What changed in this filing

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2022-03-07 compared with 2021-02-25 · 199 added, 186 removed, 708 unchanged (35% of the section changed)

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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 of December 31, 2021, we held $119.5 million in debt securities for which the accumulated other comprehensive loss was approximately $0.4 million.

As such, we believe that should a 10.0% change in interest rates were to have occurred on December 31, 2021, this change would not have had a material effect on the fair value of our investment portfolio as of that date.

Foreign Currency Exchange Risk

In March 2015, we formed a wholly-owned subsidiary in Australia, which exposes us to foreign currency exchange risk.

The functional currency of our subsidiary in Australia is the United States dollar.

Assets and liabilities of our foreign subsidiary that are not denominated in the functional currency are remeasured into U.S.

dollars at foreign currency exchange rates in effect at the balance sheet date except for nonmonetary assets and capital accounts, which are remeasured at historical foreign currency exchange rates in effect at the date of transaction.

Expenses are generally remeasured at monthly foreign currency exchange rates which approximate average rates in effect during each period.

Net realized and unrealized gains and losses from foreign currency transactions and remeasurement are reported in other income (expense), net, in the consolidated statements of operations and were less than $0.1 million during the year ended December 31, 2020.

We believe that our foreign currency exposure is limited at this time as the value of transactions and the asset and liability balances denominated in foreign currencies are relatively small.

Further, we do not believe that our financial condition or results of operations would be materially impacted by an immediate change of 10% in exchange rate of the foreign currencies in which we have transactions denominated, as exchange rates have fluctuated over 10% throughout the year ended December 31, 2020 from a low of 0.5724 to a high of 0.7707 with a net impact of less than $0.1 million to the consolidated statement of operations.

We conduct a portion of our business with CROs in currencies other than our U.S.

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The value of these monetary assets and liabilities are subject to changes in currency exchange rates from the time the transactions are originated until settlement in cash.

Our foreign currency exposures are primarily concentrated in the euro, British pound, Australian dollar, and Canadian dollar.

Our foreign currency exposures are primarily concentrated in the euro, British pound,

Australian dollar, and Canadian dollar.

Both realized and unrealized gains or losses on the value of these monetary assets and liabilities are included in the determination of net income.

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

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.

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 judgments.

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.

Evaluation of Research and Development Costs

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

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.

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We also examined certain invoices received after December 31, 2021 and evaluated whether services received prior to December 31, 2021 were included in the Company’s estimate of costs incurred as of December 31, 2021.

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

February 25, 2021

March 7, 2022

AnaptysBio, Inc.

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Cash and cash equivalents $ 495,729 $ 250,456

Receivables from collaborative partners 876 —

Short-term investments 52,368 143,197

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Property and equipment, net 2,283 1,783

Operating lease right-of-use assets 19,558 344

Long-term investments 67,097 17,546

Other long-term assets 256 258

Restricted cash 60 60

Long-term restricted cash — 60

$ 643,070 $ 416,552

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Accrued expenses 12,853 15,262

Notes payable, current portion — 1,375

Other current liabilities 342 871

Current portion of operating lease liability 1,505 342

Total current liabilities

16,099 19,821

Other long-term liabilities — 654

Liability related to sale of future royalties 251,093 —

Operating lease liability, net of current portion 19,450 —

Stockholders’ equity:

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Additional paid in capital 678,575 660,665

Accumulated other comprehensive (loss) income ( 4 ) 338

Accumulated other comprehensive loss ( 422 ) ( 4 )

Accumulated deficit ( 321,753 ) ( 263,957 )

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431 3,959 10,984

Other (expense) income, net

( 11 ) 1 ( 159 )

Non-cash interest expense for the sale of future royalties ( 1,450 ) — —

Other income (expense), net

Total other income (expense), net

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Balance, January 1, 2019 26,922 $ 27 $ 633,251 $ ( 223 ) $ ( 146,690 ) $ 486,365

