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Table of Contents

-

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended March 31, 2023

OR

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

Corvus Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

Delaware

001-37719

46-4670809

(State or other jurisdiction

of incorporation)

(Commission

File Number)

(IRS Employer

Identification Number)

863 Mitten Road, Suite 102
Burlingame, CA 94010

(Address of principal executive offices, including Zip Code)

Registrant’s telephone number, including area code: (650) 900-4520

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

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, Par Value $0.0001 per share

CRVS

Nasdaq Global Market

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or any 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. (Check one)

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 May 8, 2022, 46,568,511 shares of the registrant’s common stock, $0.0001 par value per share, were outstanding.

Table of Contents

CORVUS PHARMACEUTICALS, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2023

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

Item 1.

    

Financial Statements (unaudited)

5

Condensed Consolidated Balance Sheets

5

Condensed Consolidated Statements of Operations and Comprehensive Loss

6

Condensed Consolidated Statements of Change in Stockholders’ Equity

7

Condensed Consolidated Statements of Cash Flows

8

Notes to Condensed Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4.

Controls and Procedures

32

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

79

Item 3.

Defaults Upon Senior Securities

79

Item 4.

Mine Safety Disclosures

79

Item 5.

Other Information

79

Item 6.

Exhibits

80

SIGNATURES

81

2

Table of Contents

Risk Factor Summary

Below is a summary of the principal factors that make an investment in our common stock speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “Risk Factors” and should be carefully considered, together with other information in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission (SEC) before making investment decisions regarding our common stock.

We have incurred significant operating losses since our inception and expect to incur significant losses for the foreseeable future. We may never generate any revenue or become profitable or, if we achieve profitability, we may not be able to sustain it.
We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development, other operations or commercialization efforts.
The COVID-19 pandemic could adversely impact our business, including our clinical trials, and financial condition.
Our product candidates are in various stages of development and may fail or suffer delays that materially and adversely affect their commercial viability. If we are unable to advance our product candidates through clinical development, obtain regulatory approval and ultimately commercialize such product candidates, or experience significant delays in doing so, our business will be materially harmed.
Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and the results of preclinical studies and early clinical trials are not necessarily predictive of future results. Any product candidate we or any of our existing or potential future collaborators advance into clinical trials, including CPI-818, ciforadenant and mupadolimab, may not have favorable results in later clinical trials, if any, or receive regulatory approval.
Any termination or suspension of, or delays in the commencement or completion of, our planned clinical trials could result in increased costs to us, delay or limit our ability to generate revenue and adversely affect our commercial prospects.
Our product candidates are subject to extensive regulation, compliance with which is costly and time consuming, and such regulation may cause unanticipated delays or prevent the receipt of the required approvals to commercialize our product candidates.
We are conducting and plan to conduct clinical trials for CPI-818, ciforadenant and mupadolimab, and we and Angel Pharmaceuticals may in the future, conduct additional clinical trials of product candidates at sites outside the United States, and the FDA may not accept data from trials conducted in foreign locations.
If we encounter difficulties enrolling subjects in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.
The occurrence of serious complications or side effects in connection with use of our product candidates, either in clinical trials or post-approval, could lead to discontinuation of our clinical development programs, refusal of regulatory authorities to approve our product candidates or, post-approval, revocation of marketing authorizations or refusal to approve new indications, which could severely harm our business, prospects, operating results and financial condition.
We may not be successful in our efforts to identify or discover additional product candidates.

3

Table of Contents

We rely, and expect to continue to rely, on third parties to conduct our clinical trials. If these third parties do not meet our deadlines or otherwise conduct the trials as required, our clinical development programs could be delayed or unsuccessful and we may not be able to obtain regulatory approval for or commercialize our product candidates when expected, or at all.
We rely on third parties to conduct some or all aspects of our manufacturing, research and preclinical and clinical testing, and these third parties may not perform satisfactorily.
We, or our third-party manufacturers, may be unable to successfully scale-up manufacturing of our product candidates in sufficient quality and quantity, which would delay or prevent us from developing our product candidates and commercializing approved products, if any.
If we are unable to commercialize our product candidates or if we experience significant delays in obtaining regulatory approval for, or commercializing, any or all of our product candidates, our business will be materially and adversely affected.
If we do not achieve our projected development goals in the time frames we announce and expect, the commercialization of our products may be delayed and, as a result, our stock price may decline.
We face competition from entities that have developed or may develop product candidates for cancer, including companies developing novel treatments and technology platforms. If these companies develop technologies or product candidates more rapidly than we do or their technologies are more effective, our ability to develop and successfully commercialize product candidates may be adversely affected.
An active, liquid and orderly market for our common stock may not be sustained.
The trading price of the shares of our common stock could be highly volatile, and investors in our common stock could incur substantial losses.

4

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Unaudited Condensed Financial Statements

CORVUS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)

March 31, 

December 31, 

    

2023

    

2022

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

9,654

$

13,159

Marketable securities

 

24,813

 

29,144

Accounts receivable - related party

 

429

 

588

Prepaid and other current assets

 

655

 

773

Total current assets

 

35,551

 

43,664

Property and equipment, net

 

330

 

353

Operating lease right-of-use asset

1,953

2,217

Investment in Angel Pharmaceuticals

20,234

21,877

Other assets

129

129

Total assets

$

58,197

$

68,240

Liabilities and Stockholders’ Equity

 

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

1,407

$

1,976

Operating lease liability

1,263

1,228

Accrued and other liabilities

 

5,620

 

7,548

Total current liabilities

 

8,290

 

10,752

Operating lease liability

1,040

1,373

Total liabilities

 

9,330

 

12,125

Commitments and contingencies (Note 13)

 

  

 

  

Stockholders’ equity:

 

  

 

  

Preferred stock: $0.0001 par value; 10,000,000 shares authorized at March 31, 2023 and December 31, 2022; 0 shares issued and outstanding at March 31, 2023 and December 31, 2022

Common stock: $0.0001 par value; 290,000,000 shares authorized at March 31, 2023 and December 31, 2022; 46,568,511 and 46,553,511 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

 

5

 

5

Additional paid-in capital

 

364,857

 

364,361

Accumulated other comprehensive loss

 

(434)

 

(563)

Accumulated deficit

 

(315,561)

 

(307,688)

Total stockholders’ equity

 

48,867

 

56,115

Total liabilities and stockholders’ equity

$

58,197

$

68,240

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

5

Table of Contents

CORVUS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share data)

(unaudited)

Three Months Ended

March 31, 

    

2023

    

2022

    

Operating expenses:

  

 

  

Research and development

$

4,594

$

5,100

General and administrative

 

1,980

 

2,313

Total operating expenses

 

6,574

 

7,413

Loss from operations

 

(6,574)

 

(7,413)

Interest income and other expense, net

 

376

 

11

Sublease income - related party

56

146

Loss from equity method investment

(1,731)

(1,041)

Net loss

$

(7,873)

$

(8,297)

Net loss per share, basic and diluted

$

(0.17)

$

(0.18)

Shares used to compute net loss per share, basic and diluted

 

46,556,178

 

46,553,511

Other comprehensive loss:

 

 

  

Unrealized gain (loss) on marketable securities

 

41

 

(28)

Cumulative foreign currency translation adjustment

 

88

 

146

Comprehensive loss

$

(7,744)

$

(8,179)

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

6

Table of Contents

CORVUS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

Three Months Ended March 31, 2023

    

    

    

Accumulated

    

    

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholders’

    

Shares

    

Amount

    

Capital

    

Income

    

Deficit

    

Equity

Balance at December 31, 2022

46,553,511

$

5

$

364,361

$

(563)

$

(307,688)

$

56,115

Common stock issued on exercise of stock options

15,000

4

4

Stock-based compensation expense

492

492

Unrealized gain on marketable securities

41

41

Foreign currency translation adjustment

88

88

Net loss

(7,873)

