2021Q3false0001633070--12-3100016330702021-01-012021-09-30xbrli:shares00016330702021-11-05iso4217:USD00016330702021-09-3000016330702020-12-31iso4217:USDxbrli:shares00016330702021-07-012021-09-3000016330702020-07-012020-09-3000016330702020-01-012020-09-3000016330702019-12-3100016330702020-09-300001633070us-gaap:CommonStockMember2020-12-310001633070us-gaap:AdditionalPaidInCapitalMember2020-12-310001633070us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-310001633070us-gaap:RetainedEarningsMember2020-12-310001633070us-gaap:AdditionalPaidInCapitalMember2021-01-012021-03-3100016330702021-01-012021-03-310001633070us-gaap:CommonStockMember2021-01-012021-03-310001633070us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-03-310001633070us-gaap:RetainedEarningsMember2021-01-012021-03-310001633070us-gaap:CommonStockMember2021-03-310001633070us-gaap:AdditionalPaidInCapitalMember2021-03-310001633070us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-03-310001633070us-gaap:RetainedEarningsMember2021-03-3100016330702021-03-3100016330702021-04-012021-06-300001633070us-gaap:CommonStockMember2021-04-012021-06-300001633070us-gaap:AdditionalPaidInCapitalMember2021-04-012021-06-300001633070us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-04-012021-06-300001633070us-gaap:RetainedEarningsMember2021-04-012021-06-300001633070us-gaap:CommonStockMember2021-06-300001633070us-gaap:AdditionalPaidInCapitalMember2021-06-300001633070us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-06-300001633070us-gaap:RetainedEarningsMember2021-06-3000016330702021-06-300001633070us-gaap:CommonStockMember2021-07-012021-09-300001633070us-gaap:AdditionalPaidInCapitalMember2021-07-012021-09-300001633070us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-07-012021-09-300001633070us-gaap:RetainedEarningsMember2021-07-012021-09-300001633070us-gaap:CommonStockMember2021-09-300001633070us-gaap:AdditionalPaidInCapitalMember2021-09-300001633070us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-09-300001633070us-gaap:RetainedEarningsMember2021-09-300001633070us-gaap:CommonStockMember2019-12-310001633070us-gaap:AdditionalPaidInCapitalMember2019-12-310001633070us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310001633070us-gaap:RetainedEarningsMember2019-12-310001633070us-gaap:AdditionalPaidInCapitalMember2020-01-012020-03-3100016330702020-01-012020-03-310001633070us-gaap:RetainedEarningsMember2020-01-012020-03-310001633070us-gaap:CommonStockMember2020-03-310001633070us-gaap:AdditionalPaidInCapitalMember2020-03-310001633070us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-03-310001633070us-gaap:RetainedEarningsMember2020-03-3100016330702020-03-3100016330702020-04-012020-06-300001633070us-gaap:CommonStockMember2020-04-012020-06-300001633070us-gaap:AdditionalPaidInCapitalMember2020-04-012020-06-300001633070us-gaap:RetainedEarningsMember2020-04-012020-06-300001633070us-gaap:CommonStockMember2020-06-300001633070us-gaap:AdditionalPaidInCapitalMember2020-06-300001633070us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-06-300001633070us-gaap:RetainedEarningsMember2020-06-3000016330702020-06-300001633070us-gaap:CommonStockMember2020-07-012020-09-300001633070us-gaap:AdditionalPaidInCapitalMember2020-07-012020-09-300001633070us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-07-012020-09-300001633070us-gaap:RetainedEarningsMember2020-07-012020-09-300001633070us-gaap:CommonStockMember2020-09-300001633070us-gaap:AdditionalPaidInCapitalMember2020-09-300001633070us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-09-300001633070us-gaap:RetainedEarningsMember2020-09-30axla:segment0001633070us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2021-09-300001633070us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2021-09-300001633070us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2021-09-300001633070us-gaap:FairValueMeasurementsRecurringMember2021-09-300001633070us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001633070us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2020-12-310001633070us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2020-12-310001633070us-gaap:FairValueMeasurementsRecurringMember2020-12-310001633070us-gaap:CorporateDebtSecuritiesMember2021-09-300001633070us-gaap:CorporateDebtSecuritiesMember2020-12-310001633070axla:LaboratoryEquipmentMember2021-09-300001633070axla:LaboratoryEquipmentMember2020-12-310001633070us-gaap:LeaseholdImprovementsMember2021-09-300001633070us-gaap:LeaseholdImprovementsMember2020-12-310001633070axla:OfficeAndComputerEquipmentMember2021-09-300001633070axla:OfficeAndComputerEquipmentMember2020-12-310001633070us-gaap:FurnitureAndFixturesMember2021-09-300001633070us-gaap:FurnitureAndFixturesMember2020-12-310001633070axla:A2021FacilityAgreementMemberus-gaap:LineOfCreditMember2021-09-020001633070axla:A2021FacilityAgreementMemberus-gaap:LineOfCreditMember2021-09-022021-09-02xbrli:pure0001633070us-gaap:LondonInterbankOfferedRateLIBORMemberaxla:A2021FacilityAgreementMemberus-gaap:LineOfCreditMember2021-09-300001633070srt:ScenarioForecastMemberaxla:A2021FacilityAgreementMemberus-gaap:LineOfCreditMember2023-01-012023-01-010001633070axla:A2021FacilityAgreementMemberus-gaap:DebtInstrumentRedemptionPeriodOneMemberus-gaap:LineOfCreditMember2021-09-300001633070axla:A2021FacilityAgreementMemberus-gaap:LineOfCreditMemberus-gaap:DebtInstrumentRedemptionPeriodTwoMember2021-09-300001633070axla:A2021FacilityAgreementMemberus-gaap:LineOfCreditMemberus-gaap:DebtInstrumentRedemptionPeriodThreeMember2021-09-300001633070axla:StockOptionAndIncentivePlan2019Member2021-09-300001633070us-gaap:EmployeeStockMember2021-09-300001633070us-gaap:EmployeeStockMember2021-01-012021-09-300001633070us-gaap:ResearchAndDevelopmentExpenseMember2021-07-012021-09-300001633070us-gaap:ResearchAndDevelopmentExpenseMember2020-07-012020-09-300001633070us-gaap:ResearchAndDevelopmentExpenseMember2021-01-012021-09-300001633070us-gaap:ResearchAndDevelopmentExpenseMember2020-01-012020-09-300001633070us-gaap:GeneralAndAdministrativeExpenseMember2021-07-012021-09-300001633070us-gaap:GeneralAndAdministrativeExpenseMember2020-07-012020-09-300001633070us-gaap:GeneralAndAdministrativeExpenseMember2021-01-012021-09-300001633070us-gaap:GeneralAndAdministrativeExpenseMember2020-01-012020-09-300001633070us-gaap:EmployeeStockOptionMember2021-07-012021-09-300001633070us-gaap:EmployeeStockOptionMember2020-07-012020-09-300001633070us-gaap:EmployeeStockOptionMember2021-01-012021-09-300001633070us-gaap:EmployeeStockOptionMember2020-01-012020-09-300001633070us-gaap:RestrictedStockUnitsRSUMember2020-12-310001633070us-gaap:RestrictedStockUnitsRSUMember2021-01-012021-09-300001633070us-gaap:RestrictedStockUnitsRSUMember2021-09-300001633070us-gaap:EmployeeStockOptionMember2021-01-012021-09-300001633070us-gaap:EmployeeStockOptionMember2020-01-012020-09-300001633070us-gaap:RestrictedStockUnitsRSUMember2021-01-012021-09-300001633070us-gaap:RestrictedStockUnitsRSUMember2020-01-012020-09-300001633070us-gaap:EmployeeStockMember2021-01-012021-09-300001633070us-gaap:EmployeeStockMember2020-01-012020-09-300001633070axla:RelatedPartyConsultingAgreementMembersrt:BoardOfDirectorsChairmanMember2021-01-012021-09-300001633070axla:RelatedPartyConsultingAgreementMembersrt:BoardOfDirectorsChairmanMember2020-01-012020-12-310001633070axla:RelatedPartyConsultingAgreementMembersrt:BoardOfDirectorsChairmanMember2021-07-012021-09-30

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________________________________________________________________________

FORM 10-Q

______________________________________________________________________________

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

FOR THE QUARTERLY PERIOD ENDED September 30, 2021

OR

☐			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 001-38501

______________________________________________________________________________

AXCELLA HEALTH INC.

(Exact name of registrant as specified in its charter)

______________________________________________________________________________

Delaware			26-3321056
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
840 Memorial Drive Cambridge, Massachusetts (Address of principal executive offices)			02139 (Zip Code)
(857) 320-2200 (Registrant’s telephone number, including area code)

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, $0.001 par value per share			AXLA			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 and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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			☒
						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 November 5, 2021, the registrant had 38,916,570 shares of common stock, $0.001 par value per share, outstanding.

---

Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

In this Quarterly Report on Form 10-Q, or Quarterly Report, we use the following defined terms:

"product candidate" to refer to one of our investigational product candidates.

"development platform" to refer to our proprietary human-focused development platform.

"dose" to refer to the exposure amount of a product candidate in Clinical Studies or ongoing and planned Clinical Trials.

"non-drug" to refer to a non-therapeutic use of a product candidate. Such use may be as a medical food, food product or dietary supplement.

"Clinical Trial" to refer to a human clinical study of a drug product candidate subject to the requirements for an effective Investigational New Drug application, or an IND, or equivalent in a non-U.S. jurisdiction.

"Clinical Study" to refer to Institutional Review Board-Approved, or IRB-Approved, clinical studies conducted in humans with our product candidates under U.S. Food and Drug Administration, or the FDA, regulations and guidance supporting research with food outside of an IND (prior to any decision to develop a product candidate as a drug product candidate under an IND or non-U.S. equivalent or a non-drug product candidate). In these food studies, based on our understanding of FDA regulations and guidance, we evaluate in humans, including individuals with disease, a product candidate for safety, tolerability and effects on the normal structures and functions of the body. These studies are not designed or intended to evaluate a product candidate’s ability to diagnose, cure, mitigate, treat or prevent a disease as these would be evaluated in Clinical Trials if we decide to develop a product candidate as a drug or therapeutic.

This Quarterly Report contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expects”, “intends”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”, “continue” or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

•the benefits of our product candidates to health and/or disease and their commercial potential;

•the success, cost and timing of our product development activities, including statements regarding the timing of initiation and completion of preclinical studies, Clinical Studies or Clinical Trials and related preparatory work, and the timing of the availability of the results of these preclinical studies, Clinical Studies and Clinical Trials, including our ongoing and planned Clinical Trials for AXA1665 and AXA1125;

•our ability to use our research platform to design new product candidates with desirable biological activity;

•our ability to obtain and maintain regulatory approval or find alternate regulatory commercialization pathways from the FDA, the European Medicines Agency, or the EMA, and other comparable regulatory authorities for our product candidates, and any related restrictions, limitations or warnings in the label of an approved product candidate;

•our financing needs and the sufficiency of our funds to support company operations and business plans through certain periods of time, including funding necessary to complete further development of our product candidates, and, if successful, commercialization of these candidates as drug or non-drug products;

2

---

Table of Contents

•our ability to continue as a going concern, our future capital needs and our need to raise additional funds;

•our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates, development platform and the type of such protection;

•our ability to successfully manufacture our product candidates for preclinical studies, Clinical Studies and Clinical Trials and for commercial use, if approved;

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

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

•regulatory developments in the United States and foreign countries;

•our ability to enter into a collaboration, partnership, or other agreement with a third party on reasonable terms or at all to develop one or more product candidates or commercialize any of our product candidates, if approved;

•our ability to secure sufficient manufacturing and supply chain capacity;

•the success of competing products or therapies that are or may become available;

•our ability to attract and retain key scientific, management or other necessary personnel;

•our estimates regarding expenses for both product development and as a public company, future revenue, capital requirements and needs for additional financing;

•the potential for faults in our internal controls;

•the effect of the COVID-19 pandemic on any of the foregoing; and

•other risks and uncertainties, including those discussed in Part II, Item 1A, Risk Factors in this Quarterly Report.

Any forward-looking statements in this Quarterly Report reflect our current views with respect to future events and with respect to our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those described under Part II, Item 1A, Risk Factors and elsewhere in this Quarterly Report. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

We may from time to time provide estimates, projections and other information concerning our industry, the general business environment, and the markets for certain diseases, including estimates regarding the potential size of those markets and the estimated incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties, and actual events, circumstances or numbers, including actual disease prevalence rates and market size, may differ materially from the information reflected in this Quarterly Report. Unless otherwise expressly stated, we obtained this industry, business information, market data, prevalence information and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data, and similar sources, in some cases applying our own assumptions and analysis that may, in the future, prove not to have been accurate.