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

584 — 2,869 — — 2,869

Warrants exercised

17 — 76 — — 76

Issuance of common stock from exercises of options 333 — 3,007 — — 3,007

Stock-based compensation

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Comprehensive income — — — 561 — 561

— — — 203 — 203

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

333 — 3,007 — — 3,007

Issuance of common stock from exercises of options 101 — 497 — — 497

Stock-based compensation

— — 11,499 — — 11,499

Comprehensive income

— — — 561 — 561

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

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

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

Shares issued under employee stock plans

101 — 497 — — 497

Issuance of common stock from exercises of options and employee stock purchase plan 291 1 2,563 — — 2,564

Stock-based compensation

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493 461 ( 2,633 )

Amortization of right-of-use assets – operating

1,471 1,058 893

Non-cash interest expense

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

(Gain) loss on disposal of property and equipment, net of gain on lease termination ( 15 ) 26 —

Changes in operating assets and liabilities:

Receivables from collaborative partners

Australian tax incentive receivable

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( 4,740 ) ( 7,694 ) 13,203

Operating lease liabilities

( 72 ) ( 1,183 ) ( 999 )

Net cash used in operating activities

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CASH FLOWS FROM INVESTING ACTIVITIES:

Acquisition of investments ( 194,927 ) ( 251,815 ) ( 347,537 )

Purchase of investments ( 118,662 ) ( 194,927 ) ( 251,815 )

Sales and maturities of investments 158,848 289,971 384,051

Proceeds from the sale of property and equipment 15 — —

Purchases of property and equipment ( 1,366 ) ( 569 ) ( 805 )

Net cash provided by (used in) investing activities

Net cash provided by investing activities

38,835 94,475 131,431

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from public offerings, net of underwriters' fees — — 227,476

Proceeds from issuance of common stock, upon the exercise of stock options 496 3,007 2,869

Proceeds from issuance of common stock, upon the exercise of warrants — — 76

Proceeds from issuance of common stock 2,553 496 3,007

Proceeds from the sale of future royalties 250,000 — —

Payments on notes payable — ( 1,375 ) ( 7,500 )

Payments for offering costs, net — — ( 182 )

Net cash (used in) provided by financing activities

Payments for issuance costs related to the sale of future royalties ( 255 ) — —

Net cash provided (used in) by financing activities

252,298 ( 879 ) ( 4,493 )

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Non-cash investing and financing activities:

Leased assets obtained in exchange for operating lease liabilities $ 20,685 $ — $ 2,295

Amounts accrued for property and equipment

$ 31 $ 279 $ 41

Receivable related to issuance of common stock, upon exercise of stock options $ 11 $ — $ —

Amounts accrued for issuance costs related to the sale of future royalties

$ 102 $ — $ —

See accompanying notes to consolidated financial statements.

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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.

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

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.

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

Going forward, as we continue our expansion, we may seek additional financing and/or strategic investments.

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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.

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.

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 from the issuance of our consolidated financial statements.

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

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.

All shares were offered by us at a price to the public of $ 94.46 per share.

The aggregate net proceeds received by us from the offering were $ 227.5 million, net of underwriting discounts and commissions.

Summary of Significant Accounting Policies

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

Certain reclassifications have been made to 2020 and 2019 financial information to conform to the current year presentation of other long-term assets, operating lease right-of-use, or “ROU” asset, and operating lease liabilities on the Consolidated Balance Sheets and Consolidated Statements of Cash Flows.

Basis of Consolidation

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Restricted Cash

We held restricted cash of $ 60,000 at December 31, 2020 and 2019, respectively, which we used to secure a letter of credit provided as security for the operating lease for our corporate headquarters.

We held restricted cash of $ 0 and $ 60,000 at December 31, 2021 and 2020, respectively, which was used to secure a letter of credit provided as security for the operating lease for our prior corporate headquarters.

The letter of credit expired in December 2021.

Short-Term and Long-Term Investments

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No impairment charges were recorded during the years ended December 31, 2021, 2020, or 2019.