(7,873)

Balance at March 31, 2023

46,568,511

$

5

$

364,857

$

(434)

$

(315,561)

$

48,867

Three Months Ended March 31, 2022

    

    

    

Accumulated

    

    

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholders’

    

Shares

    

Amount

    

Capital

    

Income

    

Deficit

    

Equity

Balance at December 31, 2021

46,553,511

$

5

$

361,669

$

1,869

$

(266,381)

$

97,162

Stock-based compensation expense

739

739

Unrealized loss on marketable securities

(28)

(28)

Foreign currency translation adjustment

146

146

Net loss

(8,297)

(8,297)

Balance at March 31, 2022

46,553,511

$

5

$

362,408

$

1,987

$

(274,678)

$

89,722

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

7

Table of Contents

CORVUS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

Three Months Ended

March 31, 

    

2023

    

2022

    

Cash flows from operating activities

  

 

  

Net loss

$

(7,873)

$

(8,297)

Adjustments to reconcile net loss to net cash used in operating activities:

 

  

 

  

Depreciation and amortization

 

57

 

87

Accretion related to marketable securities

 

(264)

 

55

Stock-based compensation

 

492

 

739

Loss from equity method investment

 

1,731

 

1,041

Changes in operating assets and liabilities:

 

  

 

  

Accounts receivable - related party

 

159

 

134

Prepaid and other current assets

 

118

 

304

Operating lease right-of-use asset

264

238

Accounts payable

 

(569)

 

624

Accrued and other liabilities

 

(1,928)

 

(1,095)

Operating lease liability

(298)

(254)

Net cash used in operating activities

 

(8,111)

 

(6,424)

Cash flows from investing activities

 

  

 

  

Purchases of marketable securities

 

(13,089)

 

(26,384)

Maturities of marketable securities

 

17,725

 

810

Purchases of property and equipment

 

(34)

 

Net cash (used in) provided by investing activities

 

4,602

 

(25,574)

Cash flows from financing activities

 

  

 

  

Proceeds from exercise of common stock options

 

4

 

Net cash provided by financing activities

 

4

 

Net decrease in cash and cash equivalents

 

(3,505)

 

(31,998)

Cash and cash equivalents at beginning of the period

 

13,159

 

63,458

Cash and cash equivalents at end of the period

$

9,654

$

31,460

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

8

Table of Contents

CORVUS PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1. Organization

Corvus Pharmaceuticals, Inc. (“Corvus” or the “Company”) was incorporated in Delaware on January 27, 2014 and commenced operations in November 2014. Corvus is a clinical-stage biopharmaceutical company. The Company’s operations are located in Burlingame, California.

Presentation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Corvus Biopharmaceuticals, Ltd. and Corvus Hong Kong Limited. All intercompany accounts and transactions have been eliminated from the consolidated financial statements.

Initial Public Offering

On March 22, 2016, the Company’s registration statement on Form S-1 (File No. 333-208850) relating to its initial public offering (“IPO”) of its common stock was declared effective by the Securities and Exchange Commission (“SEC”) and the shares of its common stock began trading on the Nasdaq Global Market on March 23, 2016. The public offering price of the shares sold in the IPO was $15.00 per share. The IPO closed on March 29, 2016, pursuant to which the Company sold 4,700,000 shares of its common stock. On April 26, 2016, the Company sold an additional 502,618 shares of its common stock to the underwriters upon partial exercise of their over-allotment option, at the initial offering price of $15.00 per share. The Company received aggregate net proceeds of approximately $70.6 million, after underwriting discounts, commissions and offering expenses. Immediately prior to the consummation of the IPO, all outstanding shares of convertible preferred stock were converted into common stock.

Follow-on Public Offerings

In March 2018, the Company completed a follow-on public offering in which the Company sold 8,117,647 shares of common stock at a price of $8.50 per share, which included 1,058,823 shares issued pursuant to the underwriters’ exercise of their option to purchase additional shares of common stock. The aggregate net proceeds received by the Company from the offering were approximately $64.9 million, net of underwriting discounts and commissions and offering expenses payable by the Company.

In February 2021, the Company completed a follow-on public offering in which the Company sold 9,783,660 shares of common stock at a price of $3.50 per share, which included 1,212,231 shares issued pursuant to the underwriters’ exercise of their option to purchase additional shares of common stock. The aggregate net proceeds received by the Company from the offering were approximately $32.0 million, net of underwriting discounts and commissions and offering expenses.

Liquidity

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, protection of proprietary technology, dependence on key personnel, contract manufacturer and contract research organizations, compliance with government regulations and the need to obtain additional financing to fund operations. Since commencing operations in 2014, the majority of the Company’s efforts have been focused on the research and development of CPI-818, ciforadenant and mupadolimab (formerly CPI-006). The Company believes that it will continue to expend substantial resources for the foreseeable future as it continues clinical development of, seek regulatory approval for and, if approved, prepare for the commercialization of CPI-818, ciforadenant and mupadolimab, as well as product candidates under the Company’s other development programs. These expenditures will include costs associated with research and development, conducting preclinical studies and clinical trials, obtaining regulatory

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approvals, manufacturing and supply, sales and marketing and general operations. In addition, other unanticipated costs may arise. Because the outcome of any clinical trial and/or regulatory approval process is highly uncertain, the Company may not be able to accurately estimate the actual amounts necessary to successfully complete the development, regulatory approval process and commercialization of CPI-818, ciforadenant and mupadolimab or any other product candidates. The Company does not expect its existing capital resources to be sufficient to enable it to fund the completion of its clinical trials and remaining development program of CPI-818, ciforadenant and mupadolimab through commercialization. In addition, its operating plan may change as a result of many factors, including those described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed on March 28, 2023 and this Quarterly Report on Form 10-Q.

The Company has incurred significant losses and negative cash flows from operations in all periods since inception and had an accumulated deficit of $315.6 million as of March 31, 2023. The Company has historically financed its operations primarily through the sale of common stock and redeemable convertible preferred stock. While the Company has been able to raise multiple rounds of financing, there can be no assurance that in the event the Company requires additional financing, such financing will be available on terms which are favorable or at all. Failure to generate sufficient cash flows from operations, raise additional capital or reduce certain discretionary spending would have a material adverse effect on the Company’s ability to achieve its intended business objectives.

As of March 31, 2023, the Company had cash, cash equivalents and short-term marketable securities of $34.5 million. Management believes that the Company’s current cash, cash equivalents and short-term marketable securities will be sufficient to fund its planned operations for at least 12 months from the date of the issuance of these financial statements.

As of March 28, 2023, at the time of the filing of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, and during the sixty-day period preceding this date, its calculated public float was below $75.0 million. As a result, it has been and will be subject to baby shelf rules for any offerings conducted on its shelf registration statement, including any sales under its ATM with Jefferies LLC (“Jefferies”). Such rules limit the amount the Company can raise until such time that its public float is above $75.0 million.

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 (“U.S. GAAP”). The Company’s functional and reporting currency is the U.S. dollar, except for its investment in its equity method investee which is the Chinese renminbi (RMB). The accompanying condensed consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and discharge of liabilities in the normal course of business.

Unaudited Interim Financial Information

The accompanying interim condensed consolidated financial statements and related disclosures are unaudited, have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the results of operations for the periods presented.

The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The condensed consolidated results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the full year or for any other future year or interim period. The accompanying condensed consolidated financial statements should be read in conjunction with the audited financial statements and the related notes for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 28, 2023.

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Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from such estimates.

Investments in Equity Securities

The Company uses the equity method of accounting for its equity investment if the investment provides the ability to exercise significant influence, but not control, over operating and financial policies of the investee.