3

---

Table of Contents

AXCELLA HEALTH INC.

FORM 10-Q

TABLE OF CONTENTS

						Page
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)						5
			Condensed Consolidated Balance Sheets			5
			Condensed Consolidated Statements of Operations and Comprehensive Loss			6
			Condensed Consolidated Statements of Cash Flows			7
			Condensed Consolidated Statements of Stockholders’ Equity			8
			Notes to Unaudited Condensed Consolidated Financial Statements			10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations						21
Item 3. Quantitative and Qualitative Disclosure About Market Risk						31
Item 4. Controls and Procedures						32
PART II. OTHER INFORMATION
Item 1. Legal Proceedings						33
Item 1A. Risk Factors						33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds						99
Item 3. Defaults Upon Senior Securities						99
Item 4. Mine Safety Disclosures						99
Item 5. Other Information						99
Item 6. Exhibits						100
SIGNATURES						101

4

---

Table of Contents

PART I - FINANCIAL INFORMATION

Item I. Condensed Consolidated Financial Statements (Unaudited)

AXCELLA HEALTH INC.

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share data)

			As of
			September 30, 2021						December 31, 2020
Assets
Current assets:
Cash and cash equivalents			$	26,091					$	71,590
Marketable securities			40,055						35,739
Prepaid expenses and other current assets			1,521						1,692
Total current assets			67,667						109,021
Property and equipment, net			943						360
Other assets			211						211
Total assets			$	68,821					$	109,592
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable			$	2,985					$	2,290
Accrued expenses and other current liabilities			4,772						5,494
Total current liabilities			7,757						7,784
Long-term debt, net of discount			25,021						25,222
Other liabilities			482						1,205
Total liabilities			33,260						34,211
Commitments and contingencies (Note 10)			—						—
Stockholders' equity:
Common stock, $0.001 par value; 150,000,000 shares authorized, 38,688,955 and 38,022,273 shares issued and 38,269,974 and 37,603,292 shares outstanding at September 30, 2021 and December 31, 2020, respectively			39						38
Additional paid-in capital			354,879						347,990
Treasury stock, 418,981 shares at cost			—						—
Accumulated other comprehensive loss			(7)						(34)
Accumulated deficit			(319,350)						(272,613)
Total stockholders' equity			35,561						75,381
Total liabilities and stockholders' equity			$	68,821					$	109,592

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

5

---

Table of Contents

AXCELLA HEALTH INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

(in thousands, except share and per share data)

			Three Months Ended September 30,												Nine Months Ended September 30,
			2021						2020						2021						2020
Operating expenses:
Research and development			$	10,130					$	7,541					$	30,668					$	26,441
General and administrative			4,773						4,184						13,975						12,928
Total operating expenses			14,903						11,725						44,643						39,369
Loss from operations			(14,903)						(11,725)						(44,643)						(39,369)
Other income (expense):
Interest income			32						6						115						281
Interest expense			(742)						(713)						(2,204)						(2,243)
Other income (expense), net			—						(5)						(5)						(7)
Total other income (expense), net			(710)						(712)						(2,094)						(1,969)
Net loss			$	(15,613)					$	(12,437)					$	(46,737)					$	(41,338)
Net loss per share, basic and diluted			$	(0.41)					$	(0.34)					$	(1.23)					$	(1.39)
Weighted average common shares outstanding, basic and diluted			38,195,583						36,942,475						37,861,970						29,804,034
Comprehensive loss:
Net loss			$	(15,613)					$	(12,437)					$	(46,737)					$	(41,338)
Other comprehensive income (loss):
Unrealized gains (losses) on marketable securities			2						(4)						27						(4)
Comprehensive loss			$	(15,611)					$	(12,441)					$	(46,710)					$	(41,342)

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

6

---

Table of Contents

AXCELLA HEALTH INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

			Nine Months Ended September 30,
			2021						2020
Cash flows from operating activities:
Net loss			$	(46,737)					$	(41,338)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			213						343
Stock-based compensation			4,772						4,927
Non-cash interest expense			477						354
Other non-cash items			619						—
Changes in current assets and liabilities:
Prepaid expenses and other current assets			171						(935)
Accounts payable			736						(810)
Accrued expenses and other current liabilities			(835)						(2,249)
Net cash used in operating activities			(40,584)						(39,708)
Cash flows from investing activities:
Purchases of property and equipment			(275)						(59)
Purchases of marketable securities			(23,234)						(3,196)
Proceeds from maturities of marketable securities			18,326						—
Net cash used in investing activities			(5,183)						(3,255)
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs			1,920						64,973
Proceeds from exercise of common stock options and ESPP			163						—
Payments for capital lease			(89)						—
Payment of terminal fee obligation and debt issuance costs			(1,726)						—
Net cash provided by financing activities			268						64,973
Net (decrease) increase in cash and cash equivalents			(45,499)						22,010
Cash and cash equivalents, beginning of period			71,590						92,053
Cash and cash equivalents, end of period			$	26,091					$	114,063
Supplemental cash flow information:
Cash paid for interest			$	1,727					$	1,842
Supplemental disclosure of non-cash investing and financing activities:
Offering costs incurred but unpaid at period end			$	—					$	20
Property and equipment acquired via capital lease			$	534					$	—

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

7

---

Table of Contents

AXCELLA HEALTH INC.

Condensed Consolidated Statements of Stockholders' Equity (Unaudited)

(in thousands, except share data)

			Three and Nine Months Ended September 30, 2021
			Common stock												Additional Paid-In Capital						Accumulated Other Comprehensive  Income (Loss)						Accumulated Deficit						Total Stockholders’ Equity
			Shares						Par Value
BALANCE - January 1, 2021			38,022,273						$	38					$	347,990					$	(34)					$	(272,613)					$	75,381
Costs incurred for the issuance of common stock															4																		4
Exercise of common stock options			27,143						—						27																		27
Vesting of restricted stock units			60,000						—						—																		—
Stock-based compensation															1,428																		1,428
Unrealized gain on marketable securities																					7												7
Net loss																											(15,189)						(15,189)
BALANCE - March 31, 2021			38,109,416						$	38					$	349,449					$	(27)					$	(287,802)					$	61,658
Issuance of common stock, net of issuance costs of $71			126,527						1						555																		556
Exercise of common stock options			3,257						—						6																		6
Vesting of restricted stock units			4,604						—						—																		—
Issuance of common stock related to ESPP			30,465						—						107																		107
Stock-based compensation															1,677																		1,677
Unrealized gain on marketable securities																					18												18
Net loss																											(15,935)						(15,935)
BALANCE - June 30, 2021			38,274,269						$	39					$	351,794					$	(9)					$	(303,737)					$	48,087
Issuance of common stock, net of issuance costs of $56			321,149						—						1,395																		1,395
Exercise of common stock options			81,433						—						23																		23
Vesting of restricted stock units			12,104						—						—																		—
Stock-based compensation															1,667																		1,667
Unrealized gain on marketable securities																					2												2
Net loss																											(15,613)						(15,613)
BALANCE - September 30, 2021			38,688,955						$	39					$	354,879					$	(7)					$	(319,350)					$	35,561

8

---

Table of Contents

AXCELLA HEALTH INC.

Condensed Consolidated Statements of Stockholders' Equity (Unaudited)

(in thousands, except share data)

			Three and Nine Months Ended September 30, 2020
			Common stock												Additional Paid-In Capital						Accumulated Other Comprehensive Income (Loss)						Accumulated Deficit						Total Stockholders’ Equity
			Shares						Par Value
BALANCE - January 1, 2020			23,607,797						$	24					$	276,286					$	—					$	(216,086)					$	60,224
Stock-based compensation															1,599																		1,599
Net loss																											(15,009)						(15,009)
BALANCE - March 31, 2020			23,607,797						$	24					$	277,885					$	—					$	(231,095)					$	46,814
Issuance of common stock, net of issuance costs of $4,338			13,055,264						13						58,072																		58,085
Exercise of common stock options			3,166						—																								—
Stock-based compensation															1,956																		1,956
Net loss																											(13,892)						(13,892)
BALANCE - June 30, 2020			36,666,227						$	37					$	337,913					$	—					$	(244,987)					$	92,963
Issuance of common stock, net of issuance costs of $230			1,253,597						1						6,867																		6,868
Stock-based compensation															1,372																		1,372
Unrealized loss on marketable securities																					(4)												(4)
Net loss																											(12,437)						(12,437)
BALANCE - September 30, 2020			37,919,824						$	38					$	346,152					$	(4)					$	(257,424)					$	88,762

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

9

---

Table of Contents

AXCELLA HEALTH INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. NATURE OF BUSINESS

Company Overview

Axcella Health Inc., doing business as “Axcella Therapeutics,” and subsidiaries ("Axcella," the "Company," "we" or "us") is a biotechnology company that was incorporated in Delaware on August 27, 2008 and has a principal place of business in Cambridge, Massachusetts. The Company is focused on pioneering a new approach to treat complex diseases and improve health using endogenous metabolic modulator, or EMM, compositions. The Company's product candidates are comprised of multiple EMMs that are engineered in distinct combinations and ratios with the goal of simultaneously impacting multiple biological pathways.

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, successful development of technology, obtaining additional funding, protection of proprietary technology, compliance with government regulations, risks of failure of preclinical studies, Clinical Studies and Clinical Trials, the need to obtain marketing approval for its product candidates, if required, and successfully market products, fluctuations in operating results, economic pressure impacting therapeutic pricing, dependence on key personnel, risks associated with changes in technologies, development by competitors of technological innovations and the ability to scale manufacturing to large scale production. Product candidates currently under development will require significant additional research and development efforts, including preclinical and clinical testing and any necessary regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

Going Concern

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. Consequently, management has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within 12 months after the date the quarterly financial statements herein are issued.

Historically, the Company has funded its operations with proceeds from sales of preferred and common stock and borrowings under a loan and security agreement. The Company has spent, and expects to continue to spend, significant funds in connection with implementing its business strategy, including its continued development of AXA1665, AXA1125, and future pipeline candidates. Furthermore, the Company may never commercialize a product and achieve profitability, and unless and until it does, the Company will need to raise additional capital. As of September 30, 2021, the Company had cash, cash equivalents and marketable securities of $66.1 million, and an accumulated deficit of $319.4 million. Management believes that it will require additional working capital to fund its planned operations through a full 12 months from the issuance date of this Quarterly Report on Form 10-Q. These factors individually and collectively raise substantial doubt about the Company’s ability to continue as a going concern.

Additional funding will be necessary beyond this point to continue to fund the Company’s research and development activities. Management’s plans to alleviate its financing requirements include pursuing one or more of the following steps, among others, none of which can be guaranteed or are entirely within the Company’s control:

•The sale of the Company’s common stock

•Funding received from the establishment of a collaboration(s) with a potential partner(s) to further advance the Company’s product pipeline

10

---

Table of Contents

If the Company is unable to alleviate its financing requirements via these means, it could be forced to discontinue some of its operations or develop and implement a plan to further extend payables, reduce overhead or scale back its current operating plan until sufficient additional capital is raised to support further operations.

The accompanying unaudited condensed consolidated financial statements do not include any adjustments or classifications that may result from the possible inability of the Company to continue as a going concern.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).

Furthermore, the accompanying condensed consolidated financial statements are unaudited and certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report, as is permitted by such rules and regulations. As of September 30, 2021, the Company’s significant accounting policies and estimates, which are detailed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, have not changed, and the unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements as of and for the year ended December 31, 2020. The accompanying interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of September 30, 2021, the results of its operations for the three and nine months ended September 30, 2021 and 2020, its cash flows for the nine months ended September 30, 2021 and 2020, and its statements of stockholders’ equity for the three and nine months ended September 30, 2021 and 2020.

The results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021, any other interim periods, or any future year or period. These interim financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2020, and the notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Principles of Consolidation

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

Segment Information

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the CEO, who is the chief operating decision maker, in making decisions on how to allocate resources and assess performance. The Company operates in one reportable business segment.

11

---

Table of Contents

Use of Estimates

The preparation of the condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity, expenses and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the Company’s ability to continue as a going concern. The Company bases its estimates on historical experience, known trends and other market-specific or relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates as there are changes in circumstances, facts and experience. Actual results may differ from those estimates or assumptions.

Cash and Cash Equivalents

Cash and cash equivalents include cash held in banks and amounts held in interest-bearing money market accounts. Cash equivalents are carried at cost, which approximates their fair market value. The Company considers all highly liquid investments with a remaining maturity when purchased of three months or less to also be cash equivalents.

