What changed in this filing

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2021-02-25 compared with 2020-03-02 · 320 added, 268 removed, 574 unchanged (51% of the section changed)

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Additionally, we established guidelines regarding approved investments and maturities of investments, which are designed to maintain safety and liquidity.

For marketable investment securities with short-term

maturities, we do not believe that an increase or decrease in market rates would have a significant impact on the realized values or the statements of operations and comprehensive loss.

As of December 31, 2019 , we held $257.5 million in debt securities with for which the accumulated other comprehensive income was $0.3 million.

For marketable investment securities with short-term maturities, we do not believe that an increase or decrease in market rates would have a significant impact on the realized values or the statements of operations and comprehensive loss.

As of December 31, 2020, we held $160.7 million in debt securities with for which the accumulated other comprehensive loss was less than $0.1 million.

As such, we believe that should a 10.0% change in interest rates were to have occurred on December 31, 2020, this change would not have had a material effect on the fair value of our investment portfolio as of that date.

We are also subject to interest expense fluctuations through our Term Loans, as discussed in Part II Item 8—5.

Notes Payable, which as of December 31, 2019 bear interest equal to the greater of 3-month U.S.

LIBOR plus 6.37% or 7.3% and are therefore exposed to changes in interest rates through their maturity date of January 2020.

The rate was 8.28% as of December 31, 2019 on a remaining balance of $0.6 million.

If interest rates had been 10% higher/lower and all other variables were held constant, operating income would decrease/increase by less than $0.1 million.

Therefore we do not believe that our financial condition or results of operations would be materially impacted by an immediate change of 10% in interest rates.

Foreign Currency Exchange Risk

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We do not hedge our foreign currency exchange rate risk, however, we may do so in the future.

As of December 31, 2019 , we had no accounts payable or receivable denominated in foreign currencies, and a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have had a material impact on our consolidated financial statements.

As of December 31, 2020, we had no material accounts payable or receivable denominated in foreign currencies, and a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have had a material impact on our consolidated financial statements.

Inflation Risk

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Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Cash Flows

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We have audited the accompanying consolidated balance sheets of AnaptysBio, Inc.

and subsidiary (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the years in the three‑year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements).

and subsidiary (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years in the three‑year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2020, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 2, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

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Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgment.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of Research and Development Costs

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We identified the evaluation of research and development costs as a critical audit matter.

These estimates are based on a number of factors that can be challenging to assess, including the Company’s knowledge of the status of research and development programs and associated completion status, project milestones achieved, raw materials used in manufacturing, and, for larger clinical trials, per patient costs, patient enrollment status, project costs, and site costs.

These estimates are based on certain assumptions and inputs that were challenging to assess, including the Company’s knowledge of the status of research and development programs and associated completion status, project milestones achieved, raw materials used

in manufacturing, and, for larger clinical trials, per patient costs, patient enrollment status, project costs, and site costs.

Significant auditor judgment, subjectivity, and effort were required to evaluate the assumptions and inputs to these estimates.

The primary procedures we performed to address this critical audit matter included the following.

We tested certain internal controls over the Company’s process to estimate the research and development costs incurred during the period, including controls related to the determination of the assumptions and inputs to the estimate.

On a sample basis, we examined underlying documentation and third-party confirmations and compared them to the assumptions and inputs that are described above.

We assessed the Company’s estimate of costs incurred as of December 31, 2019, which included examining invoices received after December 31, 2019, but prior to the issuance of the Company’s consolidated financial statements.

The following are the primary procedures we performed to address this critical audit matter.

On a sample basis, we examined contracts, invoices, and third-party confirmations and compared them to the assumptions and inputs that are described above.

We also examined certain invoices received after December 31, 2020 and evaluated whether services received prior to December 31, 2020 were included in the Company’s estimate of costs incurred as of December 31, 2020.

Assessment of the Presentation of GlaxoSmithKline Payment as Revenue

As discussed in Note 4 to the consolidated financial statements, the Company entered into an amendment to an agreement with GlaxoSmithKline (GSK) in October 2020.

Under the amended agreement, the Company received a one-time, non-refundable cash payment of $60.0 million (the GSK payment) that was recognized as revenue for the year ended December 31, 2020.

We identified the assessment of the presentation of the GSK payment as revenue as a critical audit matter.

The determination of the presentation of the GSK payment on the consolidated statement of operations and comprehensive loss was complex and involved subjective auditor judgment because of the terms of the amendment with GSK.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design of an internal control over the Company’s process for accounting for modifications of collaboration arrangements.

We evaluated the Company’s assessment of the accounting treatment for this transaction, including the determination that presentation of the GSK payment as revenue was appropriate by obtaining and reading management’s technical analysis and the amendment to the GSK agreement.

We inquired of key executives involved in the negotiations with GSK as well as the board of directors.

We have served as the Company’s auditor since 2009.

San Diego, California

March 2, 2020

February 25, 2021

AnaptysBio, Inc.

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(in thousands, except par value)

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

Current assets:

Cash and cash equivalents $ 250,456 $ 171,017

Australian tax incentive receivable

Short-term investments 143,197 203,210

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Total current assets

396,561 377,733

Property and equipment, net 1,783 1,618

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Restricted cash 60 60

$ 416,552 $ 435,197

LIABILITIES AND STOCKHOLDERS’ EQUITY

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Total current liabilities

19,821 29,535

Other long-term liabilities — 654

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Additional paid in capital 660,665 648,669

Accumulated other comprehensive income (loss)

Accumulated other comprehensive (loss) income ( 4 ) 338

Accumulated deficit ( 263,957 ) ( 244,026 )

Total stockholders’ equity

Total liabilities, preferred stock and stockholders’ equity

396,731 405,008

Total liabilities and stockholders’ equity

$ 416,552 $ 435,197

See accompanying notes to consolidated financial statements.

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(in thousands, except per share data)

2020 2019 2018

Collaboration revenue $ 75,000 $ 8,000 $ 5,000

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Research and development

80,025 99,338 56,196

General and administrative

18,854 16,094 15,526

Total operating expenses

98,879 115,432 71,722

Loss from operations

( 23,879 ) ( 107,432 ) ( 66,722 )

Other income (expense), net:

Interest expense

Change in fair value of liability for preferred stock warrants

— ( 1,041 ) ( 1,652 )

Interest income

3,959 10,984 6,685

Other (expense) income, net

( 11 ) 1 ( 159 )

Total other income (expense), net

3,948 9,944 4,874

Loss before income taxes ( 19,931 ) ( 97,488 ) ( 61,848 )

Provision for income taxes — 152 192

Other comprehensive income (loss):

Unrealized income (loss) on available for sale securities, net of tax of $153, $55, and $0, respectively

( 19,931 ) ( 97,336 ) ( 61,656 )

Other comprehensive (loss) income:

Unrealized (loss) income on available for sale securities, net of tax of $ 0 , $ 153 , and $ 55 , respectively

( 342 ) 561 203

Comprehensive loss

$ ( 20,273 ) $ ( 96,775 ) $ ( 61,453 )

Net loss per common share:

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AnaptysBio, Inc.

CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

Consolidated Statements of Stockholders’ Equity

(in thousands)

Preferred Stock

Paid-in Capital

Accumulated Other Comprehensive Income (Loss)

Common Stock Additional

Paid-in Capital Accumulated Other Comprehensive (Loss) Income Accumulated

Deficit Total

Stockholders’

Equity (Deficit)

Shares Amount

Balance, January 1, 2018 23,791 $ 24 $ 393,017 $ ( 426 ) $ ( 85,034 ) $ 307,581

Shares issued for public offerings, net of underwriters' fees

2,530 3 227,473 — — 227,476

Total offering costs

— — ( 145 ) — — ( 145 )

Shares issued under employee stock plans

Conversion of preferred stock

584 — 2,869 — — 2,869

Warrants exercised

Reclassification of warrants

Forfeiture rate adjustment

17 — 76 — — 76

Stock-based compensation

Comprehensive loss

— — 9,961 — — 9,961

Comprehensive income

— — — 203 — 203

Net loss — — — — ( 61,656 ) ( 61,656 )

Balance, December 31, 2018 26,922 27 633,251 ( 223 ) ( 146,690 ) 486,365

Shares issued for public offerings, net of underwriters’ fees

Total offering costs

Shares issued under employee stock plans

Warrants exercised

333 — 3,007 — — 3,007

Stock-based compensation

— — 12,411 — — 12,411

Comprehensive income

— — — 561 — 561

Net loss — — — — ( 97,336 ) ( 97,336 )

Balance, December 31, 2019 27,255 27 648,669 338 ( 244,026 ) 405,008

Shares issued under employee stock plans

101 — 497 — — 497

Stock-based compensation

Comprehensive income

— — 11,499 — — 11,499

Comprehensive loss — — — ( 342 ) — ( 342 )

Net loss — — — — ( 19,931 ) ( 19,931 )

Balance, December 31, 2020 27,356 $ 27 $ 660,665 $ ( 4 ) $ ( 263,957 ) $ 396,731

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(in thousands)

2020 2019 2018

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss $ ( 19,931 ) $ ( 97,336 ) $ ( 61,656 )

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

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Stock-based compensation

Change in fair value of liability for preferred stock warrants

11,499 12,411 9,961

Accretion/amortization of investments, net

461 ( 2,633 ) ( 1,233 )

Non-cash interest expense

Loss on disposal of property and equipment, net of gain on lease termination

Changes in operating assets and liabilities:

Receivable from collaborative partners

Australian tax incentive receivable

Prepaid expenses and other assets

2,106 2,178 ( 5,188 )

Accounts payable and other liabilities

( 8,877 ) 14,499 7,083

Net cash used in operating activities

( 14,157 ) ( 69,517 ) ( 48,506 )

CASH FLOWS FROM INVESTING ACTIVITIES:

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Net cash provided by (used in) investing activities

94,475 131,431 ( 142,451 )

CASH FLOWS FROM FINANCING ACTIVITIES:

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Net cash (used in) provided by financing activities

( 879 ) ( 4,493 ) 223,364

Net increase in cash, cash equivalents, and restricted cash

79,439 57,421 32,407

Cash, cash equivalents and restricted cash, beginning of period 171,077 113,656 81,249

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Amounts accrued for property and equipment

Amounts accrued for offering costs

Reclassification of warrants to equity

$ 279 $ 41 $ 159

See accompanying notes to consolidated financial statements.

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(“we,” “us,” “our,” or the “Company”) was incorporated in the state of Delaware in November 2005.

We are a clinical stage biotechnology company developing first-in-class immunology therapeutic product candidates to patients.

We are focused on emerging immune control mechanisms applicable to inflammation and immuno-oncology indications.

We develop our product candidates using our proprietary antibody discovery technology platform, which is based upon a breakthrough understanding of the natural process of antibody generation, known as somatic hypermutation, or SHM, and replicates this natural process of antibody generation in vitro .

We are a clinical-stage biotechnology company developing first-in-class immunology therapeutic product candidates focused on emerging immune control mechanisms applicable to inflammation and immuno-oncology indications.

We develop our product candidates using our proprietary antibody discovery technology platform, which is based upon a breakthrough understanding of the natural process of antibody generation, known as somatic hypermutation, and replicates this natural process of antibody generation in vitro .

We currently generate revenue from milestones achieved under our collaborative research and development arrangements.

Since our inception, we have devoted our primary effort to raising capital and research and development activities.

Since our inception, we have devoted our primary effort to research and development activities.

Our financial support has been provided primarily from the sale of our common and preferred stock, as well as through funds received under our collaborative research and development agreements.

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If events or circumstances occur such that we do not obtain additional funding, we will most likely be required to reduce our plans and/or certain discretionary spending, which could have a material adverse effect on our ability to achieve our intended business objectives.

Management believes its currently available resources will provide sufficient funds to enable the Company to meet its operating plans for at least the next twelve months.

Our management believes our currently available resources will provide sufficient funds to enable us to meet our operating plans for at least the next twelve months.

The accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

Public Offerings and Related Transactions

Initial Public Offering

On January 31, 2017, we completed an initial public offering, or IPO, selling 5,750,000 shares, which included the exercise of the underwriters’ option to purchase an additional 750,000 shares of common stock, at $ 15.00 per share.

Proceeds from our initial public offering net of underwriting discounts and commissions were $ 80.2 million .

In addition, each of the following occurred in connection with the completion of the IPO on January 31, 2017:

• the conversion of all outstanding shares of convertible preferred stock into 11,520,698 shares of common stock;

• the conversion of warrants to purchase 377,195 shares of convertible preferred stock into warrants to purchase 377,195 shares of common stock and the resultant reclassification of the warrant liability to additional paid-in capital.

Follow-on Public Offerings

On October 17, 2017, we completed an underwritten public offering selling 3,000,000 shares of common stock.

All shares were offered by us at a price to the public of $ 68.50 per share.

The aggregate net proceeds received by us from the offering were $ 194.7 million , net of underwriting discounts and commissions.

As part of the underwritten public offering, on November 14, 2017, the underwriters exercised an additional 271,380 shares of common stock at a discounted price to the public of $ 68.50 per share for aggregate net proceeds of $ 17.6 million , net of underwriting discounts and commissions.

Follow-on Public Offering

On September 28, 2018, we completed an underwritten public offering of 2,530,000 shares of common stock, which included the exercise of the underwriters’ option to purchase an additional 330,000 shares of common stock.

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Basis of Presentation

The accompanying consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC.

The accompanying consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, or U.S.

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The preparation of the accompanying consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting periods.

GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenues and expenses during the reporting periods.

Actual results could differ from those estimates.

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We evaluate our estimates and assumptions on an ongoing basis.

The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations, and financial condition, including expenses, reserves and allowances, manufacturing, clinical trials, research and development costs, and employee-related amounts, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat it, as well as the economic impact on local, regional, national and international markets.

Our actual results could differ from these estimates under different assumptions or conditions.

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Those investments with contractual maturities 12 months or greater at the balance sheet date are considered long-term investments.

Unrealized gains and losses, deemed temporary in nature, are reported as a component of accumulated other comprehensive income (loss).

A decline in the fair value of any security below cost that is deemed other than temporary results in a charge to earnings and the corresponding establishment of a new cost basis for the security.

Dividend and interest income are recognized when earned.

Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of securities sold.

Unrealized gains and losses are reported as a component of accumulated other comprehensive income (loss).

We review our portfolio of available-for-sale debt securities, using both quantitative and qualitative factors, to determine if declines in fair value below cost have resulted from a credit-related loss or other factors.

If the decline in fair value is due to credit-related factors, a loss is recognized in net income, whereas if the decline in fair value is not due to credit-related factors, the loss is recorded in other comprehensive income (loss).

Concentration of Credit Risk

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No impairment charges were recorded during the years ended December 31, 2020, 2019, or 2018.

On January 1, 2019, we adopted Accounting Standards Update No.

2016-02, Leases (Topic 842) (ASU 2016-02) using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application.

Results and disclosure requirements for reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts have not been adjusted and continue to be reported in accordance with our historical accounting under Topic 840 .

We elected the package of practical expedients permitted under the transition guidance, which allowed us to carryforward our historical lease classification, our assessment on whether a contract was, or contains a lease, and our initial direct costs for any leases that existed prior to January 1, 2019.

We also elected to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of income on a straight-line basis over the lease term.

Upon adoption, we recognized total right-of-use, or “ROU”, assets of $ 2.1 million , with corresponding lease liabilities of $ 2.3 million on the consolidated balance sheets.

The ROU assets include adjustments for prepayments and accrued lease payments.

The adoption did not impact our beginning accumulated deficit, or our prior year consolidated statements of operations and statements of cash flows.

Under Topic 842, we determine if an arrangement is a lease at inception.

All outstanding leases continued to be classified as operating leases.