The Company’s proportionate share of the net income (loss) resulting from the equity method investment is reported under the line item captioned “loss from equity method investment” in the Consolidated Statements of Operations and Comprehensive Loss and the carrying value of the equity method investments is reported under the line captioned “Investment in Angel” in the Consolidated Balance Sheets. The Company’s equity method investments are reported at cost and adjusted each period for the Company’s share of the investee’s income or loss and the foreign currency translation adjustment as applicable.

For equity method investees with a functional currency different than the Company’s reporting currency, the Company follows the guidance under ASC 830-10-15-5, pursuant to which, the foreign currency financial statements of a foreign investee accounted for by the equity method should be translated to the reporting entity's reporting currency.

The Company evaluates equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable. Factors considered by the Company when reviewing an equity method investment for impairment include the length of time (duration) and the extent (severity) to which the fair value of the equity method investment has been less than cost, the investee’s financial condition and near-term prospects and the intent and ability to hold the investment for a period of time sufficient to allow for anticipated recovery. An impairment that is other-than-temporary is recognized in the period identified.

Concentrations of Credit Risk and Other Risks and Uncertainties

Substantially all of the Company’s cash and cash equivalents are deposited in accounts with two financial institutions that management believes are of high credit quality. Such deposits may, at times, exceed federally insured limits. The Company maintains its cash with an accredited financial institution and accordingly, such funds are subject to minimal credit risk. The Company’s marketable securities consist of investments in U.S. Treasury securities and U.S. government agency securities, which can be subject to certain credit risks. However, the Company mitigates the risks by investing in high-grade instruments, limiting its exposure to any one issuer, and monitoring the ongoing creditworthiness of the financial institutions and issuers. The Company has not experienced any losses on its deposits of cash, cash equivalents or marketable securities.

The Company is subject to a number of risks similar to other early stage biopharmaceutical companies, including, but not limited to, the need to obtain adequate additional funding, possible failure of preclinical testing or clinical trials, its reliance on third parties to conduct its clinical trials, the need to obtain marketing approval for its product candidates, competitors developing new technological innovations, the need to successfully commercialize and gain market acceptance of the Company’s product candidates, its right to develop and commercialize its product candidates pursuant to the terms and conditions of the licenses granted to the Company, and protection of proprietary technology. If the Company does not successfully commercialize or partner any of its product candidates, it will be unable to generate product revenue or achieve profitability.

Segments

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource

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allocation and assessing performance. The Company views its operations and manages its business in one operating segment, that of the development of and commercialization of precisely targeted oncology therapies.

Significant Accounting Policies

The Company’s significant accounting policies are described in Note 2 to its consolidated financial statements for the year ended December 31, 2022, included in its Annual Report on Form 10-K. There have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2023.

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 is effective in 2021 and interim periods within that year and permits for an early adoption. The Company adopted ASU 2019-12 effective January 1, 2021. The adoption of the guidance did not have a material impact on its financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The standard amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. For available-for-sale debt securities, entities will be required to recognize an allowance for credit losses rather than a reduction in carrying value of the asset. Entities will no longer be permitted to consider the length of time that fair value has been less than amortized cost when evaluating when credit losses should be recognized. This new guidance is effective in the first quarter of 2023 for calendar-year SEC filers that are smaller reporting companies as of the one-time determination date. The Company has adopted the new guidance as of January 1, 2023, and it did not have a material impact on its financial statements and related disclosures.

3. Net Loss per Share

The following table shows the calculation of net loss per share (in thousands, except share and per share data):

Three Months Ended

March 31, 

    

2023

    

2022

    

Numerator:

  

 

  

Net loss - basic and diluted

$

(7,873)

$

(8,297)

Denominator:

 

 

  

Weighted average common shares outstanding used to compute basic and diluted net loss per share

 

46,556,178

 

46,553,511

Net loss per share, basic and diluted

$

(0.17)

$

(0.18)

The amounts in the table below were excluded from the calculation of diluted net loss per share, due to their anti-dilutive effect:

Three Months Ended

March 31, 

    

2023

    

2022

    

Outstanding options

7,731,807

 

5,773,988

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4. Fair Value Measurements

Financial assets and liabilities are measured and recorded at fair value. The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. The fair value hierarchy prioritizes valuation inputs based on the observable nature of those inputs. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The hierarchy defines three levels of valuation inputs:

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

Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly

Level 3—Unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability

There have been no transfers of assets and liabilities between levels of hierarchy.

The Company’s Level 2 investments are valued using third-party pricing sources. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar investments, issuer credit spreads, benchmark investments, prepayment/default projections based on historical data and other observable inputs.

The following tables present information as of March 31, 2023 and December 31, 2022 about the Company’s assets that are measured at fair value on a recurring basis and indicate the level of the fair value hierarchy the Company utilized to determine such fair values (in thousands):

March 31, 2023

Fair Value Measured Using

Total

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Balance

Assets

 

  

 

  

 

  

 

  

Cash equivalents

$

9,407

$

$

$

9,407

Marketable securities

 

14,698

 

10,115

 

 

24,813

$

24,105

$

10,115

$

$

34,220

December 31, 2022

Fair Value Measured Using

Total

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Balance

Assets

 

  

 

  

 

  

 

  

Cash equivalents

$

11,942

$

$

$

11,942

Marketable securities

22,001

 

7,143

 

 

29,144

$

33,943

$

7,143

$

$

41,086

As of March 31, 2023 marketable securities had a maximum remaining maturity of nine months.

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As of March 31, 2023 and December 31, 2022, the fair value of available for sale marketable securities by type of security were as follows (in thousands):

March 31, 2023

    

    

Gross

    

Gross

    

Amortized

Unrealized

Unrealized

Fair

Cost

Gains

Losses

Value

U.S. Treasury securities

$

14,697

$

4

$

(3)

$

14,698

U.S. Government agency securities

10,126

2

(13)

10,115

$

24,823

$

6

$

(16)

$

24,813

December 31, 2022

    

    

Gross

    

Gross

    

Amortized

Unrealized

Unrealized

Fair

Cost

Gains

Losses

Value

U.S. Treasury securities

$

22,020

$

4

$

(23)

$

22,001

U.S. Government agency securities

7,175

(32)

7,143

$

29,195

$

4

$

(55)

$

29,144

5. Equity Method Investment

As of March 31, 2023 and December 31, 2022, the Company’s ownership interest in Angel was approximately 49.7%, excluding 7% of Angel’s equity reserved for issuance under the Angel ESOP. The Company recognized its share of losses in Angel for the total amount of $1.7 million and $1.0 million as loss from equity method investment on the consolidated statement of operations for the three months ended March 31, 2023 and 2022, respectively.

Summary Financial Information

Summary financial information for Angel Pharmaceuticals is as follows:

As of

As of

Balance Sheet Data

    

March 31, 2023

December 31, 2022

 

(in thousands)

Current assets

$

24,463

$

29,062

Non-current assets

 

1,572

 

1,652

Current liabilities

 

3,625

 

6,293

Non-current liabilities

 

903

 

985

Stockholders' equity

21,507

23,436

Three Months Ended

March 31,

Statement of Operations Data

    

2023

2022

 

(in thousands)

Revenue

$

$

Gross Profit

 

 

Net loss

(2,032)

(1,325)

Share of loss from investments accounted for using the equity method

 

(1,731)

 

(1,041)

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6. License and Collaboration Agreements

Scripps Licensing Agreement

In December 2014, the Company entered into a license agreement with The Scripps Research Institute (“Scripps”), pursuant to which it was granted a non-exclusive, world-wide license for all fields of use under Scripps’ rights in certain know-how and technology related to a mouse hybridoma clone expressing an anti-human CD73 antibody, and to progeny, mutants or unmodified derivatives of such hybridoma and any antibodies expressed by such hybridoma, from which we developed mupadolimab. Scripps also granted the Company the right to grant sublicenses in conjunction with other proprietary rights the Company holds, or to others collaborating with or performing services for the Company. Under this license agreement, Scripps has agreed not to grant any additional commercial licenses with respect to such materials, other than march-in rights granted to the U.S. government.