Marketable Securities

The Company’s marketable securities, which consisted of corporate debt obligations as of September 30, 2021, are classified as available-for-sale and are reported at fair value. Unrealized gains and losses on available-for-sale securities are reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Realized gains and losses and declines in value determined to be other than temporary are based on the specific identification method and are included as a component of other income (expense), net in the condensed consolidated statements of operations and comprehensive loss.

The Company evaluates its marketable securities with unrealized losses for other-than-temporary impairment. When assessing marketable securities for other-than-temporary declines in value, the Company considers such factors as, among other things, how significant the decline in value is as a percentage of the original cost, how long the market value of the investment has been less than its original cost, the Company’s ability and intent to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value and market conditions in general. If any adjustment to fair value reflects a decline in the value of the investment that the Company considers to be “other than temporary,” the Company reduces the investment to fair value through a charge to the condensed consolidated statements of operations and comprehensive loss. No such adjustments were necessary during the periods presented.

Concentrations of Credit Risk

The Company has no off-balance sheet risk, such as foreign exchange contracts, option contracts, or other foreign hedging arrangements. Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents and marketable securities. The Company’s cash equivalents and marketable securities as of September 30, 2021 consisted of bank deposits, money market funds that invest in U.S. treasury securities, and corporate obligations. We invest in high-quality financial instruments and our portfolio does not consist of any instrument with a maturity duration in excess of twenty-four months, which we believe limits our credit risk.

In addition, the Company's investment policy includes guidelines on the quality of the institutions and financial instruments and defines the allowable investments that the Company believes minimizes the exposure to concentrations of credit risk. The Company has not experienced any credit losses and does not believe that it is subject to significant credit risk.

12

---

Table of Contents

Fair Value Measurements

Certain assets and liabilities of the Company are carried at fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

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

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

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

The Company’s cash equivalents and marketable securities are carried at fair value, determined according to the fair value hierarchy described above. The carrying values of the Company’s accounts payable and accrued expenses approximate their fair values due to the short-term nature of these liabilities. The carrying value of the long-term debt approximates fair value as evidenced by the recent amendment to the Company's debt facility.

Comprehensive loss

Comprehensive loss includes net loss as well as other changes in stockholders’ equity (deficit) that result from transactions and economic events other than those with stockholders. For the three and nine months ended September 30, 2021, the Company’s only element of other comprehensive loss was unrealized gains (losses) on marketable securities.

Net Loss Per Share

Basic net loss per share attributable to common stockholders is calculated by dividing net loss by the weighted average shares outstanding during the period. Diluted net income (loss) per share is calculated by adjusting weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period. All common stock equivalents have been excluded from the calculation of diluted net loss per share, as their effect would be anti-dilutive for all periods presented.

Accounting Pronouncements Issued and Not Adopted

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), as amended by various subsequently issued ASUs. The standard requires lessees to recognize an operating lease with a term greater than one year on their balance sheets as a right-of-use asset and corresponding lease liability, measured at the present value of the lease payments. The new standard will become effective for the Company on January 1, 2022. The Company expects to apply the modified retrospective approach as of the date of adoption such that prior periods will not be restated. The Company is evaluating the effect that adoption of the standard is expected to have on the Company’s condensed consolidated financial statements and related disclosures and will recognize a lease obligation and right of use asset for its existing operating leases with a lease term greater than one year upon adoption. The Company anticipates that the adoption of ASU 2016-02 will have a material impact on the Company’s financial position and the related footnote disclosures.

13

---

Table of Contents

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326). The new standard adjusts the accounting for assets held at amortized cost basis, including marketable securities accounted for as available-for-sale. The standard eliminates the probable initial recognition threshold and requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. The Company is required to adopt this standard effective January 1, 2023 and the Company is evaluating the impact the guidance will have on its condensed consolidated financial statements.

3. FAIR VALUE MEASUREMENTS

The following tables present the Company’s assets that are measured at fair value on a recurring basis and indicate the level within the fair value hierarchy (in thousands):

			Fair Value Measurements at September 30, 2021 using:
			Level 1						Level 2						Level 3						Total
Assets:
Cash equivalents:
Money market funds			$	24,446					$	—					$	—					$	24,446
Marketable securities:
Corporate obligations			—						40,055						—						40,055
Total			$	24,446					$	40,055					$	—					$	64,501

			Fair Value Measurements at December 31, 2020 using:
			Level 1						Level 2						Level 3						Total
Assets:
Cash equivalents:
Money market funds			$	69,118					$	—					$	—					$	69,118
Marketable securities:
Corporate obligations			—						35,739						—						35,739
Total			$	69,118					$	35,739					$	—					$	104,857

14

---

Table of Contents

4. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES

As of September 30, 2021, and December 31, 2020, cash, cash equivalents and marketable securities by security type consisted of the following (in thousands):

			September 30, 2021
			Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Estimated Fair Value
Cash and cash equivalents			$	26,091					$	—					$	—					$	26,091
Corporate obligations			40,062						8						(15)						40,055
Total			$	66,153					$	8					$	(15)					$	66,146

			December 31, 2020
			Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Estimated Fair Value
Cash and cash equivalents			$	71,590					$	—					$	—					$	71,590
Corporate obligations			35,773						1						(35)						35,739
Total			$	107,363					$	1					$	(35)					$	107,329

The fair values of cash equivalents and marketable securities by contractual maturity were as follows (in thousands):

Contractual Maturities						September 30, 2021						December 31, 2020
Mature in one year or less						$	54,374					$	86,338
Mature in two years or less						10,127						18,519
Total						$	64,501					$	104,857

Marketable securities with maturities beyond one year are classified as short-term marketable securities in the condensed consolidated balance sheets due to their highly liquid nature and because they represent the Company’s investments that are available for current operations. All cash equivalents mature within three months or less. Operating cash of $1.6 million and $2.5 million is excluded from the above table as of September 30, 2021 and December 31, 2020, respectively.

There were no sales of our marketable securities during the three and nine months ended September 30, 2021 and September 30, 2020, respectively.

15

---

Table of Contents

5. PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in thousands):

			September 30, 2021						December 31, 2020
Laboratory equipment			$	3,426					$	3,022
Leasehold improvements			564						564
Office and computer equipment			146						111
Furniture and fixtures			122						122
Property and equipment			4,258						3,819
Less: accumulated depreciation and amortization			(3,315)						(3,459)
Property and equipment, net			$	943					$	360

Depreciation and amortization expense for the nine months ended September 30, 2021 and 2020 was $0.2 million and $0.3 million, respectively. Property and equipment totaling $0.3 million was disposed of for the nine months ended September 30, 2021, and no gains or losses were recorded. There were no disposals for the nine months ended September 30, 2020.

6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following (in thousands):

			September 30, 2021						December 31, 2020
Accrued employee compensation and benefits			$	2,145					$	2,998
Accrued external research and development expenses			1,762						1,870
Accrued professional fees			613						626
Other			252						—
Total accrued expenses and other current liabilities			$	4,772					$	5,494

7. DEBT FINANCING

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

			September 30, 2021						December 31, 2020
Principal amount of long-term debt			$	26,000					$	26,000
Debt discount			(206)						(308)
Deferred financing fees			(773)						(470)
Long-term debt, net of discount			$	25,021					$	25,222

On September 2, 2021, the Company entered into a loan and security agreement (the "New Loan and Security Agreement") with SLR Investment Corp., formerly known as Solar Capital Ltd., for term loans in an aggregate principal amount of $26.0 million. The New Loan and Security Agreement replaced the loan and security agreement between the Company and SLR Investment Corp., dated as of January 9, 2018 and further amended on October 5, 2018, November 30, 2018 and August 28, 2020 (as amended, the "Prior Loan and Security Agreement"). The New Loan and Security agreement will be accounted for as a debt modification or exchange as the Company determined that the terms of the New Loan and Security Agreement were not substantially different than the terms of the Prior Loan and Security Agreement.

16

---

Table of Contents

Upon entering into the New Loan and Security Agreement, the Company paid a terminal fee obligation and debt issuance costs totaling $1.7 million as required under the terms of the Prior Loan and Security Agreement, of which $1.3 million had been accrued as of September 2, 2021. The Company will defer and amortize $0.4 million of the $1.7 million paid to interest expense along with the unamortized deferred financing fees balance as of September 2, 2021 over the term of the New Loan Security Agreement. The remaining unamortized debt discount balance as of September 2, 2021 will also be amortized to interest expense over the term of the New Loan and Security Agreement.

The Company also agreed to a new terminal fee obligation totaling $1.7 million, which is due and payable on the earliest to occur of (i) the maturity of the New Loan and Security Agreement, (ii) the acceleration of the term loans, and (iii) the prepayment, refinancing, substitution or replacement of the term loans. The obligation is equal to 6.45% of the aggregate principal amount of $26.0 million. The Company is accruing the obligation over the term of the New Loan and Security Agreement. The carrying value of the obligation was nominal as of September 30, 2021.

The term loans under the New Loan and Security Agreement will accrue interest at an annual rate equal to 8.60% plus the greater of (a) the thirty (30) day U.S. Dollar LIBOR rate and (b) 0.10%, payable monthly in arrears. The interest rate was 8.70% as of September 30, 2021. The monthly principal payments of $0.6 million will be paid over a period of 45 months beginning in January 2023 through the final maturity date of September 1, 2026. Per the New Loan and Security Agreement, the date on which repayment of principal commences can be further extended to July 2023 and January 2024, provided we satisfy certain equity related conditions. The term loans are also subject to a prepayment fee of 3.00% if prepayment occurs within the first year subsequent to September 2, 2021, 2.00% in the second year and 1.00% in the third year through final maturity.

The New Loan and Security Agreement also contains certain financial covenants, including an unrestricted minimum cash level until certain clinical trial study data conditions are met. Customary representations and warranties, as well as certain non-financial covenants, including engaging in any change of control transaction or incurring additional indebtedness or liens are included in the New Loan and Security Agreement as well. As security for its obligations under the New Loan and Security Agreement, the Company granted the SLR Investment Corp. a first priority perfected security interest in all of the Company’s existing and after-acquired assets, including intellectual property.

The scheduled principal maturity of the long-term debt as of September 30, 2021 is as follows (in thousands):

Year Ending December 31,
2021 (remaining 3 months)			$	—
2022			—
2023			6,933
2024			6,933
2025			6,934
Thereafter			5,200
			$	26,000

8. STOCKHOLDERS' EQUITY

2019 Stock Option and Incentive Plan 

The 2019 Stock Option and Incentive Plan (the "2019 Plan") provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock units, restricted stock awards, unrestricted stock awards and cash-based awards to the Company's officers, employees, directors and consultants. The number of shares available for future issuance under the 2019 Plan was 1,143,830 shares as of September 30, 2021.

17

---

Table of Contents

2019 Employee Stock Purchase Plan

The 2019 Employee Stock Purchase Plan (the "2019 ESPP") provides participating employees with the opportunity to purchase shares of common stock. The number of shares available for future issuance under the 2019 ESPP was 635,742 shares as of September 30, 2021. The Company recorded $0.1 million of stock-based compensation expense for the nine months ended September 30, 2021. The stock-based compensation expense recorded during the same period in 2020 was nominal.

Stock-Based Compensation Expense

In connection with all share-based payment awards, total stock-based compensation expense recognized was as follows (in thousands):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2021						2020						2021						2020
Research and development			$	455					$	532					$	1,305					$	2,129
General and administrative			1,212						840						3,467						2,798
Total stock-based compensation expense			$	1,667					$	1,372					$	4,772					$	4,927

Fair Value of Stock Options

The fair value of each option issued to employees was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

			Three Months Ended September 30,												Nine Months Ended September 30,
			2021						2020						2021						2020
Risk-free interest rate			1.08		%				0.38		%				0.84		%				1.12		%
Expected option life (in years)			6.08						6.06						6.00						5.93
Expected dividend yield			—		%				—		%				—		%				—		%
Expected volatility			93.1		%				75.5		%				96.8		%				73.6		%

18

---

Table of Contents

Stock Option Activity

The following table summarizes the Company’s stock option activity for the nine months ended September 30, 2021:

			Number of Shares						Weighted Average Exercise Price						Weighted Average Remaining Life (in Years)						Intrinsic Value (in thousands)
Outstanding as of January 1, 2021			4,919,960						$	6.37
Granted			2,303,601						5.57
Exercised			(111,833)						0.50
Canceled			(1,081,682)						7.54
Outstanding as of September 30, 2021			6,030,046						$	5.97					7.61						$	341
Exercisable as of September 30, 2021			3,167,833						$	6.35					6.39						$	341
Vested or expected to vest as of September 30, 2021			5,980,046						$	5.93					7.54						$	341

The intrinsic value of options exercised during the nine months ended September 30, 2021 was $0.4 million. The intrinsic value of options exercised during the same period in 2020 was nominal.