Our leases consist of leases for office space that are classified as operating leases.

We determine if an arrangement is a lease at inception.

Rent expense is recognized on a straight-line basis.

When an operating lease includes rent abatements or requires fixed escalations of the minimum lease payments, the aggregate rental expense is recognized on a straight-line basis over the term of the lease.

When an operating lease includes lease incentives such as leasehold improvement allowances, the lease incentive is included in the ROU asset.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the date of adoption of ASC 842, or the lease commencement date.

When an operating lease includes lease incentives such as leasehold improvement allowances, the lease incentive is included in the right-of-use (“ROU”) asset.

For leases that have greater than a 12-month lease term, the ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term.

For this purpose, we consider only payments that are fixed and determinable at the time of commencement.

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We account for fixed lease components separately from non-lease components.

Under Topic 840 , all current leases were classified as operating leases.

Rent expense was recognized on a straight-line basis over the terms of the leases and, accordingly, we recorded the cumulative difference between cash rent payments and the recognition of rent expense as a deferred rent liability.

When an operating lease included lease incentives, such as a rent abatements or leasehold improvement allowances, or required fixed escalations of the minimum lease payments, the aggregate rental expense, including such incentives or increases, was recognized on a straight-line basis over the term of the lease.

Debt Issuance Costs

Debt issuance costs incurred to obtain debt financing are deferred and are amortized over the term of the debt using the effective interest method.

The costs are recorded as a reduction to the carrying value of the debt and the amortization expense is included in interest expense in the statements of operations.

We keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of operations on a straight-line basis over the lease term.

Results and disclosure requirements for reporting periods beginning after January 1, 2019 are presented under ASC 842, while prior period amounts have not been adjusted and continue to be reported under ASC 840.

Revenue Recognition

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A deliverable is considered distinct if the customer can benefit from the good or service independently of other goods/services either in the contract or that can be obtained elsewhere, without regard to contract exclusivity, and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contact.

If the deliverable is not considered

distinct, we combine such deliverables and account for them as a single performance obligation.

If the deliverable is not considered distinct, we combine such deliverables and account for them as a single performance obligation.

We allocate the consideration to each deliverable at the inception of the arrangement based on the transaction price.

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Upfront and milestone payments incurred under our in-licensing agreements are expensed as acquired in-process research and development in the period in which they are incurred, provided that the technology or method has no alternative future use.

Australian Research and Development Tax Incentive

We are eligible under the Australian Research and Development Tax Incentive Program, or the Tax Incentive, to obtain a cash refund from the Australian Taxation Office for eligible research and development expenditures.

However, we must have revenue of less than AUD $ 20.0 million during the reimbursable period and cannot be controlled by income tax exempt entities.

The Tax Incentive is recognized as a reduction to research and development expense when there is reasonable assurance that the Tax Incentive will be received, the relevant expenditure has been incurred, and the amount can be reliably measured.

The Tax Incentive is denominated in Australian dollars and, therefore, the related receivable is remeasured into U.S.

dollars as of each reporting date.

Stock-Based Compensation

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We have not recognized, and do not expect to recognize in the near future, any tax benefit related to stock-based compensation cost as a result of our full valuation allowance on net deferred tax assets and net operating loss carryforwards.

Warrants for Shares of Preferred Stock

In January 2017, upon completion of our IPO, all warrants were reclassified to additional paid-in capital.

Prior to this, we accounted for warrants for shares of preferred stock with conversion features that provide for reductions in the warrant price as derivative liabilities in the accompanying balance sheets at their fair value on the date of issuance.

The derivative liabilities were revalued at each balance sheet date, with changes in the fair value between reporting periods recorded as other income or expense in the consolidated statement of operations.

We account for income taxes under the asset and liability method.

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Diluted net loss per share is computed by dividing net loss by the weighted-average number of common equivalent shares outstanding for the period, as well as any dilutive effect from outstanding stock options and warrants using the treasury stock method.

For each period presented, there is no difference in the number of shares used to calculate basic and diluted net loss per share.

The following table sets forth the outstanding potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because to do so would be anti-dilutive (in common stock equivalent shares):

The following table sets forth the weighted-average outstanding potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because to do so would be anti-dilutive (in common stock equivalent shares):

(in thousands) 2020 2019 2018

Options to purchase common stock 2,901 2,462 2,451

Warrants to purchase common stock

Accounting Pronouncements Recently Adopted

On January 1, 2019, we adopted Topic 842, as amended, which supersedes the lease accounting guidance under Topic 840 , and generally requires lessees to recognize operating and financing lease liabilities and corresponding ROU assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements.

We adopted the new guidance using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application and not restating comparative periods.

The most significant impact was the recognition of ROU assets and lease liabilities for operating leases.

For information regarding the impact of Topic 842 adoption, see Significant Accounting Policies - Leases above and Note 11 - Commitments and Contingencies.

Recent Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board “FASB” issued ASU 2019-12, Income Taxes (Topic 740) intended to simplify the accounting for income taxes.

In December 2019, the Financial Accounting Standards Board (the “FASB”) issued ASU 2019-12, Income Taxes (Topic 740) intended to simplify the accounting for income taxes.

The guidance removes the following exceptions:

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Different components of the guidance require retrospective, modified retrospective or prospective adoption, and early adoption is permitted.

We are currently assessing the impact that this standard will have on our consolidated financial statements.

We early adopted this standard on January 1, 2020, and the adoption of the standard did not have a material impact to our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses:

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The new guidance also eliminates the other-than-temporary impairment model for available-for-sale (“AFS”) debt securities.

Entities will begin to recognize credit losses on AFS debt securities as allowances rather than as reductions in the carrying value of the

Entities will begin to recognize credit losses on AFS debt securities as allowances rather than as reductions in the carrying value of the securities.

Impairment that is not credit-related impairment will continue to be recognized in other comprehensive income and entities will no longer consider the length of time a security has been in an unrealized loss position when determining whether a credit loss exists.

ASU 2016-13 becomes effective for annual and interim periods beginning after December 15, 2019.

early adoption is permitted.

We are currently assessing the impact that this standard will have on our consolidated financial statements.

We adopted this standard prospectively on January 1, 2020, and the adoption of the standard did not have a material impact to our consolidated financial statements as credit losses are not expected to be significant based on historical trends, the financial condition of our investments and external market factors.

We will continue to actively monitor the impact of the COVID-19 pandemic on expected credit losses.

In February 2016, the FASB, issued ASU 2016-02, Leases (Topic 842) , which requires that lessees recognize a ROU asset and a related lease liability on the balance sheet for all leases with a term longer than 12 months.

Topic 842 was subsequently amended by ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842 ;

ASU 2018-10, C odification Improvements to Topic 842, Leases ;

ASU 2018-11, Targeted Improvements ;

and ASU 2019-01, Leases (Topic 842):

Codification Improvements .

ASU 2016-02 became effective for our annual reporting period beginning January 1, 2019, including interim periods thereafter.

A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application.

An entity may choose to use either (i) its effective date or (ii) the beginning of

the earliest comparative period presented in the financial statements as its date of initial application.

We adopted this standard on January 1, 2019 and used the effective date as our date of initial application.

Upon adoption, we elected the package of transition practical expedients, which allowed us to carry forward prior conclusions related to whether any expired or existing contracts are or contain leases, the lease classification for any expired or existing leases and initial direct costs for existing leases.

We also made an accounting policy election to not recognize leases with an initial term of 12 months or less within our consolidated balance sheets and to recognize those lease payments on a straight-line basis in our consolidated statements of operations over the lease term.

Adoption of the new standard resulted in the recording of operating lease ROU assets and lease liabilities of approximately $ 2.1 million and $ 2.3 million as of January 1, 2019, respectively related to our real estate leases.

Adoption of this new standard did not have a material impact on our consolidated statements of operations or cash flows.

