CATABASIS PHARMACEUTICALS INC

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make as a result of various important factors, including risks and uncertainties related to our ability to recognize the anticipated benefits of the Quellis acquisition (as described below); the outcome of any legal proceedings that may be instituted against us or Quellis following the announcement of the acquisition and related transactions; costs related to the Quellis acquisition; changes in applicable laws or regulations; the possibility that we may be adversely affected by other economic, business, and/or competitive factors, including the COVID-19 pandemic; risks inherent in pharmaceutical research and development, such as adverse results in our drug discovery, preclinical and clinical development activities, the risk that the results of preclinical studies may not be replicated in clinical studies, our ability to enroll patients in our clinical trials, and the risk that any of our clinical trials may not commence, continue or be completed on time, or at all; decisions made by the U.S. Food and Drug Administration and other regulatory authorities, investigational review boards at clinical trial sites and other review bodies with respect to QLS-215 and any future product candidates; our ability to manufacture sufficient quantities of drug substance and drug product on a cost-effective and timely basis; our ability to obtain, maintain and enforce intellectual property rights for QLS-215 and any other future product candidates; competition with respect to QLS-215 or any other future product candidates or approved products; our ability to manage our cash usage and the possibility of unexpected cash expenditures; our ability to obtain necessary financing to conduct our planned activities and to manage unplanned cash requirements; our ability to obtain stockholder approval of the conversion rights of our Series X Preferred Stock by July 28, 2021, which, if we are unable to obtain, would trigger the rights of such stockholders to require repayment, in cash, for the shares of common stock underlying their shares of Series X Preferred Stock at their then fair market value; and general economic and market conditions.

Holders of Series X Preferred Stock are entitled to receive dividends on shares of Series X Preferred Stock equal, on an as-if-converted-to-common-stock basis, and in the same form as dividends actually paid on shares of the Company’s common stock. Except as otherwise required by law, the Series X Preferred Stock does not have voting rights. However, as long as any shares of Series X Preferred Stock are outstanding, the Company may not, without the affirmative vote of the holders of a majority of the then outstanding shares of the Series X Preferred Stock, (i) alter or change adversely the powers, preferences or rights given to the Series X Preferred Stock or alter or amend the Certificate of Designation that authorized the Series X Preferred Stock, amend or repeal any provision of, or add any provision to, the Company’s Certificate of Incorporation or bylaws, or file any articles of amendment, certificate of designations, preferences, limitations and relative rights of any series of preferred stock, if such action would adversely alter or change the preferences, rights, privileges or powers of, or restrictions provided for the benefit of the Series X Preferred Stock, (ii) issue further shares of Series X Preferred Stock or increase or decrease (other than by conversion) the number of authorized shares of Series X Preferred Stock, or (iii) enter into any agreement with respect to any of the foregoing. Additionally, the approval of the holders of a majority of the Series X Preferred Stock is required for certain change of control transactions, provided that this approval right will terminate upon stockholder approval of the Conversion Proposal.

In separate studies, cynomolgus monkeys were used to evaluate the pharmacokinetics and plasma half-life of QLS-215 as well as lanadelumab. These studies of QLS-215 and lanadelumab were conducted concurrently but were independent studies rather than a head-to-head comparison. In these studies, lanadelumab was observed to have a half-life of approximately 10 days, which is consistent with what has been reported in U.S. Food and Drug Administration review documents and publications for lanadelumab in non-human primates. This half-life is also consistent with what has been reported for similar types of antibodies. QLS-215 was administered at the same dose as lanadelumab in these studies and the observed half-life of QLS-215 was approximately 34 days, which is about a three to four-fold longer half-life than observed for lanadelumab. We believe this could translate to a half-life of several months for QLS-215 in humans. If this longer half-life is demonstrated in clinical trials, it has the potential to enable infrequent dosing.