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

Our leases consist of a lease for office and lab space that is classified as an operating lease.

We determine if an arrangement is a lease at inception.

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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 right-of-use (“ROU”) asset.

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

As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.

As our lease does not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.

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

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.

Liability Related to the Sale of Future Royalties

We treat the liability related to the sale of future royalties as debt, amortized under the effective interest rate method over the estimated life of the Royalty Monetization Agreement.

The amortization of the liability related to the sale of future revenue is based on our current estimates of future royalty payments.

Royalty and milestone revenue will be recognized as earned and the payments made will be recorded as a reduction of the liability when paid.

Debt Issuance Costs

Debt issuance costs related to a recognized debt liability are deferred and amortized over the term of the debt using the effective interest method.

These costs are recorded as a direct reduction to the carrying value of the debt on the balance sheet and the amortization expense is included in non-cash interest expense in the statement of operations.

Non-Cash Interest Expense on the Liability Related to the Sale of Future Royalties

The total threshold of royalties paid, less the net proceeds received will be recorded as interest expense over the life of the liability.

We impute interest on the unamortized portion of the liability using the effective interest method and record expense based on the timing of payments received over the term of the Royalty Monetization Agreement.

Over the course of the agreement, the actual interest rate will be affected by the timing of royalty and milestone payments made and changes in the forecasted revenue.

Revenue Recognition

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• Steering Committee Meetings.

The performance obligations under our collaboration and license agreements may also include our participation in a steering committees, which allows us to direct the progression of our discovery programs.

The performance obligations under our collaboration and license agreements may also include our participation on steering committees, which allows us to direct the progression of our discovery programs.

As these steering committees would not occur or benefit the customer without the use of our licenses, these are not considered distinct.

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Fixed payments, such as those for upfront fees are included in the transaction price at contract value, while variable consideration such as reimbursement for research and development services, milestone and royalty payments are estimated and then evaluated for constraints upon inception of the contract and evaluated on a quarterly basis thereafter.

Research and development services are updated for actual invoices.

development services are updated for actual invoices.

Given the nature of our agreements, milestones are estimated using the most likely amount and are evaluated on a quarterly basis.

Upon commercialization, royalty payments will be recognized in the period incurred.

Royalty Revenue

We receive royalty revenue on sales by our partners of products covered by patents or contract rights that we own and net sales of their approved drugs, where we have concluded the license is the predominant item to which the royalties relate.

We do not have future performance obligations under these license arrangements.

We generally satisfy our obligation to grant intellectual property rights on the effective date of the contract.

However, we apply the royalty recognition constraint required under the guidance for sales-based royalties, which requires a sales-based royalty to be recorded when the underlying sale occurs.

Therefore, royalties on sales of products commercialized by our partners are recognized in the quarter the product is sold.

Our partners generally report sales information to us on a quarter lag.

Thus, we estimate the expected royalty proceeds based on an analysis of our partners’ historical experience including their publicly announced sales.

Differences between actual and estimated royalty revenues are adjusted for in the period in which they become known, typically the following quarter.

As of December 31, 2021, there have not been material differences between actual and estimated royalty revenues.

Research and Development Expenses

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Stock-based compensation cost for stock options granted to our employees and directors is measured at the grant date based on the fair-value of the award which is estimated using the Black-Scholes option-pricing model, and is recognized as expense over the requisite service period on a straight-line basis.

We recognize forfeitures in the period in which forfeiture occur and record stock-based compensation expense as though all awards are expected to vest.

We recognize forfeitures in the period in which forfeitures occur and record stock-based compensation expense as though all awards are expected to vest.

We record the expense for stock-based compensation awards subject to performance-based milestone vesting over the requisite service period when management determines that achievement of the milestone is probable.

Management evaluates when the achievement of a performance-based milestone is probable based on the expected satisfaction of the performance conditions at each reporting date.

No tax benefits for stock-based compensation have been recognized in the statements of changes in stockholders’ equity or cash flows.