Balance Sheet Accounts and Supplemental Disclosures

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Property and equipment consist of the following:

(in thousands)

December 31, 2019

December 31, 2018

(in thousands) December 31, 2020 December 31, 2019

Laboratory equipment $ 5,225 $ 4,911

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Total property and equipment, net

$ 1,783 $ 1,618

We recorded a loss of approximately $ 0.1 million in other income (expense), net, related to the disposal of tenant improvements and certain equipment in connection with the termination of the 10455 Building Lease.

The $ 0.1 million loss is recorded in the consolidated statements of cash flows net of the gain from the termination of the 10455 Building Lease (see Note 11).

Accrued Expenses

Accrued expenses consist of the following:

(in thousands)

December 31, 2019

December 31, 2018

(in thousands) December 31, 2020 December 31, 2019

Accrued compensation and related expenses $ 3,688 $ 2,152

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Accrued research and development expenses 10,936 8,196

Other 230 269

Total accrued expenses

$ 15,262 $ 11,052

Collaborative Research and Development Agreements

TESARO Collaboration

In March 2014, we entered into a Collaboration and Exclusive License Agreement, or the TESARO Agreement, with TESARO, Inc.

and TESARO Development, Inc., or collectively, TESARO, an oncology-focused biopharmaceutical company now a part of GlaxoSmithKline.

Under the terms of the agreement, we agreed to perform certain discovery and early preclinical development of therapeutic antibodies with the goal of generating immunotherapy antibodies for subsequent preclinical, clinical, regulatory and commercial development to be performed by TESARO.

Under the terms of the agreement, TESARO paid an upfront license fee of $ 17.0 million in March 2014 and agreed to provide funding to us for research and development services related to antibody discovery programs for three specific targets.

In November 2014, we and TESARO entered into Amendment No.

1 to the Agreement to add an antibody discovery program against an undisclosed four th target for an upfront license fee of $ 2.0 million .

For each development program, we are eligible to receive milestone payments of up to $ 18.0 million if certain preclinical and clinical trial events are achieved by TESARO, up to an additional $ 90.0 million if certain U.S.

and European regulatory submissions and approvals in multiple indications are achieved, and up to an additional $ 165.0 million upon the achievement of specified levels of annual worldwide net sales.

GlaxoSmithKline Collaboration

In March 2014, we entered into a Collaboration and Exclusive License Agreement (the “GSK Agreement”) with TESARO, Inc.

(“Tesaro”), an oncology-focused biopharmaceutical company now a part of GlaxoSmithKline (Tesaro and GlaxoSmithKline are hereinafter referred to, collectively, as “GSK”).

Under the terms of the GSK Agreement, we agreed to perform certain discovery and early preclinical development of therapeutic antibodies with the goal of generating immunotherapy antibodies for subsequent preclinical, clinical, regulatory, and commercial development to be performed by GSK.

Under the terms of the GSK Agreement, GSK paid an upfront license fee of $ 17.0 million in March 2014 and agreed to provide funding to us for research and development services related to antibody discovery programs for three specific targets.

In November 2014, Amendment No.

1 to the GSK Agreement was agreed by both parties to add an antibody discovery program against an undisclosed four th target for an upfront license fee of $ 2.0 million.

For each development program, we are eligible to receive milestone payments of up to $ 18.0 million if certain preclinical and clinical trial events are achieved by GSK, up to an additional $ 90.0 million if certain U.S.

regulatory submissions and approvals in multiple indications are achieved, and up to an additional $ 165.0 million upon the achievement of specified levels of annual worldwide net sales.

We will also be eligible to receive tiered single-digit royalties related to worldwide net sales of products developed under the collaboration.

Unless earlier terminated by either party upon specified circumstances, the agreement will terminate, with respect to each specific developed product, upon the latter of the 12 th anniversary of the first commercial sale of the product or the expiration of the last to expire of any patent.

Prior to the adoption of ASC 606, Revenue from Contracts with Customers , we determined that the upfront license fees and research funding under the agreement, as amended, should be accounted for as a single unit of accounting and that the upfront license fees should be deferred and recognized as revenue over the same period that the research and development services are performed.

In December 2015, we determined that the research and development services would be extended through

December 31, 2016.

As a result, the period over which the unrecognized license fees and milestones were recognized was extended through December 31, 2016, and have since been recognized in full.

We assessed this arrangement in accordance with ASC 606 and concluded that the contract counterparty, TESARO, is a customer.

We identified the following material promises under the TESARO Agreement:

(1) the licenses under certain patent rights relating to six discovery programs (four targets) and transfer of certain development and regulatory information, (2) R&D services and (3) Joint Steering Committee meetings.

We considered the research and discovery capabilities of TESARO for these specific programs, TESARO’s inability to sub-license, and the fact that the discovery and optimization of these antibodies is proprietary and could not, at the time of the contract inception, be provided by other vendors, to conclude that the license does not have stand-alone functionality and is therefore not distinct.

Additionally, we determined that the steering committee participation would not have been provided without the R&D services and license agreement.

Unless earlier terminated by either party upon specified circumstances, the GSK Agreement will terminate, with respect to each specific developed product, upon the later of the 12 th anniversary of the first commercial sale of the product or the expiration of the last to expire of any patent.

Prior to the adoption of ASC 606, Revenue from Contracts with Customers , we determined that the upfront license fees and research funding under the GSK Agreement, as amended, should be accounted for as a single unit of accounting and that the upfront license fees should be deferred and recognized as revenue over the same period that the research and development services are performed.

In February 2016, Amendment No.

2 to the GSK Agreement was agreed by both parties to define the effective dates of the development programs of the GSK Agreement.

We determined that the research and development services would be extended through December 31, 2016.

As a result, the period over which the unrecognized license fees and discovery milestones were recognized was extended through December 31, 2016 and have since been recognized in full.

We assessed these arrangements in accordance with ASC 606 and concluded that the contract counterparty, GSK, is a customer.

We identified the following material promises under the GSK Agreement:

(1) the licenses under certain patent rights relating to six discovery programs (four targets) and transfer of certain development and regulatory information, (2) research and development (“R&D”) services, and (3) joint steering committee meetings.

We considered the research and discovery capabilities of GSK for these specific programs, GSK’s inability to sub-license, and the fact that the discovery and optimization of these antibodies is proprietary and could not, at the time of contract inception, be provided by other vendors, to conclude that the license does not have stand-alone functionality and is therefore not distinct.

Additionally, we determined that the joint steering committee participation would not have been provided without the R&D services and license agreement.

Based on these assessments, we identified all services to be interrelated and therefore concluded that the promises should be combined into a single performance obligation at the inception of the arrangement.

As of December 31, 2019 , the transaction price includes the upfront payment, research reimbursement revenue, and milestones earned to date, which are allocated in their entirety to the single performance obligation.

On October 23, 2020, Amendment No.

3 to the GSK Agreement (the “Amendment”) was agreed to by both parties to permit GSK to conduct development and commercialization of Zejula, an oral, once-daily poly (ADP-ribose) polymerase (PARP) inhibitor, which has received US approval for the maintenance treatment of adult patients with advanced epithelial ovarian, fallopian tube, or primary peritoneal cancer who are in a complete or partial response to first-line platinum-based chemotherapy, and is under development for additional cancer indications.

In addition, under the Amendment, we were granted increased royalties upon sales of dostarlimab, an anti-PD-1 antagonist antibody under development by GSK for multiple oncological disorders.

The Amendment also provided for a one-time, non-refundable cash payment of $ 60.0 million that we received and recognized as revenue in the fourth quarter of 2020.

GSK also agreed, starting January 1, 2021, to pay us a 1 % royalty on all GSK Net Sales of Zejula.

The $ 1.1 billion in cash milestone payments due under the GSK Agreement remain unchanged.

Additionally, under the terms of the Amendment, GSK has agreed to certain diligence commitments with respect to the future development of dostarlimab, and the parties have agreed to review such commitments under regular joint review committee meetings going forward.

We assessed this Amendment in accordance with ASC 606 and concluded the Amendment was a contract modification to the GSK Agreement.