Taken together, the half-life results from the cynomolgus monkey studies and the data from the in vitro potency assay can be interpreted to suggest a potential duration of efficacy for the antibodies. Specifically, the measured plasma concentration of an antibody at each timepoint from the cynomolgus monkey studies can be used to predict an expected level of plasma kallikrein inhibition at that time point based on the plasma kallikrein inhibition observed for that concentration of antibody in the in vitro potency assay. In the cynomolgus monkey studies, lanadelumab plasma levels fell below the minimum therapeutic concentration, or IC90, predicted by the in vitro potency assay by approximately day 10, and by day 20 were at levels the in vitro potency assay predicted would result in approximately 50% inhibition of plasma kallikrein. In contrast, in the cynomolgus monkey studies, QLS-215 plasma levels remained above the IC90 predicted by the in vitro potency assay for 84 days, which was the full duration of the experiment. These preclinical data suggest that at equal doses QLS-215 would have a significantly longer duration of action than lanadelumab. This could potentially enable a lower dose of QLS-215 that would have a longer duration of action than lanadelumab. We believe that this could result in QLS-215 being an effective prophylactic therapy for patients with HAE due to inhibition of the pathologic activity of plasma kallikrein for an extended time period.

In January 2021, we also entered into a Stock Purchase Agreement, or the Purchase Agreement, with certain institutional and accredited investors, or the Investors, pursuant to which, we sold an aggregate of 35,573 shares of Series X Preferred Stock for an aggregate purchase price of $110.0 million, or the February 2021 Financing. Subject to stockholder approval, each share of Series X Preferred Stock issued in the Merger and pursuant to the Purchase Agreement is convertible into 1,000 shares of common stock. Pursuant to the Merger Agreement, we have agreed to hold a stockholders’ meeting, which is scheduled for June 2, 2021, to submit the following matters to our stockholders for their consideration: (i) the approval of the conversion of the Series X Preferred Stock into shares of common stock in accordance with Nasdaq Listing Rule 5635(a), or the Conversion Proposal, and (ii) if necessary or appropriate, the approval of an amendment to our certificate of incorporation to authorize sufficient shares of common stock after the conversion of the Series X Preferred Stock issued pursuant to the Merger Agreement and the Purchase Agreement and/or to effectuate a reverse stock split. Assuming stockholder approval of the Conversion Proposal, on the fourth business day after such approval, each share of Series X Preferred Stock then outstanding would automatically convert into 1,000 shares of common stock, subject to certain beneficial ownership limitations, including that a holder of Series X Preferred Stock is prohibited from converting shares of Series X Preferred Stock into shares of common stock if, as a result of such conversion, such holder, together with its affiliates, would beneficially own more than a specified percentage (to be initially set at 9.99% and thereafter adjustable by the holder to a number between 4.99% and 19.99%) of the total number of shares of common stock issued and outstanding immediately after giving effect to such conversion. Shares of Series X Preferred Stock not converted automatically are thereafter subject to conversion at the option of the holder.

In connection with the Quellis Acquisition, we issued Series X Preferred Stock to Quellis stockholders in the Merger and to the Investors in the February 2021 Financing. We are obligated under the Merger Agreement to seek stockholder approval for the conversion of the Series X Preferred Stock into common stock. In the event that we fail to timely hold the stockholders’ meeting or fail to obtain stockholder approval of the Conversion Proposal, then the holders of the Series X Preferred Stock would be entitled to require us to redeem, in cash, the shares of common stock underlying their Series X Preferred Stock at a price per share equal to the fair value of the common stock. If we are forced to redeem a significant amount of shares underlying the Series X Preferred Stock, it could, among other things, materially affect our results of operations and cash usage forecasts, require us to slow down or stop the development of QLS-215 and any other future product candidates, require us to raise additional capital and impact our ability to raise additional capital.  Also, while we cannot predict the amount with any level of certainty, there is a level of cash settlement at which, if it is exceeded, could require us to make redemption payments in excess of our current liquidity. Based on precedent transactions and the terms of the Series X Preferred Stock, we believe that our stockholders who are entitled to vote on the Conversion Proposal at our 2021 Annual Meeting of Stockholders, which is scheduled for June 2, 2021, will vote to approve the proposal. However, as the vote of our stockholders is outside of our control, there is substantial doubt about our ability to continue as a going concern within one year from the filing of this Quarterly Report on Form 10-Q.