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Realization of deferred tax assets is dependent upon future taxable income.

A valuation allowance is recognized if it is more likely than not that some portion or all of a deferred tax asset will not be realized based on the weight of available evidence, including expected future earnings.

A valuation allowance is recognized if it is more

likely than not that some portion or all of a deferred tax asset will not be realized based on the weight of available evidence, including expected future earnings.

We recognize an uncertain tax position in our consolidated financial statements when we conclude that a tax position is more likely than not to be sustained upon examination based solely on technical merits.

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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 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):

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Accounting Pronouncements Recently Adopted

We have implemented all new accounting pronouncements that are in effect and may have an impact on our consolidated financial statements.

Unless otherwise discussed, we believe the impact of any recently issued pronouncements, not yet effective will not have a material impact on our consolidated financial statements.

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.

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Additionally, the guidance simplifies the accounting for income taxes by:

(1) requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, (2) requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction, (3) specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements (although the entity may elect to do so (on an entity-by-entity basis) for a legal entity that is both not subject to tax and disregarded by the taxing authority), (4) requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date, and (5) making minor improvements for income tax accounting related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method.

(4) requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date, and (5) making minor improvements for income tax accounting related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method.

The guidance will be effective for fiscal years and interim periods beginning after December 15, 2020.

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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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$ 2,283 $ 1,783

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

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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.

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.

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

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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.

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 JEMPERLI (dostarlimab), an anti-PD-1 antagonist antibody under development by GSK for multiple oncological disorders, equal to 8 % of Net Sales (as defined in the GSK Agreement) below $ 1.0 billion and from 12 % up to 25 % of Net Sales above $ 1.0 billion.

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.

GSK also agreed, starting January 1, 2021, to pay us a 1 % royalty less third-party royalty deduction 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.

Additionally, under the terms of the Amendment, GSK has agreed to certain diligence commitments with respect to the future development of JEMPERLI, 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.

As of December 31, 2021, the transaction price for the GSK Agreement and Amendment includes the upfront payment, research reimbursement revenue, one-time payment associated with the Amendment, and milestones earned to date, which are allocated in their entirety to the single performance obligation.

We earned and recognized $ 3.2 million in royalty revenue during the year ended December 31, 2021 related to GSK’s net sales of Zejula and JEMPERLI during the period based on estimates of GSK’s sales historical experience.

Of the royalty revenue recognized, $ 0.2 million is JEMPERLI non-cash revenue related to the Royalty Monetization Agreement, see Note 5.

GSK reports sales information to us on a one quarter lag and differences between actual and estimated royalty revenues will be adjusted in the following quarter.

There was no royalty revenue recognized during the years ended December 31, 2020 and 2019.

We earned and recognized four clinical milestones totaling $ 60.0 million during the year ended December 31, 2021.

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

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Milestones recognized through December 31, 2021 under the GSK Agreement are as follows:

(GSK4057190A/Dostarlimab)

(GSK4069889A/Cobolimab)

(JEMPERLI/Dostarlimab) Anti-TIM-3

(GSK4069889A/Cobolimab) Anti-LAG-3

(GSK40974386)

Milestone Event Amount Quarter Recognized Amount Quarter Recognized Amount Quarter Recognized

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

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

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

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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 — — — —

Filing of the first BLA (1) - first indication

$ 10.0 M Q1'20 — — — —

Filing of the first MAA (2) - first indication

$ 5.0 M Q1'20 — — — —

Filing of the first BLA - second indication

$ 10.0 M Q1'21 — — — —

First BLA approval - first indication $ 20.0 M Q2'21 — — — —

First MAA approval - first indication

$ 10.0 M Q2'21 — — — —

First BLA approval - second indication $ 20.0 M Q3'21 — — — —

(1) Biologics License Application (“BLA”)

(2) Marketing Authorization Application (“MAA”)

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 $ 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.