The weighted-average grant date fair value of the options granted during the nine months ended September 30, 2021 and 2020 was $4.25 and $2.83 per share, respectively.

As of September 30, 2021, there was $9.9 million of unrecognized compensation expense that is expected to be recognized over a weighted-average period of approximately 2.69 years.

Restricted Stock Units

The fair values of restricted stock units are based on the market value of our stock on the date of grant. The following table summarizes the Company's restricted stock unit activity for the nine months ended September 30, 2021:

			Number of Shares						Weighted Average Grant Date Fair Value per Share
Outstanding as of January 1, 2021			347,587						$	4.04
Granted			120,916						6.41
Vested			(76,708)						5.04
Forfeited			(46,386)						4.42
Outstanding as of September 30, 2021			345,409						$	4.60

As of September 30, 2021, there was $0.9 million of unrecognized compensation expense that is expected to be recognized over a weighted-average period of approximately 1.88 years.

19

---

Table of Contents

9. NET LOSS PER SHARE

The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

			Nine Months Ended September 30,
			2021						2020
Options to purchase common stock			6,030,046						5,161,800
Unvested restricted stock units			345,409						294,596
Shares issuable under employee stock purchase plan			24,770						—
			6,400,225						5,456,396

10. COMMITMENTS AND CONTINGENCIES

Other Commitments

We enter into contracts in the normal course of business with contract research organizations ("CROs"), contract manufacturing organizations ("CMOs") and other third parties for preclinical research studies, Clinical Studies, Clinical Trials and testing and manufacturing services. These contracts do not contain minimum purchase commitments and are cancelable upon prior written notice. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including non-cancelable obligations of service providers, up to the date of cancellation.

Legal Proceedings

The Company is not currently party to any material legal proceedings. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses as incurred the costs related to such legal proceedings.

11. RELATED-PARTY TRANSACTIONS

In August 2019, the Company entered into a consulting agreement with the chairman of the Company's Board of Directors to provide various consulting services to the Company in exchange for cash and equity compensation. In March 2021, the consulting agreement was modified so that the chairman would no longer receive cash compensation for his consulting services and would instead be compensated solely via equity compensation. The aggregate grant date fair value of the equity awarded to the chairman in 2021 and 2020 for his consulting services was $0.6 million and $0.2 million, respectively. The grant date fair value is calculated in accordance with FASB ASC Topic 718. The total cash paid under the agreement was $0.1 million for the nine months ended September 30, 2021. No cash was paid under the agreement for the three months ended September 30, 2021.

12. SUBSEQUENT EVENTS

The Company has evaluated subsequent events for financial statement purposes occurring through the date these condensed consolidated financial statements were issued and determined that there are no material recognized or unrecognized subsequent events requiring disclosure.

20

---

Table of Contents

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

The following discussion of the financial condition and results of operations of Axcella Health Inc. should be read in conjunction with the condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report, and the audited financial statements and notes included in our Annual Report on Form 10-K, filed with the SEC on March 17, 2021. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. We caution you that forward-looking statements are not guarantees of future performance, and that our actual results of operations, financial condition and liquidity, and the developments in our business and the industry in which we operate, may differ materially from the results discussed or projected in the forward-looking statements contained in this Quarterly Report. We discuss risks and other factors that we believe could cause or contribute to these potential differences elsewhere in this Quarterly Report, including under Part II, Item 1A. “Risk Factors” and under “Special Note Regarding Forward-Looking Statements.” In addition, even if our results of operations, financial condition and liquidity, and the developments in our business and the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report, they may not be predictive of results or developments in future periods. We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the SEC to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

Overview

We are a clinical-stage biotechnology company focused on pioneering a new approach to treat complex diseases and improve health using endogenous metabolic modulator, or EMM, compositions. Our product candidates are comprised of multiple EMMs that are engineered in distinct combinations and ratios with the goal of simultaneously impacting multiple biological pathways. Our pipeline includes lead therapeutic candidates for the reduction in risk of recurrent overt hepatic encephalopathy, or OHE, the treatment of non-alcoholic steatohepatitis, or NASH, and the treatment of Long COVID (also known as Post COVID-19 Condition and Post-Acute Sequelae of COVID-19, or “PASC”).

Using our development platform, we have efficiently developed a pipeline of product candidates that are comprised of amino acids and their derivatives, which have a general history of safe use. These orally administered compositions have shown the potential to generate multifactorial effects in initial Clinical Studies.

21

---

Table of Contents

An overview of our current therapeutic product candidates and their planned next development steps is illustrated below:

AXA1665 for the Reduction in Risk of Recurrent OHE

We have conducted two prior Clinical Studies of AXA1665 in subjects with mild (Child Pugh A) and moderate (Child Pugh B) hepatic insufficiency. AXA1665 was generally well tolerated in both of these studies, with multifactorial effects seen in subjects. The findings from our most recent Clinical Study, AXA1665-002, which were recently presented at the Digestive Disease Week 2021 Annual Meeting, replicated those seen on amino acid metabolism from our previous short-term Clinical Study. We also noted dose dependent, directionally consistent improvement across all three psychometric tests that were utilized in AXA1665-002.

In January 2021, we received U.S. Food and Drug Administration (FDA) clearance of an Investigational New Drug (IND) application for AXA1665, and we initiated our EMMPOWER Phase 2 Clinical Trial for this candidate in the second quarter of 2021. This randomized, double-blind, placebo-controlled, multi-center investigation is evaluating the efficacy and safety of AXA1665 in patients who have experienced at least one prior OHE event and have neurocognitive dysfunction at screening. Approximately 150 patients on lactulose ± rifaximin (stratified by rifaximin use) will be randomized 1:1 to receive either 53.8 grams per day of AXA1665 or a matched placebo in three divided doses for 24 weeks, with a four-week safety follow-up period.

The Clinical Trial’s primary endpoint will assess the proportion of patients with a ≥2 point increase in the psychometric hepatic encephalopathy score (PHES) after the 24-week treatment period. Key secondary endpoints will focus on the proportion of patients experiencing an OHE breakthrough event and time to first OHE breakthrough event, including time to hospitalization. Other secondary endpoints include changes in physical function and patient-reported outcomes.

AXA1125 for the Treatment of NASH

We have conducted two prior Clinical Studies of AXA1125 in subjects with presumed NASH. AXA1125 was generally well tolerated in both of these studies with meaningful and sustained reductions shown in key measures of hepatic fat, insulin resistance, inflammation and fibrosis. In our most recent Clinical Study, AXA1125-003, reductions in these measures were even greater among subjects with type 2 diabetes. Notably, the forementioned results were seen without an impact on mean body weight or serum lipids. In August 2021, results from the AXA1125-003 Clinical Study were published in the American Journal of Gastroenterology.

22

---

Table of Contents

In April 2021, we received U.S. Food and Drug Administration (FDA) clearance of an Investigational New Drug (IND) application for AXA1125, and we initiated our EMMPACT Phase 2b Clinical Trial for this candidate in the second quarter of 2021. This randomized, double-blind, placebo-controlled, multi-center Clinical Trial is evaluating the efficacy, safety and tolerability of AXA1125 in adult patients with biopsy-confirmed F2/F3 NASH. Approximately 270 patients will be enrolled and randomized 1:1:1 to receive either 45.2 or 67.8 grams per day of AXA1125 or a matched placebo in two divided doses for 48 weeks, with a four-week safety follow-up period. Patients will be stratified based on the presence or absence of type 2 diabetes.

The Clinical Trial’s primary endpoint will assess the proportion of patients with a biopsy-confirmed ≥2 point improvement in their non-alcoholic fatty liver disease, or NAFLD, Activity Score (NAS) after the 48-week treatment period. Secondary endpoints will include the proportion of patients achieving biopsy-confirmed resolution of NASH without worsening of fibrosis and the proportion of patients achieving a ≥1 stage improvement in fibrosis without worsening of NASH.

AXA1125 for the Treatment of Long COVID

We recently participated in a successful meeting with the United Kingdom’s Medicines and Healthcare products Regulatory Agency (MHRA) during which alignment on a Phase 2a clinical trial design was achieved. A clinical trial authorization (CTA) for this trial was subsequently accepted by MHRA. We plan to conduct this trial at Oxford Centre for Clinical Magnetic Resonance Research, University of Oxford.

The Phase 2a trial will be a randomized, double-blind, placebo-controlled investigation to evaluate the efficacy and safety of AXA1125 in patients with exertional fatigue related to Long COVID. Approximately 40 patients will be enrolled and randomized evenly to receive either 67.8 grams per day of AXA1125 or a matched placebo in two divided doses for 28 days, with a one-week safety follow-up period.

The trial’s primary endpoint will assess the improvement of mitochondrial function within the skeletal muscle as measured by changes in phosphocreatine (PCr) recovery time, as measured by 31-phosphorus magnetic resonance spectroscopy (MRS), from baseline to Day 28. PCr recovery time is a well-established and highly sensitive measure that has been strongly correlated with a registrational endpoint (i.e., 6-minute walk test) in a number of other diseases in which fatigue and muscle weakness play a central role, including amyotrophic lateral sclerosis (ALS), Duchenne muscular dystrophy, and chronic kidney disease. Key secondary endpoints include lactate levels, a 6-minute walk test, fatigue scores, and safety and tolerability.

Effects of COVID-19 Pandemic

The extent to which COVID-19 impacts our business, operations or financial results will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the pandemic, new information that may emerge concerning the severity of COVID-19 or the nature or effectiveness of actions to contain COVID-19 or treat its impact, among others. We cannot presently predict the scope and severity of any potential business shutdowns or disruptions. However, if we or any of the third parties with whom we engage were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively affected, which could have a material adverse impact on our business, results of operations and financial condition.

Components of our Condensed Consolidated Results of Operations

Revenue

To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the near future. If our development efforts for our product candidates are successful and result in regulatory approval or we execute license or collaboration agreements with third parties, we may generate revenue in the future from product sales, payments from collaborations or license agreements that we may enter into with third parties, or any combination thereof.

23

---

Table of Contents

Research and Development Expenses

Our research and development expenses consist primarily of costs incurred in connection with our research activities, including our drug discovery efforts, and the development of our product candidates, which include:

•direct external research and development expenses, including fees, reimbursed materials and other costs paid to consultants, contractors, contract manufacturing organizations, or CMOs, and clinical research organizations, or CROs, in connection with our clinical and preclinical development and manufacturing activities;

•employee-related expenses, including salaries, related benefits and stock-based compensation expense for employees engaged in research and development functions;

•expenses incurred in connection with the preclinical and clinical development of our product candidates, including any planned and ongoing Clinical Studies, Clinical Trials and other research programs, including under agreements with third parties, such as consultants, contractors and CROs;

•the cost of developing and scaling our manufacturing process and manufacturing products for use in our preclinical studies, Clinical Studies and Clinical Trials, including under agreements with third parties, such as consultants, contractors and CMOs;

•patent-related costs incurred in connection with filing and prosecuting patent applications; and

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

We expense research and development costs as incurred. We often contract with CROs and CMOs to facilitate, coordinate and perform agreed-upon research, design, development, and manufacturing of our product candidates. To ensure that research and development costs are expensed as incurred, we record monthly accruals for Clinical Studies, Clinical Trials and manufacturing costs based on the work performed under the contract.

These CRO and CMO contracts typically call for the payment of fees for services at the initiation of the contract and/or upon the achievement of certain clinical or manufacturing milestones. In the event that we prepay CRO or CMO fees, we record the prepayment as a prepaid asset and amortize the asset into research and development expense over the period of time the contracted research and development or manufacturing services are performed. Most professional fees, including project and clinical management, data management, monitoring and manufacturing fees are incurred throughout the contract period. These professional fees are expensed based on their estimated percentage of completion at a particular date. Our CRO and CMO contracts generally include pass through fees. Pass through fees include, but are not limited to, regulatory expenses, investigator fees, travel costs and other miscellaneous costs and raw materials. We expense the costs of pass through fees under our CRO and CMO contracts as they are incurred, based on the best information available to us at the time.

A significant portion of our research and development costs are not tracked by project as they benefit multiple projects or our technology platform, and, as such, are not separately classified.

