all proposed changes in such Specifications, manufacturing and testing materials, equipment, processes or procedures to Equillium at a level that would be sufficient to allow Equillium to understand such changes and comply with Applicable Laws. If Equillium agrees to allow any such change requiring Equillium’s approval to be implemented, then the parties shall revise Manufacturing SOPs and the relevant Specifications in writing accordingly, if applicable, in compliance with the requirements of the Quality Agreement.

5.5 Labels and Packaging Materials. Biocon shall provide all labels and packaging materials for, and shall perform, all packaging and labeling of Clinical Material; provided, however, that Equillium shall be responsible for providing and determining the content of such labels and Equillium shall have the right to approve the final content of such labels. All labels and packaging materials and use thereof with Clinical Material shall be in accordance with the Specifications.

6. PRICES, INVOICING AND PAYMENT

6.1 Supply Prices.

(a) Orphan Indications Prior to First US Approval. Prior to First US Approval, Biocon shall supply to Equillium sufficient quantities of Clinical Material for use in the conduct of clinical trials of Product in three (3) Orphan Indications at no cost to Equillium. For clarity, if Equillium discontinues clinical development of Product in a particular Orphan Indication and instead pursues clinical development of Product in a different Orphan Indication prior to First US Approval, Biocon shall remain obligated to supply Clinical Material at no cost to Equillium pursuant to this Section 6.1(a) for such replacement Orphan Indication, provided that at no time will Biocon be obligated to supply Clinical Material pursuant to this Section 6.1(a) for use in clinical trials of Product for more than three (3) Orphan Indications at any given time, and if Equillium wishes to obtain Clinical Material for use in clinical trials of Product for a fourth or additional concurrently-developed Orphan Indication prior to First US Approval, such Clinical Material shall be supplied at the price set forth in Section 6.1(b);

(b) Orphan Indications After First US Approval. After First US Approval, Biocon shall supply to Equillium sufficient quantities of Clinical Material for use in the conduct of clinical trials of Product for Orphan Indications in the Equillium Territory, at a price equal to Biocon’s then-current Cost of Goods of such Clinical Material, without mark-up or profit margin; and

(c) Other Indications. Biocon shall supply to Equillium sufficient quantities of Clinical Material for use in the conduct of clinical trials of Product for Indications other than Orphan Indications at a price equal to Biocon’s then-current Cost of Goods, without mark-up or profit margin.

6.2 Cost of Goods.

(a) Initial Cost of Goods Estimate. Within […***…] after Biocon’s receipt of the Initial Forecast, Biocon will provide to Equillium in writing Biocon’s good faith estimate of the anticipated Cost of Goods of Clinical Material (including a detailed description of the assumptions upon which such estimate is based) for the period from the first day of the first month of the Initial Forecast for which Equillium expects to require Clinical Material until either (i) if at least two full quarters remain in the calendar year in which the Initial Forecast is delivered, the end of such calendar year, or (ii) if less than two full quarters remain in the calendar year in which the Initial Forecast is delivered, the end of the immediately following calendar year (as applicable, the “Initial Supply Period”). The JSC shall meet to discuss such Cost of Goods estimate and any questions or concerns Equillium may have regarding such estimate and cooperate in good faith to arrive at a mutually acceptable Cost of Goods estimate for Clinical Material for the Initial Supply Period within […***…] after Equillium’s receipt of such Cost of Goods estimate from Biocon. Such mutually acceptable Cost of Goods estimate shall be used to calculate the initial supply price(s) of any quantity(ies) of Clinical Material for which Biocon is obligated to make payment (i.e., quantities of Clinical Material other than those to be supplied at no cost to Equillium pursuant to Section 6.1(a)) during the Initial Supply Period (the “Initial Supply Price(s)”). Thereafter, the Supply Price(s) of each Clinical Material shall be recalculated, and appropriate adjustments made, in accordance with Section 6.2(b).

(b) Recalculation of Cost of Goods.