We recognized $ 63.2 million in revenue under the GSK Agreement during the year ended December 31, 2021, of which $ 60.0 million was related to four milestones and $ 3.2 million was related to royalty revenue.

We recognized $ 75.0 million in revenue during the year ended December 31, 2020, of which $ 60.0 million was 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.

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.

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There was no revenue recognized under this agreement during the years ended December 31, 2021, 2020, and 2019.

Notes Payable

On December 24, 2014, we entered into a Loan and Security Agreement, as amended from time to time (the “Loan Agreement”), with a bank and a financial institution whereby we may borrow up to $ 15.0 million in three separate draws of $ 5.0 million each.

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 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.

The Term B Loans and Term C Loans became available for draw on July 1, 2016.

In December 2016, we further amended the Loan Agreement to (i) allow for the Term B Loans and Term C Loans to be drawn on December 30, 2016, (ii) delay principal repayments of all Term Loans until February 1, 2018, and (iii) amend the interest rate for each Term Loan.

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 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.

Sale of Future Royalties

In October 2021, we signed a royalty monetization agreement (“Royalty Monetization Agreement”) with Sagard Healthcare Royalty Partners, LP (“Sagard”).

Under the terms of the Royalty Monetization Agreement, we received $ 250.0 million in exchange for royalties payable to us under our GSK collaboration on annual global net sales of JEMPERLI below $ 1.0 billion starting in October 2021.

The aggregate JEMPERLI royalties and milestones to be received by Sagard under the Royalty Monetization Agreement is capped at certain fixed multiples of the upfront payment based on time.

Once Sagard receives an aggregate amount of either $ 312.5 million ( 125 % of the upfront) by the end of 2026, or $ 337.5 million ( 135 % of the upfront) during 2027, or $ 412.5 million ( 165 % of the upfront) at any time after 2027, the Royalty Monetization Agreement will expire resulting in AnaptysBio regaining all subsequent JEMPERLI royalties and milestones.

The Royalty Monetization Agreement includes a call option, which at any time after the third anniversary of the closing date of the transaction, we may reacquire our interest in the specified royalties by paying Sagard (in cash) a specified amount described as (a) in the case of a Reacquisition Date that falls within the period from (but excluding) the third anniversary of the Closing Date to (and including) December 31, 2026, the greater of (i) $ 312.5 million minus the total Net Amount actually received by Purchaser prior to such Reacquisition Date, and (ii) an amount that, when paid to Sagard on such Reacquisition Date, will generate an internal rate of return (“IRR”) for Sagard of 9.0 % over the Relevant Period;

(b) in the case of a Reacquisition Date that falls within the period from (and including) January 1, 2027 to (and including) December 31, 2027, the

greater of (i) $ 337.5 million minus the total Net Amount actually received by Purchaser prior to such Reacquisition Date and (ii) an amount that, when paid to Sagard on such Reacquisition Date, will generate an IRR for Sagard of 10 % over the Relevant Period;

and (c) in the case of a Reacquisition Date that occurs on or after January 1, 2028, the greater of (i) $ 412.5 million minus the total Net Amount actually received by Purchaser prior to such Reacquisition Date and (ii) an amount that, when paid to Sagard on such Reacquisition Date, will generate an IRR for Sagard of 10 % over the Relevant Period.

The proceeds received from Sagard of $ 250.0 million were recorded as a liability, net of transaction costs of $ 0.4 million, which will be amortized over the estimated life of the arrangement using the effective interest rate method.

Royalty and milestone revenue will be recognized as earned on net sales of JEMPERLI, and we will record the royalty payments to Sagard as a reduction of the liability when paid.

As such payments are made to Sagard, the balance of the liability will be effectively repaid over the life of the Royalty Monetization Agreement.

We estimate the effective interest rate used to record non-cash interest expense under the Agreement based on its estimate of future royalty payments to be received by Sagard.

As of December 31, 2021, the estimated effective rate under the agreement was 7.0 %.