Upon execution of the agreement, the Company made a one-time cash payment to Scripps of $10,000 and is also obligated to pay a minimum annual fee to Scripps of $25,000. The first minimum annual fee payment is due on each anniversary of the effective date of the agreement and will be due on each subsequent anniversary of the effective date for the term of the agreement. The Company is also required to make performance-based cash payments upon successful completion of clinical and sales milestones. The aggregate potential milestone payments are $2.6 million. The Company is also required to pay royalties on net sales of licensed products (including mupadolimab) sold by it, its affiliates and its sublicensees at a rate in the low-single digits. In addition, should the Company sublicense the rights licensed under the agreement, it has agreed to pay a percentage of sublicense revenue received at specified rates that start at double digit percentages and decrease to single digit percentages based on the elapsed time from the effective date of the agreement and the time of entry into such sublicense. To date, no milestone payments have been made.

The Company’s license agreement with Scripps will terminate upon expiration of its obligation to pay royalties to Scripps under the license agreement. The Company’s license agreement with Scripps is terminable by the consent of the parties, at will by the Company upon providing 90 days written notice to Scripps, or by Scripps for certain material breaches, or if the Company undergoes a bankruptcy event. In addition, Scripps may terminate the license on a product-by-product basis, or the entire agreement, if the Company fails to meet specified diligence obligations related to the development and commercialization of licensed products. Scripps may also terminate the agreement after the third anniversary of the effective date of the agreement if it reasonably believes, based on reports the Company provides to Scripps, that the Company has not used commercially reasonable efforts as required under the agreement, subject to a specified notice and cure period.

Vernalis Licensing Agreement

In February 2015, the Company entered into a license agreement with Vernalis (R&D) Limited (“Vernalis”), which was subsequently amended as of November 5, 2015, and, pursuant to which the Company was granted an exclusive, worldwide license under certain patent rights and know-how, including a limited right to grant sublicenses, for all fields of use to develop, manufacture and commercialize products containing certain adenosine receptor antagonists, including ciforadenant. Pursuant to this agreement, the Company made a one-time cash payment to Vernalis in the amount of $1.0 million, which was recorded as research and development expense as technological feasibility of the asset had not been established and there was no alternative future use. The Company is also required to make cash milestone payments to Vernalis upon the successful completion of clinical and regulatory milestones for licensed products depending on the indications for which such licensed products are developed and upon achievement of certain sales milestones. In February 2017, the Company made a milestone payment of $3.0 million to Vernalis following the expansion of a cohort of patients with renal cell cancer treated with single agent ciforadenant in the Company’s Phase 1/1b clinical trial. During the three months ended March 31, 2023, no clinical or regulatory milestones were completed or paid to Vernalis and the aggregate potential milestone payments were approximately $220 million for all indications as of March 31, 2023. The Company has also agreed to pay Vernalis tiered incremental royalties based on the annual net sales of licensed products containing ciforadenant on a product by product and country by country basis, subject to certain offsets and reductions. The tiered royalty rates for products containing ciforadenant range from the mid single digits up to the low double digits on a country by country net sales basis. The royalties on other licensed products that do not include ciforadenant also increase with the amount of net sales on a product-by-product and country by country basis

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and range from the low single digits up to the mid single digits on a country by country net sales basis. The Company is also obligated to pay to Vernalis certain sales milestones as indicated above when worldwide net sales reach specified levels over an agreed upon time period.

The Company has also agreed to pay Vernalis tiered incremental royalties based on the annual net sales of licensed products containing ciforadenant on a product-by-product and country-by-country basis, subject to certain offsets and reductions. The tiered royalty rates for products containing ciforadenant range from the mid-single digits up to the low-double digits on a country-by-country net sales basis. The royalties on other licensed products that do not include ciforadenant also increase with the amount of net sales on a product-by-product and country-by-country basis and range from the low-single digits up to the mid-single digits on a country-by-country net sales basis. The Company is also obligated to pay to Vernalis certain sales milestones as indicated above when worldwide net sales reach specified levels over an agreed upon time period.

The agreement will expire on a product-by-product and country-by-country basis upon the expiration of the Company’s payment obligations to Vernalis in respect of a particular product and country. Both parties have the right to terminate the agreement for an uncured material breach by the other party. The Company may also terminate the agreement at its convenience by providing 90 days written notice, provided that the Company has not received notice of its own default under the agreement at the time the Company exercises such termination right. Vernalis may also terminate the agreement if the Company challenges a licensed patent or undergoes a bankruptcy event.

Monash License Agreement

In April 2017, the Company entered into a license agreement with Monash University (Monash), pursuant to which the Company was granted an exclusive, sublicensable worldwide license under certain know-how, patent rights and other intellectual property rights controlled by Monash to research, develop, and commercialize certain antibodies directed to CXCR2 for the treatment of human diseases.

Upon execution of the agreement, the Company made a one time cash payment to Monash of $275,000 and reimbursed Monash for certain patent prosecution costs incurred prior to execution of the agreement. The Company recorded these payments as research and development expenses for the year ended December 31, 2017. The Company is also obligated to pay an annual license maintenance fee to Monash of $25,000 until a certain development milestone is met with respect to the licensed product, after which no further maintenance fee will be due. The Company is also required to make development and sales milestone payments to Monash with respect to the licensed products. During the three months ended March 31, 2023, no development or sales milestones were completed or paid to Monash and the aggregate potential milestones were $45.1 million as of March 31, 2023. The Company is also required to pay to Monash tiered royalties on net sales of licensed products sold by it, its affiliates and its sublicensees at a rate ranging in the low single digits. In addition, should the Company sublicense its rights under the agreement, the Company has agreed to pay a percentage of sublicense revenue received at specified rates that are currently at low double digit percentages and decrease to single digit percentages based on the achievement of development milestones.

The term of the Company’s agreement with Monash continues until the expiration of its obligation to pay royalties to Monash thereunder. The license agreement is terminable at will by the Company upon providing 30 days written notice to Monash, or by either party for material breaches by the other party. In addition, Monash may terminate the entire agreement or convert the license to a non-exclusive license if the Company has materially breached its obligation to use commercially reasonable efforts to develop and commercialize a licensed product, subject to a specified notice and cure mechanism.

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7. Balance Sheet Components (in thousands)

March 31, 

December 31, 

    

2023

    

2022

Prepaid and Other Current Assets

Interest receivable

$

38

$

45

Prepaid research and development manufacturing expenses

221

192

Prepaid facility expenses

196

182

Prepaid insurance

69

252

Other

 

131

 

102

$

655

$

773

Property and Equipment

Laboratory equipment

$

2,678

$

2,673

Computer equipment and purchased software

 

171

 

142

Leasehold improvements

 

2,084

 

2,084

 

4,933

 

4,899

Less: accumulated depreciation and amortization

 

(4,603)

 

(4,546)

$

330

$

353

Accrued and Other Liabilities

Accrued clinical trial expense

$

2,893

$

2,934

Accrued manufacturing expense

 

1,482

 

3,254

Personnel related

 

658

 

1,113

Accrued legal and accounting

208

89

Other

 

379

 

158

$

5,620

$

7,548

During the three months ended March 31, 2023 and 2022, the Company recorded approximately $57,000 and $87,000 in depreciation expense, respectively.

8. Common Stock

As of March 31, 2023, the amended and restated certificate of incorporation authorizes the Company to issue 290 million shares of common stock and 10 million shares of preferred stock.

Each share of common stock is entitled to one vote. Common stockholders are entitled to dividends if and when declared by the board of directors. As of March 31, 2023, no dividends on common stock had been declared.