Based on our assessment, we identified the terms of the Amendment to be interrelated to the GSK Agreement’s single performance obligation, noting completion and delivery of terms under the Amendment were satisfied by both parties with the execution of the Amendment.

As of December 31, 2020, the transaction price for the GSK Agreement and Amendment includes the upfront payment, research reimbursement revenue, one-time payment associated to Amendment No.

3, and milestones earned to date, which are allocated in their entirety to the single performance obligation.

We earned and recognized two clinical milestones for $ 15.0 million during the year ended December 31, 2020.

No other future clinical or regulatory milestones have been included in the transaction price, as all milestone amounts were subject to the revenue constraint.

As part of the constraint evaluation, we considered numerous factors including the fact that the receipt of milestones is outside of our control and contingent upon success in future clinical trials, an outcome that is difficult to predict, and the licensees’ efforts.

Any consideration related to sales-based milestones, including royalties, will be recognized when the related sales occur as they were determined to relate predominantly to the IP license granted to TESARO and therefore have also been excluded from the transaction price.

Any consideration related to sales-based milestones, including royalties, will be recognized when the related sales occur as they were determined to relate predominantly to the intellectual property license granted to GSK and therefore have also been excluded from the transaction price.

We will re-evaluate the variable transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.

Milestones recognized through December 31, 2019 under the TESARO Agreement are as follows:

(TSR042/Dostarlimab)

Milestone Event

Quarter Recognized

Milestones recognized through December 31, 2020 under the GSK Agreement are as follows:

(GSK4057190A/Dostarlimab)

(GSK4069889A/Cobolimab)

(GSK40974386)

Milestone Event Amount Quarter Recognized Amount Quarter Recognized Amount Quarter Recognized

Initiated in vivo toxicology studies using good laboratory practices (GLPs)

IND clearance from the FDA

Phase 2 clinical trial initiation

Phase 3 clinical trial initiation - first indication

Phase 3 clinical trial initiation - second indication

$ 1.0 M Q2'15 $ 1.0 M Q4'15 $ 1.0 M Q3'16

IND clearance from the FDA $ 4.0 M Q1'16 $ 4.0 M Q2'16 $ 4.0 M Q2'17

Phase 2 clinical trial initiation $ 3.0 M Q2'17 $ 3.0 M Q4'17 $ 3.0 M Q4'19

Phase 3 clinical trial initiation - first indication $ 5.0 M Q3'18 — — — —

Phase 3 clinical trial initiation - second indication $ 5.0 M Q2'19 — — — —

Filing of the first NDA - first indication $ 10.0 M Q1'20 — — — —

Filing of the first MAA - first indication $ 5.0 M Q1'20 — — — —

Milestones achieved during the discovery period were recognized as revenue pro-rata through December 31, 2016.

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Cash is generally received within 30 days of milestone achievement.

We recognized $ 8.0 million in revenue under this agreement during the year ended December 31, 2019 related to two milestones and recognized $ 5.0 million during the year ended December 31, 2018 related to one milestone.

We recognized aggregated revenue under this agreement of $ 10.0 million during the year ended December 31, 2017 related to three milestones.

Antibody Generation Agreement with Celgene Corporation

In December 2011, we entered into a license and collaboration agreement with Celgene, now a part of Bristol-Myers Squibb, or the Celgene Agreement, to develop therapeutic antibodies against multiple targets.

We granted Celgene the option to obtain worldwide commercial rights to antibodies generated against each of the targets under the agreement, which option was triggered on a target-by-target basis by our delivery of antibodies meeting certain pre-specified parameters pertaining to each target under the agreement.

The agreement provided for an upfront payment of $ 6.0 million from Celgene, which we received in 2011 and recognized through 2014, milestone payments of up to $ 53.0 million per target, low single-digit royalties on net sales of antibodies against each target, and reimbursement of specified research and development costs.

We assessed this arrangement in accordance with ASC Topic 606 and concluded that the contract counterparty, Celgene, is a customer.

We identified the following material promises under the Celgene Agreement:

We recognized $ 75.0 million in revenue under this agreement during the year ended December 31, 2020, of which $ 60.0 million is related to terms under Amendment No.

3 to the GSK Agreement that were satisfied and $ 15.0 million in milestone revenue related to two milestones.

We recognized $ 8.0 million during the year ended December 31, 2019 related to two milestones.

We recognized $ 5.0 million during the year ended December 31, 2018 related to one milestone.

Antibody Generation Agreement with Bristol-Myers Squibb

In December 2011, we entered into a license and collaboration agreement (the “BMS Agreement”) with Celgene, now a part of Bristol-Myers Squibb (Celgene and Bristol-Myers Squibb are hereinafter referred to, collectively, as “BMS”), to develop therapeutic antibodies against multiple targets.

We granted BMS the option to obtain worldwide commercial rights to antibodies generated against each of the targets under the agreement, which option was triggered on a target-by-target basis by our delivery of antibodies meeting certain pre-specified parameters pertaining to each target under the agreement.

The BMS Agreement provided for an upfront payment of $ 6.0 million from BMS, which we received in 2011 and recognized through 2014, milestone payments of up to $ 53.0 million per target, low single-digit royalties on net sales of antibodies against each target, and reimbursement of specified research and development costs.

We assessed this arrangement in accordance with ASC Topic 606 and concluded that the contract counterparty, BMS, is a customer.

We identified the following material promises under the BMS Agreement:

(1) the licenses under certain patent rights relating to four targets and transfer of certain development and regulatory information, (2) R&D services, (3) a written report documenting findings, and (4) steering committee meetings.

We considered the research and discovery capabilities of Celgene, Celgene’s inability to sub-license the four targets, and the fact that the discovery and optimization of these antibodies is proprietary and could not, at the time of the contract inception, be provided by other vendors, to conclude that the license does not have stand-alone functionality and is therefore not distinct.

We considered the research and discovery capabilities of BMS, BMS’s inability to sub-license the four targets, and the fact that the discovery and optimization of these antibodies is proprietary and could not, at the time of contract inception, be provided by other vendors, to conclude that the license does not have stand-alone functionality and is therefore not distinct.

Additionally, we determined that the report of findings and steering committee participation would not have been provided without the R&D services and license agreement.

Based on these assessments, we identified all services to be interrelated, and therefore concluded that the promises should be combined into a single performance obligation at the inception the arrangement.

As of December 31, 2019 , the transaction price includes the upfront payment, success fees, expense reimbursement, and milestones earned to date, which are allocated in their entirety to the single performance obligation.

As of December 31, 2020, the transaction price of the BMS Agreement includes the upfront payment, success fees, expense reimbursement, and milestones earned to date, which are allocated in their entirety to the single performance obligation.

None of the future clinical or regulatory milestones have been included in the transaction price, as all milestone amounts were subject to the revenue constraint.

As part of the constraint evaluation, we considered numerous factors, including the fact that the receipt of milestones is outside of our control and contingent upon success in future clinical trials and the licensees’ efforts.

Any consideration related to sales-based milestones, including royalties, will be recognized when the related sales occur as they were determined to relate predominantly to the IP license granted to Celgene and therefore have also been excluded from the transaction price.

Any consideration related to sales-based milestones, including royalties, will be recognized when the related sales occur as they were determined to relate predominantly to the intellectual property license granted to BMS and therefore have also been excluded from the transaction price.

We will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.

Milestones achieved through December 31, 2019 under the Celgene Agreement are as follows:

Milestone Event

Quarter Recognized

Milestones achieved through December 31, 2020 under the BMS Agreement are as follows:

Milestone Event Amount Quarter Recognized

Completion of first in vivo toxicology studies using GLPs

Phase 1 clinical trial initiation

$ 0.5 M Q2'16

Phase 1 clinical trial initiation $ 1.0 M Q4'16

Revenue from future contingent milestone payments will be recognized when it is more likely than not that the revenue will not be reversed in future periods.

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The Term A Loans, for an aggregate of $ 5.0 million, were drawn on December 24, 2014 with a fixed interest rate of 6.97 %.