Over the life of the arrangement, the actual effective interest rate will be affected by the amount and the timing of the royalty payments received by Sagard and changes in the Company’s forecasted royalties.

At each reporting date, we will reassess our estimate of total future royalty payments to be received and if such payments are materially different than our original estimates, we will prospectively adjust the imputed interest rate and the related amortization of the royalty obligation.

We recognized non-cash royalty revenue of approximately $ 0.2 million and non-cash interest expense of approximately $ 1.5 million for the year ended December 31, 2021.

The interest and amortization of issuance costs is reflected as non-cash interest expense for the sale of future royalties in the Consolidated Statements of Operations.

The following table shows the activity within the liability account for the year ended December 31, 2021:

(in thousands) December 31, 2021

Liability related to sale of future royalties - beginning balance $ —

Proceeds from sale of future royalties 250,000

Issuance costs related to the sale of future royalties ( 357 )

Amortization of issuance costs 7

Non-cash interest expense recognized 1,443

Liability related to sale of future royalties - ending balance $ 251,093

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, and notes payable.

Our financial instruments consist principally of cash, cash equivalents, short-term and long-term investments, receivables, and accounts 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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29,441 — 29,441 —

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

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

(2) Included in short-term or long-term investments in the accompanying consolidated balance sheets depending on the respective maturity date.

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Fair Value of Other Financial Instruments

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

December 31, 2020 December 31, 2019

(in thousands) Carrying

Notes payable $ — $ — $ 1,375 $ 1,365

The following methods and assumptions were used to estimate the fair value of our notes payable:

Notes Payable —We use the income approach to value the aforementioned debt instrument.

We use a present value calculation to discount principal and interest payments and the final maturity payment on these liabilities using a discounted cash flow model based on observable inputs.

We discount these debt instruments based on what the current market rates would offer us as of the reporting date.

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, accounts payable, and accrued expenses approximate fair value due to their short-term nature.

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(in thousands) Fair Value

Unrealized Losses

Unrealized Losses Fair Value

Unrealized Losses

Agency securities $ 4,477 $ ( 7 ) $ — $ — $ 4,477 $ ( 7 )

Certificates of Deposit 2,870 ( 4 ) — — 2,870 ( 4 )

Commercial and corporate obligations 18,524 ( 42 ) — — 18,524 ( 42 )

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Unrealized Losses

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

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

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The ESPP automatically increased by 273,555 shares as of January 1, 2021.

The initial offering period for the ESPP began in May 2021, completed in November 2021, and a new offering period began in November 2021.

Future offering periods are expected to start in May and November each year.

Stock Options

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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:

A summary of the activity related to stock

option awards during the year ended December 31, 2021 is as follows:

Weighted-Average

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Stock-Based Compensation Expense

We recognize stock-based compensation expense for awards issued to employees and non-employees over the requisite service period based on the estimated grant-date fair value of such awards.

Management evaluates when the achievement of a performance-based milestone is probable based on the expected satisfaction of the performance conditions at each reporting date.

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:

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The weighted-average expected option term for employee and non-employee stock-based awards reflects the application of the simplified method, which defines the life as the average of the contractual term of the options and the weighted-average vesting period for all option tranches.

Estimated volatility incorporates historical volatility of our stock price as well as similar entities whose share prices are publicly available.

Expected volatility for 2021 incorporates the historical volatility of our stock price, and volatility for 2020 and 2019 incorporates our stock price as well as similar entities whose share prices are publicly available.

The risk-free interest rate is based upon U.S.

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At December 31, 2021, there was $ 27.2 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 2.26 years.

Australia Research and Development Tax Incentive

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.

As of December 31, 2020, we had no remaining tax incentive receivable from the Australian government.

At December 31, 2021, there was $ 0.1 million of unrecognized compensation cost related to the ESPP, which is expected to be recognized over a remaining weighted-average vesting period of 0.37 years.

Employee Benefit Plan

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federal tax regulations.

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.

We elected to match 100 % of an employee’s contributions up to 6 % of the employees’ eligible salary with a maximum annual match limit of $ 8,000 in 2021 and 50 % of an employee’s contributions up to 6 % of the employees’ eligible salary with a maximum annual match limit of $ 6,000 in 2020 and 2019.

For the years ended December 31, 2021, 2020, and 2019, we incurred approximately $ 0.6 million, $ 0.5 million and $ 0.3 million, respectively of costs related to the 401(k) plan.

Commitments and Contingencies

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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.

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

As of December 31, 2021, 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.

The non-cancellable office lease for our facilities at 10421 Pacific Center Court in San Diego, California, expired on August 31, 2021, and as of December 31, 2021, there was no related lease liability and corresponding ROU asset.

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

Under the Lease Agreement, we agreed to lease approximately 45,000 square feet of space for a term of 124 months, beginning on April 5, 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 exercise of the lease option is at our sole discretion, which we currently do not anticipate exercising and as such was not recognized as part of the ROU asset and lease liability.

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.

Upon lease commencement, on April 5, 2021, we recognized an ROU asset of $ 20.6 million, with a corresponding lease liability of $ 20.7 million on the consolidated balance sheets.

The ROU asset includes adjustments for prepayments, initial direct costs, and lease incentives.

As of December 31, 2021, we have recorded $ 0.3 million as a security deposit in accordance with the terms of the Lease Agreement.

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.

As our leases do not provide an implicit rate, we used our incremental borrowing rate based on the information available at effective date of adoption in determining the present value of future payments.

The weighted-average discount rate used was 8.59 %.

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

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):

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

As our lease does not provide an implicit rate, we used our incremental borrowing rate based on the information available at effective date of adoption in determining the present value of future payments.

The weighted-average discount rate used was 4.0 % and the weighted-average remaining lease term is approximately 9.7 years.

The following non-cancellable office lease costs are included in our consolidated statements of cash flow (in thousands):

Year Ended December 31,

Leases Classification on the Cash Flow 2021 2020 2019

Operating lease cost Operating $ 2,213 $ 865 $ 879

Cash paid for amounts included in the measurement of lease liabilities Operating 705 938 937

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:

At December 31, 2021, the future minimum annual obligations for the Company’s operating lease commitments are as follows:

Years Ending December 31, (in thousands)

Thereafter 13,239

Total minimum payments required $ 25,536

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Present value of lease liabilities $ 20,955

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 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

License Agreements

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Total cash paid under these agreements was $ 0.2 million, $ 0.3 million, and $ 0.1 million during the years ended December 31, 2021, 2020, and 2019, respectively.

Future minimum annual obligations under all such license agreements will be $ 0.2 million in aggregate during 2021, and thereafter.

Future minimum annual obligations under all such license agreements will be $ 0.7 million in aggregate during 2022, and $ 0.2 million thereafter.

These obligations are payable through ten years from the first commercial sale, if any, or expiration of the last patent to expire, the dates of which are not determinable at this time.

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Letter of Credit

At December 31, 2020 and 2019, we were contingently liable for a standby letter of credit issued by a commercial bank for $ 60,000 for security on our lease.

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

At December 31, 2020, we were contingently liable for a standby letter of credit issued by a commercial bank for $ 60,000 for security on our lease and a restricted cash account with this amount was held as cash collateral for the letter of credit.

As of December 31, 2021, the letter of credit has expired and the related restricted cash has been released.

Shareholder Litigation

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.

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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.

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

On September 20, 2021, the Court granted defendants’ motion to dismiss the amended complaint with leave to amend.

Plaintiff did not file a further amended complaint and, on November 30, 2021, the Court dismissed the action with prejudice.

On May 3, 2021, a shareholder derivative complaint was filed in the same Court based on allegations substantially similar to those in the class action, and purporting to assert claims on the Company’s behalf against current or former officers and directors for alleged violation of Sections 14(a) and 20(a) of the Exchange Act, breach of fiduciary duties, unjust enrichment, waste of corporate assets and insider selling.

The parties to that derivative action have agreed to the following:

(1) the action should be dismissed without prejudice, meaning that the dismissal would not preclude the company, or another shareholder acting on behalf of the company, from asserting such claims in the future;

(2) the plaintiffs and the defendants will all bear their own fees and costs incurred in connection with the action;

and (3) neither the plaintiffs nor their counsel have received, or will receive, payment, compensation or consideration of any kind, directly or indirectly, in connection with the action or its dismissal.

By Order dated January 14, 2022, the Court directed the Company to provide, in its filing on Form 10-K for the year ending December 31, 2021, notice to shareholders of the proposed dismissal without prejudice.

The Court further directed the parties to notify the Court following the filing of the Form 10-K, and ordered that the action will be dismissed without prejudice fourteen (14) days thereafter unless, within such time, a shareholder moves to intervene in the action.

We are unable to estimate a reasonably possible loss or range of loss, if any, that may result from these matters.

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

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Equity compensation 8,091 5,329

Lease liability 4,451 —

Other, net 1,201 769

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Deferred Tax Liabilities:

ROU asset ( 4,154 ) —

Fixed assets ( 115 ) ( 150 )

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Management has determined it more likely than not that the deferred tax assets are not realizable due to our historical loss position.

At December 31, 2020, we had federal and state net operating loss carryforwards, or NOLs, of $ 248.4 million and $ 64.2 million, respectively.

At December 31, 2021, we had federal and state net operating loss carryforwards (“NOLs”), of $ 293.4 million and $ 65.6 million, respectively.

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

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At December 31, 2021, we had federal and California research tax credit carryforwards of approximately $ 3.2 million and $ 10.6 million, respectively.

The federal research tax credit carryforwards will begin to expire in 2026 and the California state credits carryforward indefinitely.

The federal research tax credit carryforwards will begin to expire in 2041 and the California research tax credits carryforward indefinitely.

We also have foreign tax losses of $ 3.3 million, which will carry forward indefinitely, subject to a continuity of ownership test.

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In September 2015, we completed a Section 382 analysis through December 31, 2014 and determined that there was an ownership change in 2007 that may limit the utilization of approximately $ 5.3 million and $ 5.4 million in federal and state NOLs, respectively, and $ 0.2 million in both federal and state research tax credits.

We extended the analysis period of the study through December 31, 2018, noting an ownership change in 2017 which may limit the use of our net operating losses.

Our use of federal NOL carryforward could be limited further by the provisions of Section 382 of the U.S.

During 2021, we extended the analysis period of the study through September 30, 2021, noting ownership changes on January 31, 2017 and March 8, 2021.

We reduced federal research credit carryforward by approximately $ 15.0 million.

Our use of federal and state NOLs and research credits could be limited further by the provisions of Section 382 of the U.S.

Internal Revenue Code of 1986, as amended, depending upon the timing and amount of additional equity securities that we have issued or will issue.

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( 708 ) 871 ( 1,122 )

Research and development expenditure — — 63

Refundable AMT credit — — ( 139 )

Return to provision adjustment 76 ( 11 ) ( 661 )

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(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 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.

During 2021, our tax provision includes $ 0.1 million of excess tax benefits associated with the exercise of non-qualified stock options and $ 0.9 million associated with the disqualifying dispositions of incentive stock options and $ 0 associated with the employee stock purchase plan.

During 2020, our tax provision includes $ 0 of excess tax benefits associated with the exercise of non-qualified stock options and $ 0.2 million associated with the disqualifying dispositions of incentive stock options.

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Balance at the beginning of the year $ 4,044 $ 3,146

Increase related to prior year tax positions — 168

Decrease related to prior year tax positions ( 2,555 ) —

Increase related to current year tax positions 984 898

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At December 31, 2021 and 2020, there were no interest or penalties on uncertain tax benefits.

We file income tax returns in the United States, California and Australia.

We file income tax returns in the United States, California, Pennsylvania, and Australia.

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

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