In March 2020, the Company entered into an open market sale agreement (the “2020 Sales Agreement”) with Jefferies LLC (“Jefferies”) to sell shares of the Company’s common stock, from time-to-time, with aggregate gross sales proceeds of up to $50,000,000, through an at-the-market equity offering program under which Jefferies will act as its sales agent. In November 2021, the Company entered into another Sale Agreement (“2021 Sales Agreement”) with Jefferies to sell shares of its common stock from time-to-time, with aggregate gross sales proceeds of up to $40,000,000.

On March 28, 2023, the Company terminated both the 2020 Sales Agreement and the 2021 Sales Agreement and concurrently entered into a new open market sale agreement (the “2023 Sales Agreement”) with Jefferies to sell shares of the Company’s common stock, from time-to-time, with aggregate gross sales proceeds of up to $90,000,000, through an at-the-market equity offering program under which Jefferies will act as its sales agent. The issuance and sale of shares of common stock by the Company pursuant to the 2023 Sales Agreement are deemed an “at-the-market” offering under the Securities Act of 1933, as amended. Jefferies is entitled to compensation for its services equal to 3.0% of the gross proceeds of any shares of common stock sold through Jefferies under the 2023 Sales Agreement.

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During the three months ended March 31, 2023, the Company did not sell any shares of common stock under its at-the-market offering program. As of March 31, 2023, the Company had sold 6,920,339 shares of common stock for gross proceeds of $31.1 million under the 2020 Sales Agreement.

The Company has reserved shares of common stock for issuance as follows:

March 31, 

December 31, 

    

2023

    

2022

    

Shares available for future option grants

5,138,454

4,017,011

Outstanding options

 

7,731,807

7,006,250

 

Shares reserved for employee stock purchase plan

 

400,000

400,000

 

Total

 

13,270,261

11,423,261

 

9. Stock Option Plans

In February 2014, the Company adopted the 2014 Equity Incentive Plan (the “2014 Plan”), which was subsequently amended in November 2014, July 2015 and September 2015, under which it granted incentive stock options (“ISOs”) or non-qualified stock options (“NSOs”). Terms of stock agreements, including vesting requirements, are determined by the board of directors or a committee authorized by the board of directors, subject to the provisions of the 2014 Plan. In general, awards granted by the Company vest over four years and have a maximum exercise term of 10 years. The 2014 Plan provides that grants must be at an exercise price of 100% of fair market value of the Company’s common stock as determined by the board of directors on the date of the grant.

In connection with the consummation of the IPO in March 2016, the 2016 Equity Incentive Award Plan (the “2016 Plan”), became effective. Under the 2016 Plan, incentive stock options, non-statutory stock options, stock purchase rights and other stock-based awards may be granted. Terms of stock agreements, including vesting requirements, are determined by the board of directors or a committee authorized by the board of directors, subject to the provisions of the 2016 Plan. In general, awards granted by the Company vest over four years and have a maximum exercise term of 10 years. The 2016 Plan provides that grants must be at an exercise price of 100% of fair market value of the Company’s common stock as determined by the board of directors on the date of the grant. In conjunction with adopting the 2016 Plan, the 2014 Plan was terminated and no further awards will be granted under the 2014 Plan. Options outstanding under the 2014 Plan as of the effective date of the 2016 Plan that are forfeited or lapse unexercised may be re-issued under the 2016 Plan, up to a maximum of 1,136,229 shares.

Activity under the Company’s stock option plans is set forth below:

Options Outstanding

    

    

    

Weighted 

Shares

Average

Available

Number of 

Exercise

    

for Grant

    

Options

    

Price

Balance at December 31, 2022

 

4,017,011

 

7,006,250

$

5.25

Additional shares authorized

 

1,862,000

 

 

Options granted

 

(860,000)

 

860,000

 

0.90

Options exercised

 

 

(15,000)

 

0.28

Options forfeited

 

119,443

 

(119,443)

 

6.75

Balance at March 31, 2023

 

5,138,454

 

7,731,807

$

4.75

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10. Stock-Based Compensation

The Company’s results of operations include expenses relating to employee and non-employee stock-based awards as follows (in thousands):

Three Months Ended

March 31, 

    

2023

    

2022

    

Research and development

$

192

$

302

General and administrative

 

300

 

437

Total

$

492

$

739

11. Income Taxes

During the three months ended March 31, 2023 and 2022, the Company recorded no income tax benefits for the net operating losses (NOLs) incurred due to the uncertainty of realizing a benefit from those items. The Company continues to maintain a full valuation allowance against its net deferred tax assets.

12. Facility Lease

In January 2015, the Company signed an initial operating lease, effective February 1, 2015 for 8,138 square feet of office and laboratory space with a one year term. Between January 2015 and September 2021, the Company entered into a series of lease amendments to increase the amount of leased space to 27,280 square feet and extend the expiration of the lease to February 2025. The lease agreement includes annual rent escalations. Under the lease and subsequent amendments, the landlord provided approximately $1.9 million in free rent and lease incentives. The Company records rent expense on a straight-line basis over the effective term of the lease, including any free rent periods and incentives. As the interest rate implicit in lease arrangements is typically not readily available, in calculating the present value of the lease payments, the Company has utilized its incremental borrowing rate, which was determined based on the prevailing market rates for collateralized debt with maturity dates commensurate with the term of its lease. The Company’s facility lease is a net lease, as the non-lease components (i.e. common area maintenance) are paid separately from rent based on actual costs incurred. Therefore, the non-lease components were not included in the right-of-use asset and liability and are reflected as an expense in the period incurred.

In September 2021, the Company entered into a lease amendment to extend the expiration of its operating lease by two years from February 2023 to February 2025. As a result of this lease extension, the Company recorded a $2.4 million increase in the operating lease right-of-use asset and a corresponding increase in the operating lease liability.

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As of March 31, 2023 and December 31, 2022, the right-of-use asset under operating lease was $2.0 million and $2.2 million, respectively. The elements of lease expense for the three months ended March 31, 2023 and 2022 were as follows (in thousands):

Three Months Ended

 

    

Statements of operations and

March 31, 

 

comprehensive loss location

2023

    

2022

Costs of operating lease

Operating lease costs

Research and development,
General and administrative

$

306

$

306

Costs of non-lease components (previously common area maintenance)

Research and development,
General and administrative

111

108

Total operating lease cost

$

417

$

414

Other Information

 

Operating cash flows used for operating lease

$

459

$

433

Remaining lease term

 

1.8 years

 

2.8 years

Discount rate

 

8.0%

 

8.0%

As of March 31, 2023, minimum rental commitments under this lease were as follows (in thousands):

Year Ended December 31 (in thousands)

    

2023*

$

1,043

2024

1,434

Total lease payments

 

2,477

Less: imputed interest

(174)

Total

 

$

2,303

* Remainder of the year

As of December 31, 2022, minimum rental commitments under this lease were as follows (in thousands):

Year Ended December 31 (in thousands)

    

2023

$

1,391

2024

 

1,434

Total lease payments

 

2,825

Less: imputed interest

(224)

Total

 

$

2,601

In August 2021, the Company entered into an agreement to sublease 7,585 square feet of its office and laboratory space in Burlingame, California to Angel Pharmaceuticals. Pursuant to the sublease, rent is due monthly and is subject to scheduled annual increases and Angel Pharmaceuticals is responsible for certain operating expenses and taxes throughout the life of the sublease. The sublease will expire in February 2023 and Angel Pharmaceuticals has no option to extend the sublease term. Sublease income is recognized on a straight-line basis as other income in our consolidated statements of operations. For the three months ended March 31, 2023 and 2022, the Company recognized approximately $56,000 and $146,000 of sublease income, respectively.

13. Commitments and Contingencies

In August 2015, the Company entered into an agreement for a line of credit of $0.1 million for the purpose of issuing its landlord a letter of credit of $0.1 million as a security deposit under its facility lease. The Company pledged money market funds and marketable securities as collateral for the line of credit. For further discussion of the Company’s facility lease agreement, see Note 12.