Research and development expenses may fluctuate from period to period depending upon the stage of certain projects and the stage of preclinical and clinical activities and development. Many factors can affect the cost and timing of our planned and ongoing Clinical Studies and Clinical Trials, including, without limitation, slow patient enrollment and the availability of supplies, including as a result of the COVID-19 pandemic, and real or perceived lack of effect on biology or safety of our product candidates. In addition, the development of all of our product candidates may be subject to extensive governmental regulation. These factors make it difficult for us to predict the timing and costs of the further development of our product candidates.

24

---

Table of Contents

See “Risk Factors” for further discussion of these and additional risks and uncertainties associated with product development and commercialization that may significantly affect the timing and cost of our research and development expenses and our ability to obtain regulatory approval for and successfully commercialize our product candidates. We expect research and development expenses to increase as we advance existing product candidates into additional Clinical Trials and Clinical Studies and develop new product candidates.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries, benefits, travel and stock-based compensation expense for personnel in executive, finance and administrative functions. General and administrative expenses also include professional fees for legal, consulting, accounting and audit services.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development of our product candidates. We also anticipate that we will incur increased finance, accounting, audit, legal, compliance, director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company. Additionally, if and when we believe a regulatory approval of a product candidate appears likely, we anticipate an increase in payroll and expense as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our product candidate.

Other Income (Expense), Net

Other income (expense), net primarily consists of interest income and interest expense. Interest income consists of interest earned on our investments in cash equivalents, money market funds, and high-quality fixed income securities. Interest expense consists of interest on outstanding borrowings under our loan and security agreement, the amortization expense of the debt discount and debt issuance costs, and interest paid for leased capital equipment.

Income Taxes

Since our inception, we have not recorded any income tax benefits for the net losses we have incurred in each year or for our research and development tax credits, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss, or NOLs, carryforwards and tax credits will not be realized.

Results of Operations

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

The following table summarizes our results of operations for the three months ended September 30, 2021 and 2020 (in thousands):

			Three Months Ended September 30,
			2021						2020						Change
Operating expenses:
Research and development			$	10,130					$	7,541					$	2,589
General and administrative			4,773						4,184						589
Total operating expenses			14,903						11,725						3,178
Loss from operations			(14,903)						(11,725)						(3,178)
Other income (expense):
Other income (expense), net			(710)						(712)						2
Total other income (expense), net			(710)						(712)						2
Net loss			$	(15,613)					$	(12,437)					$	(3,176)

25

---

Table of Contents

Research and Development Expenses

The following table summarizes our research and development expenses incurred during the three months ended September 30, 2021 and 2020 (in thousands):

			Three Months Ended September 30,
			2021						2020						Change
Salary and benefits-related			$	3,345					$	3,707					$	(362)
Clinical research and outside services			5,578						2,766						2,812
Facility-related and other			1,207						1,068						139
Total research and development expenses			$	10,130					$	7,541					$	2,589

Salary and benefits-related costs decreased by $0.4 million due to lower headcount. Clinical research and outside services costs increased by $2.8 million due to expenses incurred for our AXA1665 EMMPOWER Phase 2 Clinical Trial and AXA1125 EMMPACT Phase 2b Clinical Trial, and expenses incurred to support the planned initiation of our AXA1125 Phase 2a Clinical Trial to treat Long COVID.

General and Administrative Expenses

The following table summarizes our general and administrative expenses incurred during the three months ended September 30, 2021 and 2020 (in thousands):

			Three Months Ended September 30,
			2021						2020						Change
Salary and benefits-related			$	2,957					$	2,430					$	527
Other contract services and outside costs			1,554						1,370						184
Facility-related and other			262						384						(122)
Total general and administrative expenses			$	4,773					$	4,184					$	589

Salary and benefits-related costs increased by $0.5 million due to higher equity compensation related to additional grants issued and recruiting costs related to the hiring of new employees. Other contract services and outside costs increased by $0.2 million due to corporate legal fees related to our New Loan and Security Agreement with SLR Investment Corp.

Other Income (Expense), Net

Other income (expense), net was $0.7 million for the three months ended September 30, 2021 and September 30, 2020, respectively. There were no material changes in Other income (expense), net as interest income and interest expense were comparable within each period.

26

---

Table of Contents

Comparison of the Nine Months Ended September 30, 2021 and 2020

The following table summarizes our results of operations for the nine months ended September 30, 2021 and 2020 (in thousands):

			Nine Months Ended September 30,
			2021						2020						Change
Operating expenses:
Research and development			$	30,668					$	26,441					$	4,227
General and administrative			13,975						12,928						1,047
Total operating expenses			44,643						39,369						5,274
Loss from operations			(44,643)						(39,369)						(5,274)
Other income (expense):
Other income (expense), net			(2,094)						(1,969)						(125)
Total other income (expense), net			(2,094)						(1,969)						(125)
Net loss			$	(46,737)					$	(41,338)					$	(5,399)

Research and Development Expenses

The following table summarizes our research and development expenses incurred during the nine months ended September 30, 2021 and 2020 (in thousands):

			Nine Months Ended September 30,
			2021						2020						Change
Salary and benefits-related			$	10,134					$	12,498					$	(2,364)
Clinical research and outside services			16,727						10,647						6,080
Facility-related and other			3,807						3,296						511
Total research and development expenses			$	30,668					$	26,441					$	4,227

Salary and benefits-related costs decreased by $2.4 million due to lower headcount. Clinical research and outside services costs increased by $6.1 million due to expenses incurred for our AXA1665 EMMPOWER Phase 2 Clinical Trial and AXA1125 EMMPACT Phase 2b Clinical Trial, and expenses incurred to support the planned initiation of our AXA1125 Phase 2a Clinical Trial to treat Long COVID. Facility-related and other costs increased $0.5 million due to higher rent for our leased office space at 840 Memorial Drive and additional maintenance expenses incurred.

27

---

Table of Contents

General and Administrative Expenses

The following table summarizes our general and administrative expenses incurred during the nine months ended September 30, 2021 and 2020 (in thousands):

			Nine Months Ended September 30,
			2021						2020						Change
Salary and benefits-related			$	8,815					$	7,795					$	1,020
Other contract services and outside costs			4,311						4,033						278
Facility-related and other			849						1,100						(251)
Total general and administrative expenses			$	13,975					$	12,928					$	1,047

Salary and benefits-related costs increased by $1.0 million due to higher equity compensation related to additional grants issued and recruiting costs related to the hiring of new employees. Other contract services and outside costs increased by $0.3 million due to higher business insurance, audit and tax fees, and corporate legal fees. Facility-related and other costs decreased by $0.3 million due to a reduction in corporate travel and franchise tax expenses.

Other Income (Expense), Net

Other income (expense), net was $2.1 million for the nine months ended September 30, 2021, compared to $2.0 million for the nine months ended September 30, 2020. The increase was primarily driven by lower interest income as a result of declines in interest rates.

Liquidity and Capital Resources

Sources of Liquidity

Since our inception, we have not generated any revenue and have incurred significant operating losses and negative cash flows from our operations. Our net losses were $15.6 million and $12.4 million for the three months ended and $46.7 million and $41.3 million for the nine months ended September 30, 2021 and 2020, respectively. As of September 30, 2021, we had an accumulated deficit of $319.4 million. We expect to incur net losses as we continue to develop our product candidates, and our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current or future product candidates.

To date, we have primarily financed our operations with proceeds from the sale of preferred and common stock and borrowing of debt, including the following recent significant transactions:

•On May 18, 2020, we completed a follow-on public offering pursuant to which we issued an aggregate of 12,650,000 shares of our common stock for net proceeds of approximately $55.9 million after deducting the underwriting discounts and commissions and other offering expenses.

•On June 5, 2020, we entered into a sales agreement with SVB Leerink LLC (“SVB Leerink”) pursuant to which we may offer and sell shares of our common stock having an aggregate offering price of up to $35.0 million from time to time through SVB Leerink, acting as our agent (the “ATM Offering”). As of September 30, 2021, we have sold an aggregate of 2,168,943 shares of common stock under the ATM Offering for net cash proceeds of $11.3 million after deducting commissions and expenses of $0.6 million. During the three months ended September 30, 2021, we issued 321,149 shares of our common stock in a series of sales under the ATM Offering for aggregate net proceeds of $1.4 million after deducting commissions and expenses of $0.1 million.

28

---

Table of Contents

As of September 30, 2021, we had cash, cash equivalents and marketable securities of $66.1 million. Our cash equivalents and marketable securities as of September 30, 2021 consisted of bank deposits, money market funds that invest in U.S. treasury securities, and corporate obligations, which enables us to achieve our liquidity and capital needs.

Cash Flows

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

			Nine Months Ended September 30,
			2021						2020
Cash used in operating activities			$	(40,584)					$	(39,708)
Cash used in investing activities			(5,183)						(3,255)
Cash provided by financing activities			268						64,973
Net (decrease) increase in cash and cash equivalents			$	(45,499)					$	22,010

Operating Activities

During the nine months ended September 30, 2021, operating activities used $40.6 million of cash, primarily resulting from a net loss of $46.7 million, partially offset by non-cash charges of $6.1 million, including $4.8 million of stock-based compensation.

During the nine months ended September 30, 2020, operating activities used $39.7 million of cash, primarily resulting from a net loss of $41.3 million and changes in our operating assets and liabilities of $4.0 million, both partially offset by non-cash charges of $5.6 million, including $4.9 million of stock-based compensation.

Investing Activities

During the nine months ended September 30, 2021, net cash used in investing activities consisted of purchases of marketable securities and capital equipment, which were partially offset by maturities of marketable securities.

During the nine months ended September 30, 2020, net cash used in investing activities consisted of purchases of marketable securities and capital equipment.

Financing Activities

During the nine months ended September 30, 2021, net cash provided by financing activities consisted of net proceeds from the issuance of common stock, which were partially offset by payments for leased capital equipment and a terminal fee obligation and debt issuance costs.

During the nine months ended September 30, 2020, net cash provided by financing activities consisted of net proceeds from the issuance of common stock.

29

---

Table of Contents

Loan and Security Agreement

On September 2, 2021, we entered into a loan and security agreement (the "New Loan and Security Agreement") with SLR Investment Corp., formerly known as Solar Capital Ltd., for term loans in an aggregate principal amount of $26.0 million. The New Loan and Security Agreement replaced the loan and security agreement between us and SLR Investment Corp., dated as of January 9, 2018 and further amended on October 5, 2018, November 30, 2018 and August 28, 2020 (as amended, the "Prior Loan and Security Agreement"). The term loans under the New Loan and Security Agreement will accrue interest at an annual rate equal to 8.60% plus the greater of (a) the thirty (30) day U.S. Dollar LIBOR rate and (b) 0.10%, payable monthly in arrears. The monthly principal payments of $0.6 million will be paid over a period of 45 months beginning in January 2023 through the final maturity date of September 1, 2026. Per the New Loan and Security Agreement, the date on which repayment of principal commences can be further extended to July 2023 and January 2024, provided we satisfy certain equity related conditions. The term loans are also subject to a prepayment fee of 3.00% if prepayment occurs within the first year subsequent to September 2, 2021, 2.00% in the second year and 1.00% in the third year through final maturity. The New Loan and Security Agreement also contains certain financial covenants, including an unrestricted minimum cash level until certain clinical trial study data conditions are met, and non-financial covenants. As security for our obligations under the New Loan and Security Agreement, we granted the lender a first priority perfected security interest in all of our existing and after-acquired assets, including intellectual property.

In conjunction with the execution of the New Loan and Security Agreement, we also agreed to a new terminal fee obligation totaling $1.7 million, which is due and payable on the earliest to occur of (i) the maturity of the New Loan and Security Agreement, (ii) the acceleration of the term loans, and (iii) the prepayment, refinancing, substitution or replacement of the term loans. The obligation is equal to 6.45% of the aggregate principal amount of $26.0 million.

Funding Requirements

We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance existing product candidates and develop new clinical and pre-clinical programs. Our cash requirements depend on numerous factors, including, without limitation, expenditures in connection with our research and development programs, including with respect to the timing and progress of Clinical Trials, Clinical Studies and preclinical development activities; payments to CROs, CMOs and other third-party providers; the cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights; our ability to raise additional equity or debt financing; potential repayments of our long-term debt; and our ability to enter into collaboration or license agreements and our receipt of any upfront, milestone or other payments thereunder. Changes in our research and development plans or other changes affecting our operating expenses may result in changes in the timing and amount of expenditures of our capital resources. See “Risk Factors” for further discussion of these and additional risks and uncertainties that may significantly affect the timing and amount of expenditures of our capital resources.