(i) As promptly as practicable, and in any event within […***…], after December 31 of the last calendar year of the Initial Supply Period, Biocon shall calculate and disclose to Equillium in writing the actual per-unit Cost of Goods of all Clinical Material (whether supplied on the terms set forth in Section 6.1(a), 6.1(b) or 6.1(c)) supplied to Equillium during the Initial Supply Period (the “Initial Actual Cost of Goods”). The JSC shall promptly meet to discuss the Initial Actual Cost of Goods. If the aggregate Initial Supply Price(s) paid by Equillium for all Clinical Material supplied by Biocon to Equillium on the terms set forth in Section 6.1(b) and/or 6.1(c) during the Initial Supply Period is […***…] than the amount that would have been payable had the supply price(s) of such Clinical Material been calculated using the Initial Actual Cost of Goods, then […***…]. If the aggregate Initial Supply Price(s) paid by Equillium for all Clinical Material supplied by Biocon to Equillium on the terms set forth in Section 6.1(b) and/or 6.1(c) during the Initial Supply Period […***…] the amount that would have been payable had the supply price(s) of such Clinical Material been calculated using the Initial Actual Cost of Goods, then […***…]. The initial supply price of Clinical Material supplied pursuant to Section 6.1(b) and/or 6.1(c) for the following calendar year shall be calculated based on the Initial Actual Cost of Goods.

(ii) As promptly as practicable, and in any event within [ …***…], after December 31 of each subsequent calendar year during the Term, Biocon shall calculate and disclose to Equillium in writing the actual per-unit Cost of Goods of all Clinical Material (whether supplied on the terms set forth in Section 6.1(a), 6.1(b) or 6.1(c)) for such calendar year (the “Prior-Year Cost of Goods”). The JSC will meet to discuss the Prior-Year Cost of Goods. If the aggregate initial supply price paid by Equillium for all Clinical Material supplied by Biocon to Equillium on the terms set forth in Section 6.1(b) and/or 6.1(c) during the Prior Pricing Period is […***…] than the amount that would have been payable had the supply price(s) of such Clinical Material been calculated using the Prior-Year Cost of Goods, then […***…]. If the aggregate initial supply price paid by Equillium for all Clinical Material supplied by Biocon to Equillium on the terms set forth in Section 6.1(b) and/or 6.1(c) during the Prior Pricing Period […***…] the amount that would have been payable had the supply price(s) of such Clinical Material been calculated using the Prior-Year Cost of Goods, then […***…].

6.3 Reduce Cost of Goods. During the Term, Biocon shall use commercially reasonable efforts (a) to implement process improvements and achieve other efficiencies that lower the Cost of Goods of Clinical Material Manufactured by Biocon or its Affiliates and (b) to include in its agreement with each Third Party contract manufacturer involved in the Manufacture of Clinical Material reasonable provisions for supply price reductions in the case of process improvements or other efficiencies that lower such contract manufacturer’s cost of manufacture, such that Equillium will receive a corresponding benefit through reduction of Cost of Goods. Biocon shall aggregate quantities of Clinical Material ordered by Equillium hereunder with quantities of Clinical Material Manufactured for Biocon, its Affiliates or Third Party licensees for their own development activities in the Biocon Territory as necessary to take advantage of preferential volume-based pricing.

6.4 Method of Payment. Biocon will invoice Equillium for each Batch of Clinical Material no earlier than the later of (a) the date of shipment of such Batch and (b) the delivery to Equillium of the required documentation with respect to such Batch pursuant to Section 7.1. Equillium shall pay each such invoice within […***…] after the later of (i) Equillium’s receipt of the applicable invoice and (ii) Equillium’s receipt of such Batch and the related documentation pursuant to Section 7.1, unless such Batch is rejected in accordance with Section 7.3(b). The supply price of Clinical Material supplied under this Agreement shall be stated in U.S. dollars, and all payments hereunder shall be payable in U.S. dollars. When conversion of cost items included in the calculation of Cost of Goods from any foreign currency is required, such conversion shall be calculated at the rate of exchange for such currency used throughout the accounting system of Biocon for financial reporting purposes for the applicable period. All payments hereunder shall be made by wire transfer in immediately available funds to the bank and account designated in writing by Biocon.

6.5 Taxes. Equillium will pay any and all taxes (other than taxes based upon Biocon’s income), duties, assessments and other charges and expenses imposed by any government authority in connection with the delivery and sale of Clinical Material to Equillium.