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Pursuant to the Company’s license agreements with each of Vernalis, Scripps and Monash, it has obligations to make future milestone and royalty payments to these parties, respectively. However, because these amounts are contingent, they have not been included on the Company’s balance sheet. For further discussion of the Vernalis, Scripps and Monash licensing agreements, see Note 6.

Indemnifications

In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, the Company may indemnify, hold harmless and defend an indemnified party for losses suffered or incurred by the indemnified party. Some of the provisions will limit losses to those arising from third-party actions. In some cases, the indemnification will continue after the termination of the agreement. The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable. The Company has never incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. The Company has also entered into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers to the fullest extent permitted by Delaware corporate law. There have been no claims to date and the Company has a directors and officers insurance policy that may enable it to recover a portion of any amounts paid for future claims.

Legal Proceedings

The Company is not a party to any material legal proceedings.

14. Related Party Transactions

As more fully described in Note 5 to the Company’s consolidated financial statements for the year ended December 31, 2022, included in the Annual Report on Form 10-K, the Company holds a 49.7% ownership in Angel Pharmaceuticals and, in connection with intellectual property licensing agreements between the Company and Angel Pharmaceuticals, the Company provides operational support and clinical drug supplies to Angel Pharmaceuticals. Third-party and internal personnel costs incurred by the Company are billed to Angel Pharmaceuticals in the period incurred and recorded as an offset to expenses. During the three months ended March 31, 2023 and 2022, the Company billed Angel for $0.0 million and approximately $50,000, respectively, in internal personnel costs and approximately $48,000 and $101,000, respectively, in third-party party costs.

In addition to the provision of clinical supplies to Angel Pharmaceuticals, Angel Pharmaceuticals may provide clinical supplies or research services to the Company on an as needed basis. These costs are recorded as research and development expense. During the three months ended March 31, 2023, Angel Pharmaceuticals billed the Company for approximately $0.1 million in research services.

In August 2021, the Company entered into an agreement to sublease 7,585 square feet of its office and laboratory space in Burlingame, California to Angel Pharmaceuticals. Pursuant to the sublease, rent is due monthly and is subject to scheduled annual increases and Angel Pharmaceuticals is responsible for certain operating expenses and taxes throughout the life of the sublease. The sublease will expire in February 2023 and Angel Pharmaceuticals has no option to extend the sublease term. Sublease income is recognized on a straight-line basis as other income in our consolidated statements of operations. For the three months ended March 31, 2023 and 2022, the Company recognized approximately $56,000 and $146,000 of sublease income, respectively.

In July 2021, Linda S. Grais, M.D., J.D., a member of the Company’s Board of Directors, was appointed as a non-executive member of the Board of Directors of ICON plc (“ICON”), effective upon completion of ICON’s acquisition of PRA Health Sciences, Inc. ICON is a clinical research organization and provides services to support the Company’s clinical trials. During the three months ended March 31, 2023 and 2022, the Company recorded approximately $118,000 and $69,000, respectively, in clinical trial expenses under its agreements with ICON.

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

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and notes for the year ended December 31, 2022, included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 28, 2023.

This discussion and other parts of this report contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this report entitled “Risk Factors.” Except as may be required by law, we assume no obligation to update these forward-looking statements or the reasons that results could differ from these forward-looking statements.

Overview

We are a clinical stage biopharmaceutical company. Our strategy is to focus our efforts on the development of immune modulator product candidates with the potential to treat solid cancers, T cell lymphomas, autoimmune, allergic and infectious diseases. We have three product candidates which are in clinical development for treatment of various solid tumors.

Our lead product candidate is CPI-818, is an investigational selective, orally bioavailable, covalent inhibitor of ITK. ITK, an enzyme that functions in T cell signaling and differentiation, is expressed predominantly in T cells, which are lymphocytes that play a vital role in immune responses. T cell lymphomas are malignancies of T cells that proliferate and spread throughout the body. These lymphomas often have tonic signaling through the T cell receptor pathway, which involves ITK. Inhibition of ITK could result in blockade of this signaling pathway and control the growth of the malignancy. In addition, one of the key survival mechanisms of both lymphomas and solid tumors is believed to be the reprogramming of normal T cells to create an inflammatory environment that inhibits anti-tumor immune response and favors tumor growth. We believe highly selective inhibitors of this enzyme will facilitate induction of normal T cell anti-tumor immunity and may be useful in the treatment of solid tumors as well as lymphomas. We believe that CPI-818 can lead to reprograming of normal immune responses that could be beneficial for the treatment of certain autoimmune and allergic diseases. Selective inhibition of ITK can induce the differentiation of naïve T cells into Th1 cells, a process known as Th1 skewing. Th1 cells lead to the generation of killer T cells that can eliminate tumor cells or viral infected cells. Selective ITK inhibition also results in the blockade of Th2 cells. Overactive Th2 cells play a role in autoimmune and allergic diseases.

CPI-818 is currently being studied in a Phase 1/1b clinical trial that was designed to select the recommended Phase 2 dose of CPI-818 and evaluate its safety, pharmacokinetics (“PK”), target occupancy, immunologic effects, biomarkers and efficacy. The study employs an adaptive, expansion cohort design, with an initial phase that evaluated escalating doses (100, 200, 400, 600 mg taken twice a day) in successive cohorts of patients, followed by a second phase that is designed to evaluate safety and tumor response to the recommended dose of CPI-818 in disease-specific patient cohorts. By protocol design, treatment is discontinued after one year or upon disease progression. The study has enrolled patients from the United States, Australia, China and South Korea with several types of advanced, refractory T cell lymphomas. During the dose escalation phase of the study, and with longer follow up, it became clear that the patients receiving the 200mg twice per day dose were demonstrating higher response rates as well as longer disease control. This dose was determined to be the optimal dose and was consistent with dose-response effects seen in in vitro experiments described above.

In December 2022 at the American Society of Hematology Annual Meeting (“ASH”), we presented preliminary Phase 1/1b clinical data with CPI-818 in refractory T cell lymphomas. The data presented were as of a September 2, 2022 data cut-off:

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T Cell Lymphoma Interim Data Highlights

13 patients were enrolled in the 200 mg cohort and 11 were evaluable for response. Overall objective responses were seen in 4 of 11 patients. Enrolled patients were heavily pretreated receiving a median of 3 prior therapies. In this group, there was one complete response (“CR”) lasting 25 months in a patient with peripheral T cell lymphoma (“PTCL”); one nodal CR lasting 19 months in a patient with cutaneous T cell lymphoma; and two partial responses (“PR”) ongoing at six and eight months follow up, respectively, in patients with PTCL and anaplastic large cell lymphoma. An additional patient in the 600 mg cohort also had a PR.
No dose limiting toxicities were observed, and a maximum tolerated dose was not reached at doses as high as 600 mg twice per day.

Immunologic Interim Data Highlights

The 200 mg dose induced Th1 skewing and both Th2 and Th17 blockade based on peripheral blood samples from several patients:
oIn one patient that had a substantial reduction of a large tumor on the abdominal wall, a blood sample analysis demonstrated an increase in blood Th1, a decrease in blood Th17, and a reduction of eosinophil count and IL-5 consistent with Th1 skewing and Th2 blockade. Tumor samples in this patient were also analyzed and showed an increase in terminally differentiated T effector memory cells (“TEMRA” cells), which are T cells that have responded to an antigen and are able to mediate effector functions, such as the destruction of tumor cells.
oIn four patients (two with PRs, one with stable disease (“SD”) and one with progressive disease (“PD”), the change in Th1 and CD8+ TEMRA cells was serially measured over time. The PR and SD patients showed an increase in both Th1 and CD8+ TEMRA cells. Of note, SD and PD patients were lymphopenic at baseline with absolute lymphocyte counts less than 1,000, suggesting the need for a minimal level of immune competence.
In vitro data demonstrated that CPI-818 induced Th1 skewing and Th2 blockade in a dose-dependent manner that supported the selection of the 200 mg dose. This includes an analysis of peripheral blood samples from 12 healthy volunteers that were stimulated in the presence of various concentrations of CPI-818 and other studies that showed that CPI-818 inhibited Th2 cytokine production from normal CD4+ and malignant Sezary cells.
Other in vitro studies showed that CPI-818 inhibited the production of interleukin 4, 5 and 13 cytokines produced by Th2 cells.
In vivo preclinical studies in mice with transplanted T cell lymphoma showed that CPI-818 led to an increase in infiltration of normal CD8+ T cells in the tumor and inhibition of tumor growth.
The findings of the human and preclinical studies suggest that CPI-818 has the potential to enhance anti-tumor immunity representing a potentially novel approach to immunotherapy.