Based on our current operating plan, we believe we do not have sufficient cash, cash equivalents, and marketable securities to support current operations through a full 12 months from the issuance date of this Quarterly Report on Form 10-Q. We will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt re-financings, collaboration agreements, strategic alliances and licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all, including as a result of market volatility following the COVID-19 pandemic. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions. We also intend to continue to evaluate options to refinance our outstanding long-term debt. The amounts involved in any such transactions, individually or in the aggregate, may be material. These factors individually and collectively raise substantial doubt about our ability to continue as a going concern.

30

---

Table of Contents

Critical Accounting Policies and Use of Estimates

Our management's discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, we evaluate our judgments and estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates, if any, will be reflected in the financial statements prospectively from the date of change in estimates. There have been no material changes to our critical accounting policies as reported in our Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on March 17, 2021.

Off-Balance Sheet Arrangements

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

Recently Issued Accounting Pronouncements

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

Emerging Growth Company Status

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. We may take advantage of these exemptions until we are no longer an emerging growth company. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. We have elected to use the extended transition period for complying with new or revised accounting standards and, as a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. We may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of our IPO or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.07 billion in annual revenue, we have more than $700.0 million in market value of our stock held by non-affiliates (and we have been a public company for at least 12 months and have filed one annual report on Form 10-K) or we issue more than $1.0 billion of non-convertible debt securities over a three-year period.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

31

---

Table of Contents

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act) as of September 30, 2021. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of September 30, 2021 were effective at a reasonable assurance level in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and (ii) accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions regarding required disclosure. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15(d)-15(f) of the Exchange Act) that occurred during the quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

32

---

Table of Contents

Part II. Other Information

Item 1. Legal Proceedings

From time to time, we may be involved in various claims, threatened or actual, and legal proceedings relating to claims arising out of our operations or products, if any. We are not currently a party to any material legal proceedings. The outcome of claims or litigation cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to us, which could materially affect our financial condition or results of operations.

Item 1A. Risk Factors

Careful consideration should be given to the following risk factors, in addition to the other information set forth in this Quarterly Report and in other documents that we file with the SEC, in evaluating the Company and our business. Investing in our common stock involves a high degree of risk. If any of the following risks and uncertainties actually occur, our business, prospects, financial condition and results of operations could be materially and adversely affected. The risks described below are not intended to be exhaustive and are not the only risks that we face. New risk factors can emerge from time to time, and it is not possible to predict the impact that any factor or combination of factors may have on our business, prospects, financial condition and results of operations.

Summary Risk Factors

Our business is subject to numerous risks and uncertainties that you should be aware of in evaluating our business. These risks include, but are not limited to, the following:

•We have incurred net losses in every year since our inception and anticipate that we will continue to incur net losses in the future.

•Substantial doubt exists as to our ability to continue as a going concern.

•We will require additional capital to fund our operations and if we fail to obtain necessary financing, we will not be able to complete development and commercialization of our product candidates.

•Clinical development is a lengthy and expensive process, with an uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of any product candidates, which could impair our ability to fund our operations or obtain financing on acceptable terms, or at all.

•Any use of our product candidates to support and maintain homeostasis, which helps support normal structures and functions of the body, or to modulate dysregulated metabolism is a novel approach and negative perception of any product candidates that we develop could adversely affect our ability to conduct our business, obtain regulatory approvals or identify alternate regulatory pathways, to the extent required by applicable laws, to market such product candidates.

•We face significant competition from other healthcare companies, and our operating results will suffer if we fail to compete effectively.

•If we lose key management personnel, or if we are unable to recruit additional highly skilled personnel, our ability to identify and develop new or next generation product candidates will be impaired, could result in loss of markets or market share and could make us less competitive.

•COVID-19 may materially and adversely affect our business and our financial results.

33

---

Table of Contents

•Regulatory requirements for development of our product candidates as drugs or as non-drug products are uncertain and evolving. Should we choose to develop any product candidate in parallel for more than one indication, the results from a Clinical Study or Clinical Trial in one indication, particularly any observation of a serious adverse event, may impact the Clinical Study or Clinical Studies or Clinical Trial or Clinical Trials in another indication. Changes in these laws, including our ability to conduct Clinical Studies or Clinical Trials, or the current interpretation or application of these laws, or conflicts between us and the FDA on the applicability or interpretation of applicable laws, would have a significant adverse impact on our ability to develop and commercialize our products.

•If we are unable to obtain and maintain patent protection for any product candidates we develop or for our development platform or other technologies, our competitors could develop and commercialize products or technology similar or identical to ours, and our ability to successfully commercialize any product candidates we may develop, and our technology may be adversely affected.

•We rely on third parties to conduct our Clinical Studies and Clinical Trials, and to assist us in meeting the regulatory requirements applicable to the development and marketing of our products. If these third parties do not successfully carry out their contractual duties or meet expected deadlines or comply with regulatory requirements, we may not be able to obtain regulatory approval for or commercialize any potential product candidates.

•Our product candidates require precise, high-quality manufacturing capabilities. If any of our third-party manufacturers encounter difficulties in manufacturing our product candidates, our ability to provide supply of our product candidates for Clinical Studies or Clinical Trials, or for future commercial supply of products we bring to market under applicable regulatory requirements and approvals, could be delayed or terminated, or we may be unable to maintain a commercially viable cost structure.

•The trading price of our stock is highly volatile.

The summary risk factors described above should be read together with the text of the full risk factors below and in the other information set forth in this Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and the related notes, as well as in other documents that we file with the SEC. If any such risks and uncertainties actually occur, our business, prospects, financial condition and results of operations could be materially and adversely affected. The risks summarized above or described in full below are not the only risks that we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial may also materially adversely affect our business, prospects, financial condition and results of operations.

34

---

Table of Contents

Risks Related to Our Financial Position and Capital Needs

We have incurred net losses in every year since our inception and anticipate that we will continue to incur net losses in the future.

We are a biotechnology company with a limited operating history. Investment in product development in the healthcare industry, including of biotechnology products, is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate an adequate effect or an acceptable safety profile, gain regulatory approval and/or become commercially viable. Our product candidates have been studied in Clinical Studies as food products. At this time, we are pursuing development of AXA1665 and AXA1125 in Clinical Trials under INDs for the reduction in risk of recurrent OHE and for the treatment of NASH, respectively. Additionally, we are planning a Clinical Trial that will utilize AXA1125 for the treatment of Long COVID under a CTA. We have no products approved for commercial sale, have not generated any revenue from product sales to date and continue to incur significant research and development and other expenses related to our ongoing operations. As a result, we are not profitable and have incurred losses in each period since our inception in 2008. Our net losses were $15.6 million and $12.4 million for the three months ended and $46.7 million and $41.3 million for the nine months ended September 30, 2021 and 2020, respectively. As of September 30, 2021, we had an accumulated deficit of $319.4 million. We expect to continue to incur significant losses for the foreseeable future, and we expect these losses to increase as we continue our research and development of our product candidates in Clinical Studies, Clinical Trials for any product candidate we elect to develop as a drug product candidate under an IND or non-U.S. equivalent and as we seek regulatory approvals, as necessary, for and commercialize our product candidates, if approved. We anticipate that our expenses will increase substantially if, and as, we:

•conduct preclinical studies, Clinical Studies, and for those product candidates that we elect to develop as therapeutics, Clinical Trials or their equivalent in non-U.S. jurisdictions;

•incur setbacks or delays to the initiation or completion of preclinical studies, product development, Clinical Studies and/or Clinical Trials due to the COVID-19 pandemic;

•further develop our proprietary human-focused product development platform;

•continue to discover and develop our current product candidates as well as additional product candidates;

•maintain, expand and protect our intellectual property portfolio;

•hire or contract additional clinical, scientific, manufacturing, quality and commercial personnel to support our product research, development and commercialization efforts;

•continue to develop, scale and validate a manufacturing process and specifications for our product candidates, including under requirements for drug development;

•incur any disruption or delays to the supply of our product candidates due to the COVID-19 pandemic;

•continue to establish in-house manufacturing capabilities for our research and product development efforts;

•establish a commercial manufacturing source and secure supply chain capacity sufficient to provide preclinical study material, Clinical Study material, Clinical Trial material for any product candidate we elect to develop as a drug product candidate under an IND or non-U.S. equivalent, and commercial quantities of any product candidates that we may commercialize as drug or non-drug products, following receipt of any necessary approvals or authorizations;

•acquire or in-license other product candidates and technologies;

•seek various non-drug product marketing pathways and, if applicable, drug regulatory authorizations;

35

---

Table of Contents

•establish a sales, marketing and distribution infrastructure to commercialize any product candidates for which we may obtain regulatory approval or identify an alternate regulatory pathway to market; and

•add operational, compliance, financial and management information systems and personnel to support our operations as a public company.

To become and remain profitable, we or any potential future collaborator must develop and eventually commercialize products with significant market potential at an adequate profit margin after cost of goods sold and other expenses. This will require us to be successful in a range of challenging activities, including, but not limited to: completing preclinical studies, Clinical Studies and Clinical Trials for any product candidate we elect to develop as a drug product candidate under an IND or non-U.S. equivalent; obtaining marketing approval or identifying alternate regulatory pathways for product candidates; manufacturing, marketing and selling products for which we may obtain marketing approval; or successfully satisfying any pre- or post-marketing requirements. We may never succeed in any or all of these activities and, even if we do, we may never generate revenue that is significant enough to achieve profitability. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company, which 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 also could cause you to lose all or part of your investment. Even if we succeed in commercializing one or more of our product candidates, we will continue to incur substantial research and development and other expenditures to develop and market additional product candidates. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business, which may be significant. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders' equity and working capital.

Substantial doubt exists as to our ability to continue as a going concern.

As of September 30, 2021, we had cash, cash equivalents and marketable securities of $66.1 million, and an accumulated deficit of $319.4 million. We believe that we will require additional working capital to fund our planned operations through a full 12 months from the issuance date of this Quarterly Report on Form 10-Q. Additional funding will be necessary beyond this point to continue to fund our research and development activities. Our plans to alleviate our financing requirements include, among other things, pursuing the sale of our common stock and funding through the establishment of a collaboration(s) with a potential partner(s) to further advance our product pipeline, none of which can be guaranteed or are entirely within our control. If we are unable to alleviate our financing requirements via these means, we could be forced to discontinue some of our operations or develop and implement a plan to further extend payables, reduce overhead or scale back our current operating plan until sufficient additional capital is raised to support further operations. These factors individually and collectively raise substantial doubt about our ability to continue as a going concern, and; therefore, it may be more difficult for us to attract investors. Unless we are able to raise additional capital to finance our operations, our long-term business plan may not be accomplished, and we may be forced to cease, reduce, or delay operations.

36

---

Table of Contents

We will require additional capital to fund our operations and if we fail to obtain necessary financing, we will not be able to complete development and commercialization of our product candidates.

Our operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial amounts for our current and future programs: to conduct further research and development, preclinical studies, Clinical Studies and/or Clinical Trials for any product candidates we elect to develop as a drug product candidate under an IND or non-U.S. equivalent; to validate the manufacturing process and specifications for our product candidates; to seek regulatory approvals for or identify alternate regulatory pathways to market for our product candidates; and to launch and commercialize any products for which we receive regulatory approval or identify an alternate regulatory pathway to market, including potentially building our own commercial organization. As of September 30, 2021, we had $66.1 million of cash, cash equivalents and marketable securities. Based on our current operating plan, we believe that our existing cash, cash equivalents and marketable securities balance is not sufficient to fund our operating expenses, capital expenditure requirements and New Loan and Security Agreement obligations through at least the next 12 months following the filing date of this Quarterly Report on Form 10-Q. Our future capital requirements and the period for which our existing resources will support our operations may vary significantly from our expectations, and we will in any event require additional capital in order to complete clinical development of any of our current product candidates. Our monthly spending levels will vary based on new and ongoing development and corporate activities. Because the length of time and activities associated with development of our product candidates is highly uncertain, we are unable to estimate the actual funds we will require for development and any approved marketing and commercialization activities. Our future funding requirements, both near- and long-term, will depend on many factors, including, but not limited to:

•our decisions regarding the development path under which we will develop our product candidates (e.g., either continuing to develop a product candidate as a non-drug product, or initiating development as drug product candidate under an IND or non-U.S. equivalent);

•the initiation, progress, timing, costs and results of preclinical studies, Clinical Studies, Clinical Trials, and any need to conduct additional studies as may be required by a regulatory authority, including additional studies that may be required by a regulatory authority in order to allow the initiation of Clinical Trials under an IND or the non-U.S. equivalent for any of our product candidates;

•any clinical development plans we establish for these product candidates;

•any setbacks or delays to the initiation or completion of preclinical studies, Clinical Studies and/or Clinical Trials due to the COVID-19 pandemic;

•further development of our development platform and supporting infrastructure;

•the number and characteristics of product candidates that we develop or may in-license;

•the terms of any partnership or collaboration agreements we may choose to initiate or conclude;

•the outcome, timing and cost of meeting regulatory requirements established by the FDA, any other regulatory authorities in the United States, and, when applicable, comparable foreign regulatory authorities, such as the EMA;

•the effect of changes in regulations or policy relating to the development and commercialization of our product candidates by the FDA, any other regulatory authorities in the United States and, when applicable, other comparable foreign regulatory authorities, such as the EMA;

•the cost of establishing, maintaining and overseeing a system to ensure our ongoing and planned Clinical Trials are compliant with Good Clinical Practice, or GCP;

•the costs of establishing, maintaining and overseeing a quality system compliant with current Good Manufacturing Practice, or cGMP, and other quality standards applicable to non-drug and drug product development and a supply chain for the development and manufacture of our product candidates;

37

---

Table of Contents

•any disruption or delays to the supply of our product candidates due to the COVID-19 pandemic;

•the cost of defending intellectual property disputes, including patent infringement actions brought by third parties against us related to our product candidates or our development platform, or other technologies;

•the effect of competing technological and market developments;

•the cost and timing of establishing, expanding and scaling compliance programs related to our activities and product candidate development and commercialization and related legal activities, including defense of any potential litigation against us;

•the cost and timing of establishing, expanding and scaling of manufacturing capabilities, or contracting with third parties for access to such capabilities; and

•the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval or identify alternate regulatory pathways in regions where we choose to commercialize our products.