6.6 Audits. Biocon shall keep (and shall cause its Affiliates to keep) complete and accurate records pertaining to the Manufacture of Clinical Material in sufficient detail to permit Equillium to confirm the accuracy of all Cost of Goods and supply price determinations, for at least […***…] following the end of the calendar year to which they pertain. Equillium shall have the right, once annually, to cause an independent, certified public accountant of international standing and reasonably acceptable to Biocon to audit such records solely to confirm Costs of Goods and supply price determinations for a period covering not more than the preceding […***…]. No calendar year shall be subject to audit under this section more than once. Such audits may be exercised during normal business hours upon at least […***…] prior written notice to Biocon in the location where the records are maintained. The auditor will execute a reasonable written confidentiality agreement with Biocon and will disclose to Equillium only such information as is reasonably necessary to provide Equillium with information regarding any actual or potential discrepancies between Cost of Goods reported and supply prices invoiced, on the one hand, and amounts paid or payable under this Agreement. The auditor will send a copy of the report to Biocon at the same time it is sent to Equillium. The report sent to both parties will include the methodology and calculations used to determine the results. Prompt adjustments shall be made by the parties to reflect the results of such audit. Equillium shall bear the full cost of such audit unless such audit discloses an overpayment by Equillium of more than […***…]% of the amount due for any calendar year under this Agreement, in which case, Biocon shall bear the full cost of such audit and Equillium shall deduct the amount of such overpayment from amounts otherwise owed to Biocon under this Agreement. If such audit discloses an underpayment by Equillium, then Equillium will promptly remit the amount of such underpayment to Biocon.

6.7 Late Payments. In the event that any payment due under this Agreement is not made when due, the payment shall accrue interest at a rate per annum that is […***…] (i.e., […***…] percentage points) above the then-current prime rate quoted by Citibank in New York City for the period from the due date for payment until the date of actual payment; provided, however, that in no event shall such rate exceed the maximum legal annual interest rate. The payment of such interest shall not limit the party entitled to payment from exercising any other rights it may have as a consequence of the lateness of any payment.

7. DELIVERY; ACCEPTANCE AND REJECTION; RECALLS

7.1 Documentation on Delivery. Each Batch (or portion of a Batch) of Clinical Material delivered to Equillium hereunder shall be accompanied by (a) a copy of the Batch Records for such Batch, together with written confirmation that such Batch Records have been reviewed and approved by Biocon’s quality assurance unit, (b) a Certificate of Analysis and (c) a Certificate of Compliance.

7.2 Delivery. Unless otherwise agreed by the parties in writing, all shipments of Clinical Material shall be shipped FCA (Incoterms 2010) the Facility to the destination(s) specified by Equillium in the applicable purchase order. Biocon will package and ship Clinical Material in accordance with Biocon’s customary practices, unless otherwise specified by Equillium. Biocon will procure insurance, in an amount sufficient to cover the value of the contents, for all shipments. All freight, handling, insurance, duties, taxes and shipping expense will be borne by Equillium. Biocon will use commercially reasonable efforts to comply with the requested delivery dates for all Clinical Material.

7.3 Acceptance and Rejection.

(a) Defective Product. Equillium may reject any Clinical Material delivered under this Agreement that does not conform to the Clinical Material Warranty (a “Defective Product”) by giving written notice to Biocon within […***…] after delivery. If Equillium does not notify Biocon of its rejection of any Defective Product in a shipment of Clinical Material within such […***…] period, Equillium will be deemed to have accepted the shipment of Clinical Material, except as otherwise provided below with respect to any quantities of Clinical Material containing Latent Defects.

(b) Rejection. In notifying Biocon of Defective Product, Equillium shall identify in reasonable detail the nature of the defect. Biocon shall have a reasonable opportunity, not to exceed […***…] from receipt of notification, to review any materials provided by Equillium to substantiate the existence of Defective Product and to conduct its own tests of the Clinical Material. Biocon shall, at Equillium’s election, either (i) promptly refund any sums actually paid for such Defective Product or (ii) replace such Defective Product with Clinical Material conforming to the Clinical Material Warranty within […***…].