As of February 23, 2023, we enrolled a total of 53 patients with several types of advanced, refractory T cell lymphomas in our Phase 1/1b clinical trial. Enrollment in the 200 mg cohort has continued with 20 patients enrolled, including 13 evaluable for tumor response. There have been 1 complete response (CR) of 24 months duration, 1 equivocal CR awaiting confirmatory PET scan of 13+ months duration (a previous PR), 1 nodal CR of 21 months duration and 1 PR of 7 months duration. Ten patients continue on therapy, including seven that have not yet been evaluated for tumor response.

Treating patients in the 200 mg cohort has identified a biomarker associated with response to CPI-818. CPI-818 induces a host anti-tumor cell mediated immune response that requires normal functioning T cells. Data from the 200 mg cohort in the Phase 1/1b clinical trial indicates that a minimum absolute lymphocyte count (ALC) above 900 cells per cubic milliliter of blood is required for tumor response and disease control. Four of eight patients with ALC above 900

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have objective responses (those four patients are described above), all eight have disease control (stable disease, PR, CR) and the median progression free survival (PFS) is 28.1 months. No objective responses were seen in five patients (0 of 5) with ALC below 900 and the PFS is 2.1 months. The ALC biomarker is routinely measured, is consistent with CPI-818’s presumed mechanism of action and is present in about 70% of patients based on the Company’s experience to-date. In addition, as presented at the 10th Whistler Global Summit on Hematologic Malignancies, which took place March 29 to April 2, 2023 in Whistler British Columbia, Canada, data from our Phase 1/1b clinical trial also showed that this biomarker did not select for more favorable patients based on response to their last treatment regimen prior to receiving CPI-818. This biomarker has been incorporated as an eligibility criterion in the ongoing Phase 1/1b clinical trial.

As of May 1, 2023, a total of 28 patients were enrolled in the trial at the optimum 200 mg BID dose, including 19 evaluable for tumor response. There have been two CRs, one nodal CR and three PRs. Two of the patients with PRs remain on therapy. A total of nine patients remain on therapy, including five who have not had their initial tumor response evaluation. For patients with ALC above 900 per cubic milliliter of blood, objective responses (CR plus PR) were seen in six of 13 patients with disease control (CR, PR and stable disease) in 11 of 13 patients. No objective responses were seen in six patients (0 for 6) with ALC below 900. The median progression free survival is 19.9 months versus 2.1 months for patients with ALC above 900 and ALC below 900, respectively. Eligible patients for the clinical trial are now required to have ALC above 900.

Based on the current enrollment rate of our Phase 1/1b clinical trial, we believe that the number of patients treated in the clinical trial would provide adequate safety and preliminary efficacy data to inform the design of a registration clinical trial. We expect such a trial to enroll patients with relapsed T cell lymphomas whose prognosis is poor with currently available therapies. Although there are single agents approved for this disease, the current National Cooperative Cancer Network guidelines recommend that patients be enrolled in experimental therapies indicating a serious unmet need for improved therapies to treat T cell lymphomas. We recently received a communication from the U.S. Food and Drug Administration (FDA) regarding our clinical development plans for CPI-818. As recommended by the FDA, we plan to request a meeting with the FDA to discuss the design of a registration Phase 3 clinical trial. We anticipate that this meeting will take place in the third quarter of this year.

Our second product candidate, ciforadenant, is an oral, small molecule antagonist of the A2A receptor for adenosine designed to disable a tumor’s ability to subvert attack by the immune system by blocking the binding of immunosuppressive adenosine in the tumor microenvironment to the A2A receptor. We are collaborating with the Kidney Cancer Research Consortium to evaluate ciforadenant in an open label Phase 1b/2 clinical trial as a first line therapy for metastatic RCC in combination with ipilimumab (anti-CTLA-4) and nivolumab (anti-PD-1)

Our third product candidate is mupadolimab, a humanized monoclonal antibody that is designed to react with a specific site on CD73. In both preclinical and in vivo studies, mupadolimab has demonstrated binding to various immune cells and the enhancement of immune responses by activating B cells. While we believe mupadolimab has the potential to be an important new therapeutic agent with a novel mechanism of action for the treatment of a broad range of cancers and infectious diseases, we are waiting to initiate a potential Phase 2 randomized clinical trial in order to prioritize the development of our other two lead product candidates. Angel Pharmaceuticals is continuing the development of mupadolimab in China and is enrolling patients in a Phase 1 trial with mupadolimab alone and together with pembrolizumab in patients with advanced NSCLC and head and neck cancer.

Our molecularly targeted product candidates are designed to exhibit a high degree of specificity, which we believe have the potential to provide greater safety compared to other cancer therapies and may facilitate their development either as monotherapies or in combination with other cancer therapies such as immune checkpoint inhibitors or chemotherapy.

We believe the breadth and status of our pipeline demonstrates our management team’s expertise in understanding and developing immunology focused assets as well as in identifying product candidates that can be in-licensed and further developed internally to treat many types of cancer. We hold worldwide rights to all of our product candidates (other than in greater China).

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Our diverse and versatile product candidates have also enabled us to address markets in foreign markets. In October 2020, we announced the formation and launch of Angel Pharmaceuticals Co., Ltd. (“Angel Pharmaceuticals”), a China based biopharmaceutical company with a mission to bring innovative quality medicines to Chinese patients for treatment of serious diseases including cancer, autoimmune diseases and infectious diseases. We formed Angel Pharmaceuticals as a wholly owned subsidiary and it launched with a post-money valuation of approximately $106.0 million, based on an approximate $41.0 million cash investment from a Chinese investor group that includes funds associated with Tigermed and Betta Pharmaceuticals, Hisun Pharmaceuticals and Zhejiang Puissance Capital. Such cash is not available for our use. Contemporaneously with the financing, Angel Pharmaceuticals licensed the rights to develop and commercialize our three clinical-stage candidates – CPI-818, ciforadenant and mupadolimab – in greater China and obtained global rights to our BTK inhibitor preclinical programs. Under the collaboration, we currently have a 49.7% equity interest in Angel Pharmaceuticals, excluding 7% of Angel’s equity reserved for issuance under the Employee Stock Ownership Plan (“ESOP”), and are entitled to designate three individuals on Angel’s five-person board of directors.

To date, the majority of our efforts have been focused on the research, development and advancement of CPI-818, ciforadenant, and mupadolimab, and we have not generated any revenue from product sales and, as a result, we have incurred significant losses. We expect to continue to incur significant research and development and general and administrative expenses related to our operations. We expect to continue to incur significant research and development and general and administrative expenses related to our operations. Our net loss for the three months ended March 31, 2023 and 2022 was $7.9 million and $8.3 million, respectively. As of March 31, 2023, we had an accumulated deficit of $315.6 million. We expect to continue to incur losses for the foreseeable future, and we anticipate these losses will increase as we continue our development of, seek regulatory approval for and begin to commercialize CPI-818, ciforadenant and mupadolimab, and as we develop other product candidates. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods.