In connection with the issuance of the Term A Loans, we issued detachable, fully vested warrants to purchase an aggregate of 41,208 shares of Series C Preferred Stock at an exercise price of $ 4.55 per share to the lenders.

The grant-date fair value of the warrants of $ 0.1 million was recorded as a liability, with a reduction to the carrying value of the Term A Loans, and which is recognized as additional interest expense over the remaining term of the Loans.

The initial fair value of the warrants was determined using the Black-Scholes option pricing model with the following assumptions:

a stock price volatility of 70.2 % , an expected life equal to the contractual term of the warrants of ten years and a risk-free interest rate of 1.97 % .

In January 2016, the Loan Agreement was amended to combine Term B Loans and Term C Loans for a total of $ 10.0 million available for draw through December 31, 2016 and delay the beginning of our Term A Loans’ principal repayments from February 1, 2016 until February 1, 2017.

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The Term B Loans and the Term C Loans were drawn on December 30, 2016, and Term A, B and C Loans are now collectively referred to as the Term Loans.

Principal repayments began in February 2018, and as of December 31, 2019 , there is one monthly principal and interest payment remaining on the Term Loans, with final maturity in January 2020.

The Term Loans bear interest equal to the greater of 3-month U.S.

LIBOR plus 6.37 % or 7.3 % .

The interest rate was 8.28 % as of December 31, 2019 .

In connection with the issuance of the Term B & C Loans, we issued detachable, fully vested warrants to purchase an aggregate of 82,416 shares of Series C Preferred Stock at an exercise price of $ 4.55 per share to the lenders.

The grant-date fair value of the warrants of $ 0.9 million was recorded as a liability, with a reduction to the carrying value of the Term B & C Loans, and which is recognized as additional interest expense over the remaining term of the Loans.

The initial fair value of the warrants was determined using the Black-Scholes option pricing model with the following assumptions:

a stock price volatility

of 79.2 % , an expected life equal to the contractual term of the warrants of ten years and a risk-free interest rate of 2.45 % .

All of the outstanding warrants to purchase shares of preferred stock automatically converted into warrants to purchase shares of common stock in connection with the IPO and were accounted for as equity from the conversion date forward.

All warrants related to Term Loans were exercised during the year ended December 31, 2017 .

The costs incurred to issue the Term Loans were deferred and are included in the discount to the carrying value of the Term Loans in the accompanying balance sheet.

The Term Loans also include a final payment fee of $ 0.8 million due at the earlier of prepayment or the maturity date of the Term Loans.

The deferred costs and the final payment fee are being amortized to interest expense over the expected term of the Term A Loans using the effective interest method.

As of December 31, 2019 , the carrying amount of the Term Loans was $ 1.4 million , which includes amortized final payment fees of $ 0.8 million and remaining principal payments of $ 0.6 million classified as current liabilities.

The effective interest rate on the Term Loans at December 31, 2019 was 12.67 % .

The Term Loans are secured by a first priority interest in most of our assets, excluding intellectual property.

As of December 31, 2019 , we were in compliance with the covenants contained in the Loan Agreement.

On January 1, 2020, the Term Loans were paid in full, without penalty or premium.

Principal repayments began in February 2018, and the Term Loans were paid in full, without penalty or premium, on January 1, 2020.

The costs incurred to issue the Term Loans were deferred and were included in the discount to the carrying value of the Term Loans in the accompanying balance sheet.

The Term Loans also included a final payment fee of $ 0.8 million due at the earlier of prepayment or the maturity date of the Term Loans.

The deferred costs and the final payment fee were amortized to interest expense over the expected term of the Term A Loans using the effective interest method.

Fair Value Measurements and Available for Sale Investments

Fair Value Measurements

Our financial instruments consist principally of cash, cash equivalents, restricted cash, short-term and long-term investments, receivables, accounts payable, notes payable.

Our financial instruments consist principally of cash, cash equivalents, restricted cash, short-term and long-term investments, receivables, accounts payable, and notes payable.

Certain of our financial assets and liabilities have been recorded at fair value in the consolidated balance sheet in accordance with the accounting standards for fair value measurements.

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Fair Value Measurements at End of Period Using:

(in thousands)

(in thousands) Fair

Quoted Market

3 unchanged sentences

Money market funds (1)

$ 188,297 $ 188,297 $ — $ —

Mutual funds (1)

57,153 57,153 — —

Treasury securities (2)

107,697 107,697 — —

Certificates of deposit (2)

2,436 — 2,436 —

Agency securities (2)

21,169 — 21,169 —

Commercial and corporate obligations (2)

29,441 — 29,441 —

At December 31, 2019

Money market funds (1)

$ 162,928 $ 162,928 $ — $ —

Mutual funds (1)

7,619 7,619 — —

Treasury securities (2)

96,434 96,434 — —

Certificates of deposit (2)

5,428 — 5,428 —

Agency securities (2)

33,623 — 33,623 —

Commercial and corporate obligations (2)

122,030 — 122,030 —

(1) Included in cash and cash equivalents or restricted cash in the accompanying consolidated balance sheets.

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The fair value of our other financial instruments estimated as of December 31, 2020 and December 31, 2019 are presented below:

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

(in thousands) Carrying

Notes payable $ — $ — $ 1,375 $ 1,365

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Based on the assumptions used to value these liabilities at fair value, these debt instruments are categorized as Level 2 in the fair value hierarchy.

The carrying amounts of certain of our financial instruments, including cash and cash equivalents, Australian tax incentive receivable, accounts payable, and accrued expenses approximate fair value due to their short-term nature.

The carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts payable, and accrued expenses approximate fair value due to their short-term nature.

Available for Sale Investments

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The aggregate market value, cost basis, and gross unrealized gains and losses of available-for-sale investments by security type, classified in cash equivalents, short-term and long-term investments as of December 31, 2020 are as follows:

(in thousands)

Unrealized Gains

Unrealized Losses

(in thousands) Amortized

Unrealized Gains Gross

Unrealized Losses Total

Agency securities (1)

$ 21,169 $ 1 $ ( 1 ) $ 21,169

Certificates of deposit (2)

2,427 9 — 2,436

Commercial and corporate obligations (3)

29,414 28 ( 1 ) 29,441

US Treasury securities (4)

107,530 170 ( 3 ) 107,697

Total available-for-sale investments $ 160,540 $ 208 $ ( 5 ) $ 160,743

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Treasury securities, $ 102.7 million have maturity dates of less than one year and $ 5.0 million have a maturity date of between one to two years as of December 31, 2020.

(in thousands) Amortized

Unrealized Gains Gross

Unrealized Losses Total

Agency securities (1)

$ 33,543 $ 80 $ — $ 33,623

Certificates of deposit (2)

5,381 47 — 5,428

Commercial and corporate obligations (3)

121,809 225 ( 4 ) 122,030

US Treasury securities (4)

96,236 200 ( 2 ) 96,434

Total available-for-sale investments $ 256,969 $ 552 $ ( 6 ) $ 257,515

(1) Of our outstanding agency securities, $ 16.5 million have maturity dates of less than one year and $ 17.1 million have a maturity date of between one to two years as of December 31, 2019.

(2) Of our outstanding certificates of deposit, $ 4.6 million have a maturity date of less than one year and $ 0.8 million have a maturity date of between one to two years as of December 31, 2019.

(3) Of our outstanding commercial and corporate obligations, $ 111.1 million have maturity dates of less than one year and $ 10.9 million have a maturity date of between one to two years as of December 31, 2019.

(4) Of our outstanding U.S.

Treasury securities, $ 70.9 million have maturity dates of less than one year and $ 25.5 million have a maturity date of between one to two years as of December 31, 2019.