(c) Latent Defects. If any quantity of Clinical Material is found to contain a Latent Defect, such quantity will be considered Defective Product and Equillium may reject such Clinical Material or revoke its acceptance of such Clinical Material by notifying Biocon of such rejection or revocation within […***…] after the Latent Defect is discovered. Equillium may reject such quantity of Clinical Material containing such Latent Defect even if the Latent Defect is not discovered within the time period set forth in Section 7.3(a), subject to the terms provided in Section 7.3(b).

(d) Independent Testing. If Biocon reasonably disagrees with Equillium’s determination that Clinical Material constitutes Defective Product, then a sample of the applicable Batch(es) of such Clinical Material to an independent Third Party testing service, mutually and reasonably acceptable to both parties, for analytical testing to determine whether such Clinical Material constitutes Defective Product. The parties agree that such testing service’s determination shall be final and determinative. The party against whom the Third Party testing service rules shall bear all costs of the Third Party testing.

7.4 Recalls. Equillium shall be responsible for carrying out any recall that is required by a Regulatory Authority, and Biocon shall reasonably cooperate in such recall. Biocon shall be responsible for all costs and expense of any such recall to the extent resulting from the supply of Defective Product or other breach of this Agreement by Biocon.

8. REPRESENTATIONS AND WARRANTIES

8.1 Mutual Representations and Warranties. Each party represents and warrants to the other that, as of the Effective Date: (a) it is duly organized and validly existing under the laws of its jurisdiction of incorporation or formation, and has full corporate or other power and authority to enter into this Agreement and to carry out the provisions hereof; (b) it is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder, and the person or persons executing this Agreement on its behalf has been duly authorized to do so by all requisite corporate or partnership action; and (c) this Agreement is legally binding upon it, enforceable in accordance with its terms, and does not conflict with any agreement, instrument or understanding, oral or written, to which it is a party or by which it may be bound (including, with respect to Biocon, the […***…] Agreement), nor violate any material law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it.

8.2 Clinical Material Warranty. Biocon represents and warrants to Equillium that all Clinical Material supplied by Biocon hereunder: (a) will have been Manufactured in compliance with GMP and other Applicable Laws and (b) will, at the time of delivery, conform to the Specifications then in effect (collectively, the “Clinical Material Warranty”).

8.3 Biocon Covenants. In addition to any covenants made by it elsewhere in this Agreement, Biocon hereby covenants to Equillium that:

(a) neither Biocon nor any of its Affiliates will employ or use the services of any Person who is debarred under United States law, including 21 U.S.C. §335a, or any foreign equivalent thereof, in connection with the Manufacture and supply of Clinical Material; and in the event that Biocon becomes aware of the debarment or threatened debarment of any Person providing services to Biocon or any of its Affiliates with respect to the Manufacture or supply of Clinical Material, Biocon will immediately notify Equillium in writing and will cease, or cause its Affiliate to cease (as applicable), employing, contracting with, or retaining any such Person to perform any activities relating to the Manufacture or supply of Clinical Material;

(b) neither Biocon nor any of its Affiliates will, in connection with the performance of Biocon’s obligations under this Agreement, directly or indirectly through Third Parties, pay, promise or offer to pay, or authorize the payment of, any money or give any promise or offer to give, or authorize the giving of anything of value to a public official or entity or other Person for purpose of obtaining or retaining business for or with, or directing business to, any Person, including Biocon and its Affiliates, nor will Biocon or any of its Affiliates directly or indirectly promise, offer or provide any corrupt payment, gratuity, emolument, bribe, kickback, illicit gift or hospitality or other illegal or unethical benefit to a public official or entity or any other Person in connection with the performance of Biocon’s obligations under this Agreement;

(c) neither Biocon nor any of its Affiliates (or any of their respective employees and contractors), in connection with the performance of Biocon’s obligations under this Agreement, will cause Equillium to be in violation of Anti-Corruption Laws or Export Control Laws; and

(d) Biocon will immediately notify Equillium if Biocon has any information or suspicion that there may be a violation of Anti-Corruption Laws or Export Control Laws in connection with the performance of Biocon’s obligations under this Agreement.

8.4 Performance by Affiliates and Contractors. The parties recognize that Biocon may perform some or all of its obligations under this Agreement through one or more Affiliates or Third Party contractors; provided, in each case, that (a) none of Equillium’s rights hereunder are diminished or otherwise adversely affected as a result of such delegation or contracting, and (b) each such Affiliate and Third Party contractor undertakes in writing obligations of confidentiality and non-use regarding Confidential Information and ownership of Inventions which are substantially the same as those undertaken by the parties pursuant to Article 9 and Article 10; and provided, further, that Biocon shall at all times be fully responsible for the performance and payment of such Affiliate or Third Party contractor.

8.5 Disclaimer. Except as expressly set forth in this Agreement, EACH PARTY EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE WARRANTIES OF DESIGN, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, VALIDITY OF PATENTS, NON-INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES, OR ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICES.

8.6 Limitation of Liability. EXCEPT FOR LIABILITY FOR BREACH OF ARTICLE 10, NEITHER PARTY SHALL BE ENTITLED TO RECOVER FROM THE OTHER PARTY ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES IN CONNECTION WITH THIS AGREEMENT OR ANY LICENSE GRANTED HEREUNDER; provided, however, that this Section 8.6 shall not be construed to limit either party’s indemnification obligations under Article 12.

9. INTELLECTUAL PROPERTY MATTERS

The ownership of and rights with respect to all Data and Inventions arising under this Agreement will be determined in accordance with, and pursuant to the terms of, Article 7 of the License Agreement.

10. CONFIDENTIALITY

The parties acknowledge and agree that any Information furnished to a party by or on behalf of the other party pursuant to this Agreement shall collectively constitute “Confidential Information” of the other party for purposes of the License Agreement, including, without limitation, Article 8 thereof, and the provisions of Article 8 of the License Agreement are hereby incorporated by reference in this Agreement.

11. TERM AND TERMINATION

11.1 Term. The term of this Agreement (the “Term”) shall begin on the Effective Date and, unless earlier terminated in accordance with this Article 11, expire upon expiration or termination of the License Agreement.

11.2 Accrued Obligations; Survival. Upon any termination or any expiration of this Agreement, all rights and obligations of the parties under this Agreement shall terminate, except as expressly provided in this Section 11.2. Neither expiration nor any termination of this Agreement shall relieve either party of any obligation or liability accruing prior to such expiration or termination, nor shall expiration or any termination of this Agreement preclude either party from pursuing all rights and remedies it may have under this Agreement, at law or in equity, with respect to breach of this Agreement. In addition, the parties’ rights and obligations under Sections 4.4, 5.1, 6.2(b), 6.4, 6.5, 6.6, 6.7, 8.2, 8.5, 8.6, 11.2 and 11.3 and Articles 7, 9, 10, 12, 13 and 14 will survive expiration or any termination of this Agreement.

11.3 Damages; Relief. Termination of this Agreement shall not preclude either party from claiming any other damages, compensation or relief that it may be entitled to hereunder as a result of the other party’s breach of this Agreement.

12. INDEMNIFICATION

The provisions of Article 11 of the License Agreement are hereby incorporated by reference in this Agreement; provided, however, that, for purposes of this Agreement, all references to “this Agreement” in Sections 11.1 and 11.2 of the License Agreement shall be deemed to refer to this Agreement (and not to the License Agreement); and provided, further, that each party shall be entitled to indemnification for an aggregate of 100% of its actual indemnifiable Losses under this Agreement and the License Agreement together (i.e., neither party shall be entitled to any double recovery by virtue of a particular item of Losses being indemnifiable under both this Agreement and the License Agreement).

13. DISPUTE RESOLUTION

Except as set forth in Section 7.3(d), any claim, dispute, or controversy as to the breach, enforcement, interpretation or validity of this Agreement will be resolved in accordance with Article 12 of the License Agreement, and the provisions of Article 12 of the License Agreement are hereby incorporated by reference in this Agreement.

14. MISCELLANEOUS

14.1 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, USA, excluding its conflicts of laws principles with the exception of sections 5-1401 and 5-1402 of New York General Obligations Law. THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE, AND AGREE TO CAUSE THEIR RESPECTIVE AFFILIATES TO WAIVE, THE RIGHT TO TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF, OR RELATING TO THIS AGREEMENT, ANY RELATED AGREEMENTS OR ANY TRANSACTIONS CONTEMPLATED HEREBY.

14.2 Entire Agreement; Amendments. This Agreement (including the Exhibits hereto), the License Agreement, the Purchase Agreement and the Related Agreements, collectively, are both a final expression of the parties’ agreement and a complete and exclusive statement with respect to all of their respective terms. This Agreement supersedes all prior and contemporaneous agreements and communications, whether oral, written or otherwise, concerning any and all matters contained herein, including any Confidentiality Agreement, but specifically excluding the License Agreement, Purchase Agreement and the Related Agreements. The Exhibits to this Agreement are incorporated herein by reference and shall be deemed a part of this Agreement. This Agreement may be amended, or any term hereof modified, only by a written instrument duly executed by authorized representatives of both parties hereto.

14.3 Non-Waiver. The failure of a party to insist upon strict performance of any provision of this Agreement or to exercise any right arising out of this Agreement shall neither impair that provision or right nor constitute a waiver of that provision or right, in whole or in part, in that instance or in any other instance. Any waiver by a party of a particular provision or right shall be in writing, shall be as to a particular matter and, if applicable, for a particular period of time and shall be signed by such party.

14.4 Assignment. Except as expressly provided hereunder, neither this Agreement nor any rights or obligations hereunder may be assigned or otherwise transferred by either party without the prior written consent of the other party (which consent shall not be unreasonably withheld); provided, however, that either party may assign this Agreement and its rights and obligations hereunder without the other party’s consent:

(a) in connection with the transfer or sale of all or substantially all of the business of such party to which this Agreement relates to a Third Party, whether by merger, sale of stock, sale of assets or otherwise; or

14.5 Force Majeure. Each party shall be excused from liability for the failure or delay in performance of any obligation under this Agreement by reason of any event beyond such party’s reasonable control, including but not limited to Acts of God, fire, flood, explosion, earthquake, or other natural forces, war, civil unrest, acts of terrorism, accident, destruction or other casualty, any lack or failure of transportation facilities, any lack or failure of supply of raw materials, any strike or organized labor disturbance, or any other event similar to those enumerated above. Such excuse from liability shall be effective only to the extent and duration of the event(s) causing the failure or delay in performance and provided that the party has not caused, in whole or in part, such event(s) to occur. The affected party shall notify the other party of such force majeure circumstances as soon as reasonably practical, and shall promptly undertake all reasonable efforts necessary to cure such force majeure circumstances.

14.6 Severability. If any one or more of the provisions contained in this Agreement is held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby, unless the absence of the invalidated provision(s) adversely affects the substantive rights of the parties. The parties shall in such an instance use their best efforts to replace the invalid, illegal or unenforceable provision(s) with valid, legal and enforceable provision(s) which, insofar as practical, implement the purposes of this Agreement.

14.7 Notices. Any notice to be given under this Agreement must be in writing and delivered either in person, or by internationally-recognized express courier, to the party to be notified at its address(es) given below, or at any address such party has previously designated by prior written notice to the other. Notice shall be deemed sufficiently given for all purposes upon the earliest of: (a) the date of actual receipt; or (b) if delivered by express courier, the second business day the express courier regularly makes deliveries following deposit.


If to Equillium, to:	Equillium, Inc. 2223 Avenida de la Playa, Suite 108 La Jolla, CA 92037 USA Attn: Daniel M. Bradbury Email: […***…]
If to Biocon, to:	Biocon SA Attention: Director c/o BDO SA Rue de l’Avenir 2 2800 Delémont Switzerland
With a copy to:	Head – Legal Biocon Limited 20th K.M. Hosur Road Electronics City P.O. Bangalore 560100 India

14.8 Interpretation. The headings of clauses contained in this Agreement preceding the text of the sections, subsections and paragraphs hereof are inserted solely for convenience and ease of reference only and shall not constitute any part of this Agreement, or have any effect on its interpretation or construction. All references in this Agreement to the singular shall include the plural where applicable. The term “including” or “includes” as used in this Agreement means including, without limiting the generality of any description preceding such term, and the word “or” has the inclusive meaning represented by the phrase “and/or.” Unless otherwise specified, references in this Agreement to any section shall include all subsections and paragraphs in such Section and references in this Agreement to any subsection shall include all paragraphs in such subsection. All references to days in this Agreement shall mean calendar days, unless otherwise specified. Ambiguities and uncertainties in this Agreement, if any, shall not be interpreted against either party, irrespective of which party may be deemed to have caused the ambiguity or uncertainty to exist. This Agreement has been prepared in the English language, and the English language shall control its interpretation. In addition, all notices required or permitted to be given hereunder, and all written, electronic, oral or other communications between the parties regarding this Agreement shall be in the English language.

14.9 Relationship between the Parties. The parties’ relationship, as established by this Agreement, is solely that of independent contractors. This Agreement does not create any partnership, joint venture or similar business relationship between the parties. Neither party is a legal representative of the other party, and neither party may assume or create any obligation, representation, warranty or guarantee, express or implied, on behalf of the other party for any purpose whatsoever.

14.10 No Third Party Rights. The provisions of this Agreement are for the exclusive benefit of the parties, and no other person or entity shall have any right or claim against any party by reason of these provisions or be entitled to enforce any of these provisions against any party.

14.11 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original document, and all of which, together with this writing, shall be deemed one instrument. This Agreement may be executed by facsimile or PDF signatures, which signatures shall have the same force and effect as original signatures.

[Signature page follows.]

IN WITNESS WHEREOF, the parties have duly executed this Clinical Supply Agreement as of the Effective Date.


EQUILLIUM, INC.	BIOCON SA

By: /s/ Daniel M. Bradbury Name: Daniel M. Bradbury Title: President	By: /s/ Raman S. Name: Raman S. Title: Authorized Signatory

Confidential

Exhibits

Exhibit A Description of Clinical Material

Confidential

Exhibit A

DESCRIPTION OF CLINICAL MATERIAL

[…***…]


[…***…]	[…***…]	[…***…]

[…***…]	[…***…]	[…***…]

[…***…]	[…***…]	[…***…]

[…***…]	[…***…]	[…***…]

[…***…]	[…***…]	[…***…]

[…***…]	[…***…]	[…***…]

[…***…]	[…***…]	[…***…]

EX-31.1 4 eq-ex31_1.htm EX-31.1 EX-31.1

Exhibit 31.1

CERTIFICATION

I, Bruce D. Steel, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Equillium, Inc., a Delaware corporation (the "registrant");

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2023

 
/s/ Bruce D. Steel

Bruce D. Steel

President and Chief Executive Officer
(Principal Executive Officer)

EX-31.2 5 eq-ex31_2.htm EX-31.2 EX-31.2

Exhibit 31.2

CERTIFICATION

I, Jason A. Keyes, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Equillium, Inc., a Delaware corporation (the "registrant");

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2023

 
/s/ Jason A. Keyes

Jason A. Keyes

Chief Financial Officer

(Principal Financial and Accounting Officer)

EX-32.1 6 eq-ex32_1.htm EX-32.1 EX-32.1

Exhibit 32.1

Certification Pursuant to 18 U.S.C. §1350, as Adopted

Pursuant to §906 of the Sarbanes-Oxley Act of 2002

Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), each of the undersigned hereby certifies in his capacity as an officer of Equillium, Inc. (the “Company”), that, to the best of his knowledge:

(1) the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2023, to which this Certification is attached as Exhibit 32.1 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Bruce D. Steel

Bruce D. Steel

President and Chief Executive Officer

(Principal Executive Officer)

 
Date: August 9, 2023

 
/s/ Jason A. Keyes

Jason A. Keyes

Chief Financial Officer

(Principal Financial and Accounting Officer)

 
Date: August 9, 2023

This certification accompanies the Quarterly Report on Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Equillium, Inc. under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing. A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Equillium, Inc. and will be retained by Equillium, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.