Since our inception and through March 31, 2023, we have funded our operations primarily through the sale and issuance of stock, including through our initial public offering (“IPO”) in March 2016, in which we raised net proceeds of approximately $70.6 million, a follow-on offering of our common stock in March 2018, in which we raised net proceeds of approximately $64.9 million and a follow on offering in February 2021, in which we raised net proceeds of approximately $32.0 million, in each case net of underwriting discounts and commissions and offering expenses. Immediately prior to the consummation of the IPO, all of our outstanding shares of redeemable convertible preferred stock were converted into 14.3 million shares of our common stock.

In March 2020, we entered into an open market sale agreement (the “2020 Sales Agreement”) with Jefferies LLC (“Jefferies”) to sell shares of our common stock, from time-to-time, with aggregate gross sales proceeds of up to $50,000,000, through an at-the-market equity offering program under which Jefferies will act as our sales agent. In November 2021, we entered into another Sale Agreement (“2021 Sales Agreement”) with Jefferies to sell shares of our common stock from time-to-time, with aggregate gross sales proceeds of up to $40,000,000.

On March 28, 2023, we terminated both the 2020 Sales Agreement and the 2021 Sales Agreement and concurrently entered into a new open market sale agreement (the “2023 Sales Agreement”) with Jefferies to sell shares of our common stock, from time-to-time, with aggregate gross sales proceeds of up to $90,000,000, through an at-the-market equity offering program under which Jefferies will act as our sales agent. The issuance and sale of shares of common stock pursuant to the 2023 Sales Agreement are deemed an “at-the-market” offering under the Securities Act of 1933, as amended. Jefferies is entitled to compensation for its services equal to 3.0% of the gross proceeds of any shares of common stock sold through Jefferies under the 2023 Sales Agreement.

During the three months ended March 31, 2023, we did not sell any shares of common stock under our at-the-market offering program. As of March 31, 2023, we had sold 6,920,339 shares of common stock for gross proceeds of $31.1 million under the 2020 Sales Agreement.

As of March 28, 2023, at the time of the filing of our Annual Report on Form 10-K for the year ended December 31, 2022, and during the sixty-day period preceding this date, our calculated public float was below $75.0 million. As a result, we have been and are subject to baby shelf rules for any offerings conducted on our shelf

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registration statement, including any sales under our ATM with Jefferies LLC (“Jefferies”). Such rules limit the amount we can raise until such time that our public float is above $75.0 million.

As of March 31, 2023, we had capital resources consisting of cash, cash equivalents and marketable securities of approximately $34.5 million. While we believe that our current cash, cash equivalents and short-term marketable securities will be sufficient to fund our planned operations for at least 12 months from the date of the issuance of these financial statements, we do not expect our existing capital resources to be sufficient to enable us to fund the completion of all of our ongoing or planned clinical trials and remaining development program of any of CPI-818, ciforadenant or mupadolimab through commercialization. In addition, our operating plan may change as a result of many factors, including those described in the section of this report entitled “Risk Factors” and others currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity, debt financings or other sources, such as strategic collaborations. Such financing would result in dilution to stockholders, imposition of debt covenants and repayment obligations or other restrictions that may affect our business. If we raise additional capital through strategic collaboration agreements, we may have to relinquish valuable rights to our product candidates, including possible future revenue streams. In addition, additional funding may not be available to us on acceptable terms or at all and any additional fundraising efforts may divert our management from its day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. Furthermore, even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital due to favorable market conditions or strategic considerations.

We currently have no manufacturing capabilities and do not intend to establish any such capabilities. We have no commercial manufacturing facilities for our product candidates. As such, we are dependent on third parties to supply our product candidates according to our specifications, in sufficient quantities, on time, in compliance with appropriate regulatory standards and at competitive prices.

Impact of COVID-19

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

In alignment with public health guidance designed to slow the spread of COVID-19, as of mid-March 2020, we implemented a reduced onsite staffing model and transitioned to a remote work plan for all employees other than those providing essential services, such as our laboratory staff. In July 2021, we started transitioning back to office work for employees not providing essential services. For our onsite employees, we have implemented heightened health and safety measures designed to comply with applicable federal, state and local guidelines in response to the COVID-19 pandemic. We are further supporting all of our employees by leveraging virtual meeting technology and encouraging employees to follow local health authority guidance. We may need to undertake additional actions that could impact our operations if required by applicable laws or regulations or if we determine such actions to be in the best interests of our employees.

Significant Accounting Policies

Our significant accounting policies are described in Note 2 to our consolidated financial statements for the year ended December 31, 2022 included in our Annual Report on Form 10-K. There have been no material changes to our significant accounting policies during the three months ended March 31, 2023.

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Components of Results of Operations

Revenue

To date, we have not generated any revenues. We do not expect to receive any revenues from any product candidates that we develop unless and until we obtain regulatory approval and commercialize our products or enter into revenue-generating collaboration agreements with third parties.

Research and Development Expenses

Our research and development expenses consist primarily of costs incurred to conduct research and development of our product candidates. We record research and development expenses as incurred. Research and development expenses include:

employee-related expenses, including salaries, benefits, travel and non-cash stock-based compensation expense;

external research and development expenses incurred under arrangements with third parties, such as contract research organizations, preclinical testing organizations, contract manufacturing organizations, academic and non-profit institutions and consultants;

costs to acquire technologies to be used in research and development that have not reached technological feasibility and have no alternative future use;

license fees; and

other expenses, which include direct and allocated expenses for laboratory, facilities and other costs.

We plan to increase our research and development expenses substantially as we continue the development and potential commercialization of our product candidates. Our current planned research and development activities include the following:

enrollment and completion of our ongoing Phase 1/1b clinical trial of CPI-818;
a potential registration clinical trial for CPI-818;
enrollment and completion of our Phase 1b/2 clinical trial with ciforadenant in collaboration with the Kidney Cancer Research Consortium;
process development and manufacturing of drug supply of CPI-818 and ciforadenant; and
preclinical studies under our other programs in order to select development product candidates.

In addition to our product candidates that are in clinical development, we believe it is important to continue substantial investment in potential new product candidates to build the value of our product candidate pipeline and our business.

Our expenditures on current and future preclinical and clinical development programs are subject to numerous uncertainties related to timing and cost to completion. The duration, costs and timing of clinical trials and development of product candidates will depend on a variety of factors, including many of which are beyond our control. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time consuming, and the successful development of our product candidates is uncertain. The risks and uncertainties associated with our research and development projects are discussed more fully in “Part II, Item 1A—Risk Factors.” As a result of these risks and

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uncertainties, we are unable to determine with any degree of certainty the duration and completion costs of our research and development projects or if, when or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our product candidates.

General and Administrative Expenses

General and administrative expenses include personnel costs, expenses for outside professional services and allocated expenses. Personnel costs consist of salaries, benefits and stock-based compensation. Outside professional services consist of legal, accounting and audit services and other consulting fees. Allocated expenses consist of rent expense related to our office and research and development facility.

We expect that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development and potential commercialization of one or more of our product candidates.

Results of Operations

Comparison of the periods below as indicated (in thousands):

Three Months Ended

    

    

March 31, 

    

    

2023

2022

Change

Operating expenses:

 

  

 

  

 

  

 

Research and development

$

4,594

$

5,100

$

(506)

General and administrative

 

1,980

 

2,313

 

(333)

Total operating expenses

 

6,574

 

7,413

 

(839)

Loss from operations

 

(6,574)

 

(7,413)

 

839

Interest income and other expense, net

 

376

 

11

 

365

Sublease income - related party

 

56

 

146

 

(90)

Loss from equity method investment

 

(1,731)

 

(1,041)

 

(690)

Net loss

$

(7,873)

$

(8,297)

$

424

Research and Development Expenses

Research and development expenses for the three months ended March 31, 2023 and 2022 consisted of the following costs by program as well as unallocated employee costs and overhead costs (specific program costs consist solely of external costs) (in thousands):