The following tables present gross unrealized losses and fair values for those investments that were in an unrealized loss position as of December 31, 2020 and December 31, 2019, aggregated by investment category and the length of time that individual securities have been in a continuous loss position:

December 31, 2020

Less than 12 Months 12 Months or Greater Total

(in thousands) Fair Value

Unrealized Losses

Agency securities $ 4,999 $ ( 1 ) $ — $ — $ 4,999 $ ( 1 )

Commercial and corporate obligations 6,503 ( 1 ) 2,399 — 8,902 ( 1 )

US Treasury Securities 35,211 ( 3 ) — — 35,211 ( 3 )

Total $ 46,713 $ ( 5 ) $ 2,399 $ — $ 49,112 $ ( 5 )

December 31, 2019

Less than 12 Months 12 Months or Greater Total

(in thousands) Fair Value Gross

Unrealized Losses Fair Value Gross

Unrealized Losses

Commercial and corporate obligations $ 5,986 $ ( 4 ) $ — $ — $ 5,986 $ ( 4 )

US Treasury Securities 17,608 ( 2 ) — — 17,608 ( 2 )

Total $ 23,594 $ ( 6 ) $ — $ — $ 23,594 $ ( 6 )

As of December 31, 2020 and 2019, unrealized losses on available-for-sale investments were no t material, and accordingly, no allowance for credit losses were recorded.

Stockholders’ Equity

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2017 Employee Stock Purchase Plan

Total 6,904,483

Equity Incentive Plans

2017 Equity Incentive Plan

On January 12, 2017, our board of directors and stockholders approved and adopted the 2017 Equity Incentive Plan, or the 2017 Plan.

The 2017 Plan became effective upon the execution and delivery of the underwriting agreement for our initial public offering on January 26, 2017, and replaced our existing 2006 Equity Incentive Plan, or the 2006 Plan.

On January 12, 2017, our board of directors and stockholders approved and adopted the 2017 Equity Incentive Plan (the “2017 Plan”).

The 2017 Plan became effective upon the execution and delivery of the underwriting agreement for our initial public offering on January 26, 2017, and replaced our existing 2006 Equity Incentive Plan.

Under the 2017 Plan, we may grant stock options, stock appreciation rights, restricted stock, restricted stock units and other awards to individuals who are then our employees, officers, directors or consultants.

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Stock options granted to employees and non-employees generally vest over a four-year period while stock options granted to directors vest over a one-year period.

Each have a maximum term of ten years from the date of grant, subject to earlier cancellation prior to vesting upon cessation of service to us.

Each stock option award has a maximum term of 10 years from the date of grant, subject to earlier cancellation prior to vesting upon cessation of service to us.

A summary of the activity related to stock option awards during the year ended December 31, 2020 is as follows:

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Outstanding at January 1, 2020 3,039,880 $ 29.40

Granted 539,825 $ 19.13

Exercises ( 100,493 ) $ 4.94

Forfeitures and cancellations ( 558,512 ) $ 38.13

Outstanding at December 31, 2020

2,920,700 $ 26.67 7.29 $ 17,434

Exercisable at December 31, 2020 1,606,744 $ 26.56 5.93 $ 12,326

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The estimated fair values of stock option awards granted to employees were determined on the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions:

2020 2019 2018

Risk-free interest rate 0.5 % 2.0 % 2.7 %

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General and administrative 7,377 6,847 6,590

$ 11,499 $ 12,411 $ 9,961

At December 31, 2020, there was $ 22.9 million of unrecognized compensation cost related to unvested stock option awards, which is expected to be recognized over a remaining weighted average vesting period of 2.92 years.

Australia Research and Development Tax Incentive

Our Australian subsidiary, which conducts core research and development activities on our behalf, is eligible to receive a 43.5 % refundable tax incentive for qualified research and development activities during fiscal years 2019, 2018, and 2017.

For the years ended December 31, 2019 , 2018 and 2017 , $ 0.0 million , $ 0.1 million and $ 1.5 million , respectively, were recorded as a reduction to research and development expenses in the consolidated statements of operations and comprehensive loss.

Our Australian subsidiary, which conducts core research and development activities on our behalf, was eligible to receive a 43.5 % refundable tax incentive for qualified research and development activities during fiscal years 2019 and 2018.

We were no longer eligible to receive the refundable tax incentive during fiscal year ending 2020.

For the years ended December 31, 2019 and 2018, $ 0.0 million and $ 0.1 million, respectively, were recorded as a reduction to research and development expenses in the consolidated statements of operations and comprehensive loss.

We received approximately $ 0.0 million and $ 0.2 million in cash during the years ended December 31, 2020 and 2019, respectively, related to the tax incentive.

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federal tax regulations.

During 2019 , we elected to match 50 % of an employee’s contributions up to 6 % of the employees’ eligible salary with a maximum annual match limit of $ 6,000 .

For the year ended December 31, 2019 , we incurred approximately $ 0.3 million of costs related to the 401(k) plan.

There were no employer contributions to the plan during the years ended December 31, 2018 , and 2017 .

During 2020 and 2019, we elected to match 50 % of an employee’s contributions up to 6 % of the employees’ eligible salary with a maximum annual match limit of $ 6,000 .

For the years ended December 31, 2020, and 2019, we incurred approximately $ 0.5 million and $ 0.3 million, respectively of costs related to the 401(k) plan.

There were no employer contributions to the plan during the year ended December 31, 2018.

Commitments and Contingencies

Operating Leases

We have two non-cancellable office leases with remaining lease terms of approximately 2 years , each of which are classified as operating leases.

Both leases expire in 2021.

Only one of our leases has remaining renewal options, which includes three options to renew for one additional year.

The exercise of lease renewal options is at our sole discretion, which we currently do not anticipate exercising and as such were not recognized as part of our ROU asset and lease liabilities.

Our lease payments are fixed, and we recognize lease expense for these leases on a straight-line basis over the lease term.

On November 11, 2020, we entered into an agreement to terminate our sublease (the “Sublease Termination”) with Trex Enterprises Corporation, with respect to facilities in the building at 10455 Pacific Center Court in San Diego, California (the “10455 Building”).

The terms of the original sublease with Trex provided for a November 12, 2021 lease expiration.

Under the Sublease Termination, we agreed to terminate the sublease agreement on December 15, 2020 with no associated penalty.

We recorded a non-cash gain of approximately $ 0.1 million as other income (expense), in connection with the write-off of the lease liability and corresponding ROU asset.

As of December 31, 2020, there was no lease liability and corresponding ROU asset related to the 10455 Building Lease.

As of December 31, 2020, we still maintain the non-cancellable office lease for our facilities at 10421 Pacific Center Court in San Diego, California, which expires on August 31, 2021.

Our lease payments are fixed, and we recognize lease expense for leases on a straight-line basis over the lease term.

Operating lease ROU assets and lease liabilities are recorded based on the present value of the future minimum lease payments over the lease term at commencement date.

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The weighted-average discount rate used was 8.59 %.

Rent expense was $ 0.7 million and $ 0.5 million during the years ended December 31, 2018 and 2017 , respectively, under Topic 840.

At December 31, 2018 , deferred rent aggregated $ 0.2 million , which is included in both current and noncurrent liabilities in the accompanying December 31, 2018 consolidated balance sheet, under Topic 840.

Our balance sheet includes our ROU assets and lease liabilities as follows (in thousands):

Classification on the Balance Sheet

December 31, 2019

Operating ROU assets

Other long-term assets

Operating lease liabilities

Other current liabilities

Operating lease liabilities

Other long-term liabilities

Leases Classification on the Balance Sheet December 31, 2020 December 31, 2019

Operating ROU assets Other long-term assets $ 344 $ 1,402

Operating lease liabilities Other current liabilities 342 871

Operating lease liabilities Other long-term liabilities — 654

The following costs are included in our cash flow statement (in thousands):

Classification on the Cash Flow

Year Ended December 31, 2019

Operating lease cost

Cash paid for amounts included in the measurement of lease liabilities

Leases Classification on the Cash Flow Year Ended December 31, 2020 Year Ended December 31, 2019

Operating lease cost Operating $ 865 $ 879

Cash paid for amounts included in the measurement of lease liabilities Operating 938 937

Rent expense was $ 0.7 million during the year ended December 31, 2018 under ASC 840.