We do not have any committed external source of funds or other support for our development efforts and we cannot be certain that additional funding will be available on acceptable terms, or at all. Until we can generate sufficient product revenue or, if we were to enter into third-party agreements, sufficient royalty revenue to finance our cash requirements, which we may never do, we expect to finance our future cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing or distribution arrangements. If we raise additional funds through public or private equity offerings, the terms of these securities may include liquidation or other preferences that adversely affect our stockholders' rights. Further, to the extent that we raise additional capital through the sale of common stock or securities convertible into or exchangeable for common stock, your ownership interest will be diluted. If we raise additional capital through debt financing, we would be subject to fixed payment obligations and may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, declaring dividends or acquiring or licensing intellectual property rights. If we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish certain valuable rights to our product candidates, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to us. We also could be required to seek collaborators for one or more of our current or future product candidates at an earlier stage than otherwise would be desirable or relinquish our rights to product candidates or technologies that we otherwise would seek to develop or commercialize ourselves. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates or one or more of our other research and development initiatives. Any of the above events could significantly harm our business, prospects, financial condition and results of operations and cause the price of our common stock to decline, causing you to lose all or part of your investment.

38

---

Table of Contents

Clinical development is a lengthy and expensive process, with a highly uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of any product candidates, which could impair our ability to fund our operations or obtain financing on acceptable terms, or at all.

To obtain the requisite regulatory approvals to commercialize any of our product candidates that we decide to develop as a drug product candidate, such as AXA1665 and AXA1125, we must demonstrate through extensive preclinical studies and Clinical Trials that our product candidates are safe and effective in humans for their intended use. Clinical Studies to commercialize non-drug products also require a significant financial investment to generate data that supports claims about effects on normal structure and function of the body we may make for such products and establish their safety and tolerability. Clinical testing is expensive, difficult to design and implement and can take many years to complete, and its outcome is inherently uncertain. We may be unable to establish, where applicable, endpoints, dose levels and regimens or bioanalytical assay methods that applicable regulatory authorities would consider clinically meaningful or legally permissible. Results from preclinical studies, Clinical Studies, or Clinical Trials may demonstrate that our product candidates are not safe, not tolerable or have unanticipated impacts on the normal structure and function of the body and could result in data showing one or more product candidates to have harmful or problematic side effects or toxicities. Should we choose to develop any product candidate in parallel for more than one indication, the results from a Clinical Study or Clinical Trial in one indication, particularly any observation of a serious adverse event, may impact the Clinical Study or Clinical Studies or Clinical Trial or Clinical Trials in another indication. A Clinical Study or Clinical Trial can fail at any stage of testing. Additionally, our Clinical Studies, Clinical Trials or other preclinical studies may not result in data that supports intended claims for our product candidates. For example, Clinical Trial results may show any drug product candidate to be less effective than expected (e.g., a Clinical Trial could fail to meet its primary endpoint(s)) or have unacceptable side effects or toxicities. The outcome of preclinical studies, Clinical Studies and early Clinical Trials may not be predictive of the success of later preclinical studies, Clinical Studies and/or Clinical Trials, and interim results of these studies or trials do not necessarily predict final results. Interim and preliminary data are subject to the risk that one or more of the outcomes may materially change as subject enrollment continues, more subject data become available and as the study is completed. Preliminary or top-line 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, interim and preliminary data should be viewed with caution until the final data are available. Material inconsistencies between preliminary or interim data and final data could significantly harm our business prospects. Further, differences in trial design between Clinical Studies and early-stage Clinical Trials and later-stage Clinical Trials make it difficult to extrapolate from the results of Clinical Studies and earlier Clinical Trials to the results from later Clinical Trials. 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 Trials have nonetheless failed to obtain marketing approval of their product candidates, or have data that supports desirable marketing claims even where marketing approval is not required. Successful completion of Clinical Trials is a prerequisite to submitting an NDA to the FDA, or its equivalent in other jurisdictions such as a marketing authorization application to the EMA, for each product candidate targeting therapeutic indication(s) and, consequently, a pre-requisite for the ultimate approval and commercial marketing of any product candidate for therapeutic indication(s).

We do not know whether we will be able to initiate or complete Clinical Trials for product candidates we decide to develop as drug product candidates on schedule, if at all. Additionally, we may determine as a result of factors in or out of control to terminate plans or efforts in connection with Clinical Studies or Clinical Trials. For example, if we do not have sufficient funds to finance our Clinical Studies or Clinical Trials or the FDA or equivalent regulatory authority has requirements we are not able to comply with, or that we decide to not comply with, we may need to delay or cancel one or more of our Clinical Studies or Clinical Trials.

39

---

Table of Contents

We may experience delays in completing our preclinical studies and initiating or completing Clinical Studies and, for those product candidates that we decide to develop as drug product candidates, including AXA1665 and AXA1125, Clinical Trials. We also may experience numerous unforeseen events during, or as a result of, any future Clinical Studies or Clinical Trials that we may conduct that could delay or prevent our ability to receive marketing approval or commercialize our product candidates, including, but not limited to:

•unforeseen events or events over which we have little to no control, such as the COVID-19 pandemic, can cause execution delays for our Clinical Studies or Clinical Trials;

•issues related to the quality, completeness and interpretability of our data that could result in significant delays or additional costs and impact development plans for our product candidates;

•we may be unable to generate sufficient preclinical, toxicology or other in vivo or in vitro data to support the initiation of Clinical Trials for therapeutic indications for any drug product candidates or the marketing of our products as non-drug products;

•results from one Clinical Study or Clinical Trial, particularly observation of a serious adverse event, may impact the other Clinical Study or Clinical Studies or Clinical Trial or Clinical Trials of the same product candidate;

•the FDA may not allow us to use data from our Clinical Studies to support a late-phase IND Clinical Trial or an IND Clinical Trial of any phase for a product candidate we decide to develop as a drug product candidate instead of a non-drug product candidate;

•the FDA or other regulatory authorities may disagree with the design, implementation or results of our Clinical Studies or Clinical Trials, which may delay or prevent us from pursuing certain regulatory pathways for product developments, or require us to submit additional data such as long-term toxicology studies or impose other requirements before permitting us to initiate or complete a Clinical Trial of any phase. For example, the FDA could require that we terminate a Clinical Study for a product candidate and continue such study only under an IND, and we may not be able to obtain such an IND, or we may be subject to an enforcement action for conducting a Clinical Study not under an IND;

•regulatory authorities, IRBs or ethics committees may not authorize us or our investigators to commence or conduct a Clinical Study or Clinical Trial at a prospective study or trial site or may request early termination of a Clinical Study or Clinical Trial;

•we may experience delays in reaching, or fail to reach, agreement on acceptable terms with prospective study or trial sites and prospective contract research organizations, or CROs, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and study or trial sites;

•preclinical studies, Clinical Studies or Clinical Trials of any of our product candidates may produce negative or inconclusive results and we may need to conduct additional preclinical studies, Clinical Studies, Clinical Trials or any other studies, or we may decide to abandon product development programs;

•the number of subjects or patients required for Clinical Studies or Clinical Trials of any of our product candidates may be larger than we anticipate, or we may fail to execute the Clinical Studies or Clinical Trials as a result of slow enrollment, subjects dropping out of the Clinical Studies or Clinical Trials or other factors, including some which are out of our control, such as COVID-19, length of time to achieve clinical endpoints, additional time requirements for data analysis, or an inability to validate the manufacturing process or to achieve cGMP compliance for our product candidates;

40

---

Table of Contents

•we may need to add new or additional Clinical Study or Clinical Trial sites for various reasons, for example, our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all, or may deviate from the Clinical Study or Clinical Trial protocol or stop providing services for the study or trial, which may require that we add new clinical study or trial sites or investigators;

•the cost of preclinical studies, Clinical Studies, Clinical Trials or any other studies of any product candidates may be more than we anticipate or more than our available financial resources; and

•the supply or quality of our product candidates or other materials necessary to conduct Clinical Studies and Clinical Trials, for which we expect to continue to rely on third party manufacturers and suppliers, may be insufficient or inadequate and may not achieve compliance with applicable cGMP and other quality standards applicable to drug or non-drug product development for various reasons including any potential failure of our oversight of their services or any potential inability of such third parties to successfully execute services in compliance with applicable rules and regulations.

We could also encounter delays if a preclinical study, Clinical Study or Clinical Trial is suspended or terminated for any reason. A suspension or termination may be imposed due to a number of factors, including failure to conduct the Clinical Study or Clinical Trial in accordance with regulatory requirements or our clinical protocols, inspection of the Clinical Study or Clinical Trial operations or trial site by the FDA, comparable foreign regulatory authorities or IRB resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, including death of a study subject, failure to demonstrate a benefit from using a product or treatment, failure to establish or achieve clinically meaningful or legally permissible endpoints, changes in governmental regulations or administrative actions or lack of adequate funding to continue the Clinical Study or Clinical Trial. Many of the factors that cause, or lead to, a delay in the commencement or completion of Clinical Studies or Clinical Trials may also ultimately lead to the denial of regulatory approval of our product candidates for therapeutic indications, where applicable, or the failure to meet applicable regulatory requirements to support and commercialize non-drug products. Further, the FDA or comparable foreign regulatory authorities may change the requirements for regulatory approval of a drug even after they have reviewed and commented on the design for our preclinical studies, Clinical Studies or Clinical Trials.

Our product development costs will increase, or our operations may be hindered or prevented if we experience delays in clinical testing and marketing approvals, if applicable, or otherwise meeting regulatory requirements to commercialize our product candidates, including, but not limited to, delays in NDA preparation, the need to submit a New Dietary Ingredient, or NDI, notification or other filings with the FDA, discussions with the FDA and comparable foreign regulatory authorities in jurisdictions we target or pursue, responding to an FDA request or other regulatory authority for additional preclinical or clinical data or unexpected safety or manufacturing issues. We do not know whether any of our preclinical studies, Clinical Studies or Clinical Trials, if applicable, will begin or be completed as planned, will need to be restructured or will be completed on schedule, or at all. Significant delays in our preclinical studies, Clinical Studies or Clinical Trial also could shorten any periods during which we may have the exclusive right to commercialize our product candidates and may allow our competitors to bring products to market before we do, potentially impairing our ability to successfully commercialize our product candidates and harming our business and results of operations. Any delays in our preclinical or future clinical development programs may harm our business, financial condition and prospects significantly, and could impair our ability to fund our operations or obtain financing on acceptable terms, or at all.

41

---

Table of Contents

Risks Related to Our Business, Technology and Industry

Any use of our product candidates to support and maintain homeostasis, which helps support normal structures and functions of the body, or to modulate dysregulated metabolism is a novel approach and negative perception of any product candidates that we develop could adversely affect our ability to conduct our business, obtain regulatory approvals or identify alternate regulatory pathways, to the extent required by applicable laws, to market such product candidates.

The development of EMM compositions with defined ratios and formulations, and the potential drug and non-drug applications of these product candidates represents a novel approach. Our product candidates in general may not be successfully developed or commercialized or gain the acceptance of the public or the medical community. For any product candidate that we choose to develop as a drug product candidate, our success will depend upon physicians who specialize in the treatment of diseases targeted by our product candidates, prescribing potential treatments that involve the use of our product candidates in lieu of, or in addition to, existing treatments with which they are more familiar and for which greater clinical data may be available. For any product candidate that we choose to develop as a non-drug product candidate, our success will depend on finding partners in a non-drug market who can help successfully commercialize product candidates as non-drug product candidates, such as dietary supplements and medical foods. In addition, our success will also depend on consumer acceptance and adoption of our products that we, or a future partner, commercialize, if any. Adverse events, which may include death, in Clinical Studies and Clinical Trials of our product candidates or in studies or Clinical Trials of other parties developing similar products and the resulting publicity, as well as any other adverse events in the field of EMMs and metabolic pathways, could result in a decrease in demand for any product that we may develop. In addition, responses by the U.S. federal, state or foreign governments to negative public perception or ethical concerns may result in new legislation or regulations that could limit our ability to develop or commercialize any product candidates, obtain or maintain regulatory approval, if applicable, identify alternate regulatory pathways to market or otherwise achieve profitability. More restrictive statutory regimes, government regulations or negative public opinion would have an adverse effect on our business, financial condition, results of operations and prospects, and may delay or impair the development and commercialization of our product candidates or demand for any products we may commercialize.

We face significant competition from other healthcare companies, and our operating results will suffer if we fail to compete effectively.

The healthcare industry is characterized by intense competition and rapid innovation. Our competitors may be able to develop other drug or non-drug products that are able to achieve similar or better results. Our potential competitors include major multinational pharmaceutical, nutritional foods companies, established biotechnology companies, specialty pharmaceutical companies and universities and other research institutions. Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff, experienced marketing and manufacturing organizations and well-established sales forces. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Established pharmaceutical companies may also invest heavily to accelerate discovery and development of novel drugs or to in-license novel drugs that could make any product candidate that we develop as a drug product candidate obsolete. Mergers and acquisitions in the healthcare industry may result in even more resources being concentrated amongst our competitors. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors, either alone or with collaborative partners, may succeed in developing, acquiring or licensing on exclusive non-drug products that are safer, more easily commercialized or less costly than our product candidates or may develop proprietary technologies or secure patent protection that we may need for the development of our technologies and products.

42

---

Table of Contents

We believe the key competitive factors that will affect the development and commercial success of our product candidates are efficacy, safety, tolerability, reliability, convenience of use, price and reimbursement, if applicable depending on the development path we choose. We also anticipate that we will face increased competition in the future as additional companies enter our market and scientific developments surrounding other non-drug products and drugs targeted at metabolic pathways continue to accelerate.

In addition, there are additional companies that are working on modulating specific metabolic pathways involved in various health and disease conditions. Although we are not aware of any company creating products targeting metabolic multifactorial activity for the same indications and targets as us, Entrinsic Biosciences, Inc. is developing amino acid combinations to treat gastrointestinal disorders and other conditions associated with dysfunctional transport membrane proteins. Companies with clinical programs that could compete with our current pipeline of product candidates include 89bio, Inc., Akero Therapeutics, Inc., Bausch Health, Bristol-Myers Squibb Co., Esperion Therapeutics, Inc., Genfit SA, Gilead Sciences, Inc., Intercept Pharmaceuticals, Inc., Kaleido Biosciences, Inc., Madrigal Pharmaceuticals, Inc., Mallinckrodt plc, Novartis AG, Scholar Rock Holding Corporation, and Viking Therapeutics, Inc., among others.

Even if we obtain regulatory approval to market our product candidates as drugs or are successful in identifying alternate regulatory pathways to market our product candidates under regulations that would apply to non-drug products, the availability and price of our competitors' products could limit the demand and the price we are able to charge for our product candidates. We may not be able to implement our business plan if the acceptance of our product candidates is inhibited by price competition or the reluctance of consumers to accept of our product candidates and choose them over other competitive products on the market or, for product candidates we develop as drugs, of physicians to switch from existing methods of treatment to our product candidates, or if physicians switch to other new drug or biologic products or choose to reserve our product candidates for use in limited circumstances.

If we lose key management personnel, or if we are unable to recruit additional highly skilled personnel, our ability to identify and develop new or next generation product candidates will be impaired, could result in loss of markets or market share and could make us less competitive.

Our ability to compete in the highly competitive biotechnology industry depends upon our ability to attract and retain highly qualified managerial, scientific, medical and other personnel. We are highly dependent on our management, scientific and medical personnel. The loss of the services of any of our executive officers, other key employees and other scientific and medical advisors, and our inability to find suitable replacements could result in delays in product development and harm our business. We conduct our operations in Massachusetts. Competition for skilled personnel in our market is intense and may limit our ability to hire and retain highly qualified personnel on acceptable terms or at all. To induce valuable employees to remain at our company, in addition to salary and cash incentives, we have provided stock options that vest over time. The value to employees of stock options that vest over time may be significantly affected by movements in our stock price that are beyond our control and may at any time be insufficient to counteract more lucrative offers from other companies. Despite our efforts to retain valuable employees, members of our management, scientific and development teams may terminate their employment with us on short notice.

Employment of our key employees is at-will, which means that any of our employees could leave our employment at any time, with or without notice. We do not maintain "key man" insurance policies on the lives of these individuals or the lives of any of our other employees. Our success also depends on our ability to continue to attract, retain and motivate highly skilled junior, mid-level and senior managers as well as junior, mid-level and senior scientific and medical personnel.

43

---

Table of Contents

COVID-19 may materially and adversely affect our business and our financial results.

The COVID-19 pandemic has resulted in significant governmental measures being implemented to control the spread of the virus, including quarantines, travel restrictions, supply chain disruptions, business shutdowns and clinical site closures to non-essential care and clinical trials. For example, our AXA1957-002 Clinical Study was temporarily suspended in March 2020 due to COVID-19's impact on our Clinical Study sites. Subsequently, based on positive data in our AXA1125-003 Clinical Study announced on May 6, 2020, we decided against reinitiating our AXA1957-002 Clinical Study and to move forward with AXA1125 as our NASH product candidate for both adult and pediatric patients. Although we cannot presently predict the full scope and severity of COVID-19, these developments and measures could materially and adversely affect our business, our results of operation and financial condition. Furthermore, the COVID-19 pandemic may adversely impact our ability to complete our Clinical Trial for AXA1665 and our ongoing and planned Clinical Trials for AXA1125 in a timely manner or at all due to patient or principal investigator recruitment or availability challenges, Clinical Trial site shutdowns or other interruptions. Additionally, we may also experience potential limitations on the quality, completeness and interpretability of data we are able to collect. For instance, on May 7, 2020, a subject death was reported as a result of COVID-19 by one of our principal investigators in our recently completed AXA1665-002 Clinical Study. This serious adverse event and any others that may result from COVID-19 may impact the quality, completeness and interpretability of the data that we were able to collect. The supply chain disruptions that resulted from COVID-19-related manufacturing shutdowns, global transportation changes, and loss of workers in key industries could affect access to raw materials and operations for manufacturing our product candidates, and distribution of product candidates to clinical sites or for commercialization. In addition, as a result of the COVID-19 pandemic, we or our key third-party service providers may be not able to complete key program and product development milestones on time or at all; quarantines, shelter-in-place and similar government orders may impact personnel at third-party manufacturing facilities that negatively impact the availability or cost of materials used in our product candidates; market volatility and conditions may limit our ability to raise additional capital to finance our business plans on attractive terms or at all; our business continuity plans may not be effective at limiting operational disruptions or delays; we may suffer negative impacts to operations that may be vulnerable as a result of government or company measures taken to control the spread of COVID-19; potential shutdowns of government agencies such as the SEC or FDA may limit our ability to raise capital and negatively impact our product development timelines; the passage of new legislation may increase our operating costs or limit our operations, such as the Families First Coronavirus Response Act; we may suffer negative consequences due to vulnerabilities that emerge as a result of our limited operations, such as a cybersecurity incident; or one of our key executives, scientists or other personnel may become incapacitated by COVID-19.

The extent to which COVID-19 impacts our business, operations or financial results will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the pandemic, new information that may emerge concerning the severity of COVID-19 or the nature or effectiveness of actions to contain COVID-19 or treat its impact, among others. We cannot presently predict the scope and severity of any potential business shutdowns or disruptions. However, if we or any of the third parties with whom we engage were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively affected, which could have a material adverse impact on our business, results of operation and financial condition.

We have a limited operating history, which may make it difficult to evaluate our technology and product development capabilities and predict our future performance.

As an organization, we have not yet completed any Clinical Trials. We completed our AXA1125-003 Clinical Study in 2020, and initiated a Phase 2b Clinical Trial of AXA1125 in the second quarter of 2021, in which we are enrolling patients with NASH. We are also planning to initiate a Phase 2a Clinical Trial that will utilize AXA1125 for the treatment of Long COVID. In regards to AXA1665, we completed our AXA1665-002 Clinical Study in 2020, and initiated a Phase 2 Clinical Trial of AXA1665 in the second quarter of 2021, in which we are enrolling patients who have experienced a prior OHE episode.

44

---

Table of Contents

We were formed in 2008 and only reorganized our business operations to focus on EMM, have no products approved for commercial sale as drugs or marketed via other regulatory pathways (e.g., non-drug products such as dietary supplements) and have not generated any revenue from product sales. Our ability to generate product revenue or profits, which we do not expect will occur for many years, if ever, will depend on the successful development and eventual commercialization of our product candidates, which may never occur.

Our limited operating history may make it difficult to evaluate our technology and industry and predict our future performance. Specifically, to date we have conducted Clinical Studies for our product candidates to evaluate safety and tolerability and impact on normal structure and function only in healthy subjects or subjects with certain disease conditions. For product candidates we develop under an IND or non-U.S. equivalent with patient populations reflecting the desired indication for such product candidate, the physiological structure and function data we observed in our Clinical Studies for such product candidate may not be replicated in or be consistent with results from Clinical Trials and such product candidate may not meet therapeutic efficacy endpoints in Clinical Trials. For instance, while we previously announced positive top-line data in both our (i) AXA1125-003 Clinical Study, including reductions in liver fat content and markers of fibroinflammation and (ii) AXA1665-002 Clinical Study, including a balancing of plasma amino acids, stabilizing ammonia levels and an improvement in measures of neurocognition, such results may not be replicated in Clinical Trials.

Our short history as an operating company makes any assessment of our future success or viability subject to significant uncertainty. We will encounter risks and difficulties frequently experienced by early-stage companies in evolving fields. If we do not address these or other risks successfully, our business will suffer. Similarly, we expect that our financial condition, expenditures and operating results will fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. As a result, our stockholders should not rely upon the results of any quarterly or annual period as an indicator of future operating performance.

In addition, as an early-stage company, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown circumstances, which may be significant. Given the recent initiation of our first Clinical Trials for AXA1665 for the reduction in risk of recurrent OHE and AXA1125 for the treatment of NASH, we will need to transition from a company with a Clinical Study focus to a company capable of supporting clinical development in Clinical Trials and, if successful, commercial activities. We may not be successful in such transitions.

Our planned, ongoing, and future Clinical Studies and Clinical Trials, or those of our future collaborators may reveal significant adverse events not seen in our preclinical studies, Clinical Studies or other Clinical Trials and may result in a safety profile that could inhibit regulatory approval or market acceptance of any of our product candidates.

Before obtaining regulatory approvals for the commercial sale of any products for therapeutic indications, we must demonstrate through lengthy, complex and expensive preclinical studies, Clinical Studies and Clinical Trials that our product candidates are both safe and effective for use in each target indication. Any non-drug products must also be demonstrated to be safe and tolerable. Our product candidates have been generally well tolerated in our Clinical Studies to date, but we cannot be certain that we will be able to dose subjects or patients at a high enough dose in any future Clinical Trials of product candidates we may develop as drugs so as to demonstrate efficacy without unacceptable safety risk.

Product candidates in later stages of Clinical Studies may fail to show the desired safety profile despite having progressed through successful preclinical studies and earlier Clinical Studies. Product candidates that we decide to develop as drug product candidates and that progress to Clinical Trials may fail to show the desired safety and efficacy profile despite having progressed successfully through preclinical studies, Clinical Studies and, if applicable, initial Clinical Trials. A number of companies in the healthcare industry have suffered significant setbacks in later development, notwithstanding promising results in earlier trials. Most product candidates that commence Clinical Trials are never approved as products for therapeutic indications, and there can be no assurance that any of our current or future Clinical Studies or Clinical Trials will ultimately be successful or support further clinical development of any of our product candidates.

45

---

Table of Contents