At December 31, 2020, the future minimum annual obligations under non-cancellable operating lease commitments in excess of one year are as follows:

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Present value of lease liabilities $ 342

As previously disclosed in our 2018 Annual Report on Form 10-K, and under the previous lease accounting standard, future minimum annual obligations under non-cancellable operating lease commitments in excess of one year would have been as follows (in thousands):

On May 4, 2020, we entered into a lease agreement (the “Lease Agreement”) with Wateridge Property Owner, LP, with respect to facilities in the building at 10770 Wateridge Circle, San Diego, California 92121.

Under the Lease Agreement, we agreed to lease approximately 45,000 square feet of space for a term of 124 months, beginning on April 1, 2021 or at the completion of leasehold improvements.

The Lease liability and corresponding ROU asset will be recorded at lease commencement date, which we anticipate to be April 1, 2021.

The terms of the Lease Agreement provide us with an option to extend the term of the lease for an additional five years , as well as a one-time option to terminate the lease after seven years with the payment of a termination fee.

The monthly base rent will be $ 4.20 per rentable square foot and will be increased by 3 % annually.

Under the Lease Agreement, we are also responsible for our pro rata share of real estate taxes, building insurance, maintenance, direct expenses, and utilities.

As of December 31, 2020, we have recorded $ 0.2 million in prepaid rent and $ 0.3 million as a security deposit in accordance with the terms of the Lease Agreement.

At December 31, 2020, the future minimum annual obligations for the Lease Agreement in excess of one year are as follows (in thousands):

Years Ending December 31,

Thereafter 15,420

Total minimum payments required $ 25,725

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A restricted cash account with these amounts was held as cash collateral for the letter of credit.

We are, from time to time, involved in legal proceedings, regulatory actions, claims and litigation arising in the ordinary course of business.

Currently, we are not involved in any legal proceeding that we expect to have a material effect on our business, financial condition, results of operations and cash flows.

On March 25, 2020, a putative securities class action was filed in the United States District Court for the Southern District of California naming the Company and certain of its current or former officers as defendants.

The complaint purports to assert claims under Section 10(b) of the Exchange Act Rule 10b-5, and Section 20(a) of the Exchange Act, on behalf of persons and entities who acquired our common stock between October 10, 2017 and November 7, 2019 (the “Class Period”).

An amended complaint was filed on September 30, 2020 alleging that, during the Class Period, the defendants made material misrepresentations or omissions regarding our etokimab product candidate that artificially inflated our stock price.

The plaintiff seeks, among other things, damages in an unspecified amount, as well as costs and expenses.

We believe that the plaintiff’s allegations are without merit and intend to vigorously defend against the claims.

Because the Company is in the early stages of this litigation matter, we are unable to estimate a reasonably possible loss or range of loss, if any, that may result from these matters.

On September 1, 2020, a related shareholder derivative complaint was filed based on allegations substantially similar to those in the class action, and asserting claims against current or former officers and directors for contribution under Sections 10(b) and 21D of the Exchange Act, breach of fiduciary duty, unjust enrichment and corporate waste.

On January 28, 2021, this derivative action was voluntarily dismissed without prejudice.

From time to time, we may be involved in legal proceedings arising in the ordinary course of our business.

We investigate these claims as they arise and accrue estimates for resolution of legal and other contingencies when losses are probable and estimable.

Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity and reputational harm, and other factors.

The components of loss before income tax benefit consist of the following:

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(in thousands) 2020 2019 2018

$ ( 19,832 ) $ ( 97,187 ) $ ( 61,193 )

Foreign ( 99 ) ( 301 ) ( 655 )

Consolidated net loss before income taxes $ ( 19,931 ) $ ( 97,488 ) $ ( 61,848 )

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Research and development credits 17,614 14,244

Equity compensation 5,329 4,067

Other, net 769 799

Total deferred tax assets 81,484 74,832

Deferred Tax Liabilities:

Fixed assets ( 150 ) ( 349 )

Total deferred tax liabilities ( 150 ) ( 349 )

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The federal and state NOLs generated prior to 2018 will both begin to expire in 2028, unless previously utilized.

The federal NOLs include $ 179.4 million of net operating losses generated in 2018 and after.

The federal NOL includes $ 188.4 million of net operating losses generated in 2018 and after.

Federal net operating losses generated in 2018 and after carryover indefinitely and may generally be used to offset up to 80% of future taxable income.

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Equity compensation (1)

Change in fair value of preferred stock warrant liabilities

871 ( 1,122 ) ( 6,693 )

Research and development expenditure — — 63

2 unchanged sentences

Rate differential 40 ( 53 ) 155

Federal rate adjustment - tax reform

Research credits ( 3,389 ) ( 4,405 ) ( 4,393 )

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Income tax benefit $ — $ ( 152 ) $ ( 192 )

(1) Includes non-deductible stock-based compensation and, beginning in 2017, excess tax benefits from stock-based compensation.

During 2019, our tax provision includes $ 1.1 million of excess tax benefits associated with the exercise of non-qualified stock options and $ 0.3 million associated with the disqualifying dispositions of incentive stock options.

(1) Includes non-deductible stock-based compensation and excess tax benefits from stock-based compensation.

During 2020, our tax provision includes $ 0.0 of excess tax benefits associated with the exercise of non-qualified stock options and $ 0.2 associated with the disqualifying dispositions of incentive stock options.

During 2018, our tax provision includes $ 4.9 million of excess tax benefits associated with the exercise of non-qualified stock options and $ 2.2 million associated with the disqualifying dispositions of incentive stock options.

The Tax Cuts and Jobs Act, or the 2017 Act, was enacted on December 22, 2017, and includes a number of changes to existing U.S.

tax laws that impact us, most notably a reduction of the U.S.

corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017.

The 2017 Act also provides for a one-time transition tax on certain foreign earnings and the acceleration of depreciation for certain assets placed in service after September 27, 2017 as well as prospective changes beginning in 2018, including additional limitations on:

executive compensation;

the deductibility of interest;

the usage of NOLs against taxable income;

the capitalization of research and development expenditures.

While the 2017 Act provides for a territorial tax system, beginning in 2018, it includes two new U.S.

tax base erosion provision, the global intangible low-taxed income, or GILTI provisions and the base-erosion and anti-abuse tax, or BEAT, provisions.

We completed our analysis of the 2017 Act income tax effects and remeasured our deferred tax assets and liabilities to reflect the reduction in the U.S.

corporate income tax rate from 35% to 21% percent, resulting in a $ 7.6 million increase in tax expense for the year ended December 31, 2017 and a corresponding $ 7.6 million decrease in net deferred tax assets for the year ended December 31, 2017.

The impact was fully offset by a valuation allowance.

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No.

118 to address the application of U.S.

GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed, including computations, in reasonable detail to complete the accounting for certain income tax effects of the 2017 Act.

We applied the guidance in SAB 118 when accounting for all of the enactment-date income tax effects of the Act under ASC 740, Income Taxes, related to the remeasurement of deferred tax assets and liabilities.

As of December 31, 2018, we have completed our accounting for all of the enactment-date income tax effects of the Act and no adjustments were made to the provisional amounts recorded at December 31, 2017.

We recognize a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits.

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Due to our losses incurred, we are essentially subject to income tax examination by tax authorities from inception to date.

Selected Quarterly Financial Data (Unaudited)

The following is a summary of our quarterly results for the years ended December 31, 2019 and 2018 (in thousands, except for per share data):

Year Ended December 31, 2019

Operating loss

Per common share:

Loss per share, basic

Loss per share, diluted

Year Ended December 31, 2018

Operating loss

Per common share:

Loss per share, basic

Loss per share, diluted

Subsequent Events

On January 1, 2020, the Term Loans were paid in full, without penalty or premium.

Subsequent Event

A second BLA submitted by GSK was accepted by the FDA during the first quarter of 2021 for dostarlimab in pan-deficient mismatch repair tumors (“PdMMRT”),” triggering a milestone payment to us of $ 10.0 million.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk