What changed in this filing

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2023-03-01 compared with 2022-03-07 · 190 added, 171 removed, 736 unchanged (33% of the section changed)

7 unchanged sentences

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, 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.

As of December 31, 2022, our investment portfolio includes cash, cash equivalents, and investments of $584.2 million that earn interest at market rates.

Our investments held during the year were comprised of highly rated instruments such as, money market funds, commercial paper and debt instruments of financial institutions, corporations, and obligations issued by the U.S.

government-sponsored agencies and U.S.

As of December 31, 2022, the majority of these instruments had a maturity of less than a year.

A hypothetical increase or decrease of 100 basis points on the interest rates of our investments would not have a material effect on the fair value of our investment portfolio and any losses would only be realized if we sold the investments prior to maturity.

Foreign Currency Exchange Risk

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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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Inflation Risk

Inflation generally affects us by increasing our clinical trial costs.

Inflation generally affects us by increasing our clinical trial and other operational costs.

We do not believe that inflation has had a material effect on our business, financial condition or results of operations during the years ended December 31, 2022, 2021 or 2020.

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

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.

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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Other long-term assets 256 256

Long-term restricted cash — 60

$ 610,383 $ 643,070

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( 115,154 ) ( 56,814 ) ( 23,879 )

Other income (expense), net:

Interest expense

— — ( 1,041 )

Other (expense) income, net:

Interest income

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Other income (expense), net

Total other income (expense), net

Total other (expense) income, net

( 13,546 ) ( 982 ) 3,948

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( 128,724 ) ( 57,796 ) ( 19,931 )

Other comprehensive (loss) income:

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

Other comprehensive loss:

Unrealized loss on available for sale securities

( 4,824 ) ( 418 ) ( 342 )

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Common Stock Additional

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

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

Deficit Total

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— — 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

Issuance of common stock from exercises of options 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

25 unchanged sentences

Non-cash interest expense

21,108 1,450 —

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

1 unchanged sentence

Receivables from collaborative partners

Australian tax incentive receivable

( 543 ) ( 876 ) —

Prepaid expenses and other assets

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Purchases of property and equipment ( 358 ) ( 1,366 ) ( 569 )

Net cash provided by investing activities

Net cash (used in) provided by investing activities

( 394,845 ) 38,835 94,475

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Payments on notes payable — — ( 1,375 )

Repayment of liability for sale of future royalties ( 2,474 ) — —

Payments for issuance costs related to the sale of future royalties ( 336 ) ( 255 ) —

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44,017 252,298 ( 879 )

Net increase in cash, cash equivalents, and restricted cash

Net (decrease) increase in cash, cash equivalents, and restricted cash

( 424,421 ) 245,213 79,439

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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 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 and royalties achieved under our collaborative research and development arrangements.

We are a clinical-stage biotechnology company focused on delivering innovative immunology therapeutics.

We are developing immune cell modulating antibodies, including two wholly owned checkpoint agonists in clinical-stage development, for autoimmune and inflammatory disease:

rosnilimab, our PD-1 agonist, previously referred to as ANB030, in a planned Phase 2b trial for the treatment of moderate-to-severe rheumatoid arthritis (“RA”);

and ANB032, our BTLA agonist, in a planned Phase 2b trial for the treatment of moderate-to-severe atopic dermatitis (“AD”).

We also have other preclinical immune cell modulator candidates in our portfolio, including ANB033, an anti-CD122 antagonist antibody for the treatment of autoimmune and inflammatory diseases.

In addition, we have two cytokine antagonists that we are exploring options for out-licensing:

imsidolimab, our anti-IL-36R antibody, in a Phase 3 trial for the treatment of generalized pustular psoriasis (“GPP”), and etokimab, our anti-IL-33 antagonist that is Phase 2/3 ready.

We have also discovered multiple therapeutic antibodies licensed to GlaxoSmithKline, Inc.

(“GSK”) in a financial collaboration for immune-oncology, including an anti-PD-1 antagonist antibody (JEMPERLI (dostarlimab-gxly)), an anti-TIM-3 antagonist antibody (cobolimab, GSK4069889) and an anti-LAG-3 antagonist antibody (GSK4074386).

We currently recognize revenue from milestones and royalties achieved under our immuno-oncology collaboration with GSK.

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, royalty monetization, 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 stock, royalty monetizations, 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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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.

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.

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

Basis of Consolidation

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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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Cash equivalents consist primarily of money market and mutual funds with original maturities of 90 days or less.

Restricted Cash

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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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.

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 JEMPERLI Royalty Monetization Agreement and the Zejula 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.

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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.

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

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.

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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.

development services are updated for actual invoices.

Research and 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.

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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.

Each Restricted Stock Unit (“RSU”) represents one equivalent share of our common stock to be issued after satisfying the applicable continued service-based vesting criteria over a specified period.

The fair value of these RSUs is based on the closing price of our common stock on the date of the grant.

We measure compensation expense over the expected vesting period on a straight-line basis.

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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Options to purchase common stock 3,602 3,631 2,901

Accounting Pronouncements Recently Adopted

Restricted stock units 375 — —

3,977 3,631 2,901

Recent Accounting Pronouncements

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.

The guidance removes the following exceptions:

(1) exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items, (2) exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, (3) exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary, and (4) exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.

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.

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

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

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:

Measurement of Credit Losses on Financial Instruments (Topic 326) , which changes the accounting treatment for recognizing the impairment of financial assets.

Under the new guidance, credit losses for certain types of financial instruments will be estimated based on expected losses.

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 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.

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.

Balance Sheet Accounts and Supplemental Disclosures

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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.

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

Currently, under the GSK Agreement, GSK is developing JEMPERLI (dostarlimab), an anti-PD-1 antagonist antibody, as a monotherapy and in combination with additional therapies, for various solid tumor indications.

In addition, under the collaboration, GSK is developing dostarlimab in combination with two other development programs from the GSK Agreement:

cobolimab, an anti-TIM-3 antibody, and GSK40974386, an anti-LAG antibody, for various solid tumor indications.

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.

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.

We will also be eligible to receive tiered 4- 8 % royalties related to worldwide net sales of products developed under the collaboration.

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.

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(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.

We considered the research and discovery capabilities of GSK for these specific programs 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 GSK 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.

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 U.S.

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.

3 to the GSK Agreement (the “Amendment”) was agreed to by both parties to permit GSK to conduct development and commercialization in combination with any third-party molecules of Zejula, an oral, once-daily poly (ADP-ribose) polymerase (PARP) inhibitor.

Under the Amendment, we were granted increased royalties upon sales of JEMPERLI, 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 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.

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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, 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.

As of December 31, 2022, 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 and royalties earned to date, which are allocated in their entirety to the single performance obligation.

We earned and recognized $ 5.3 million in royalty revenue during the year ended December 31, 2022 related to GSK’s net sales of Zejula and JEMPERLI during the period based on estimates or actual GSK’s sales historical experience.

Of the royalty revenue recognized, $ 2.3 million is JEMPERLI non-cash revenue related to the JEMPERLI Royalty Monetization Agreement, $ 1.6 million is Zejula revenue prior to the Zejula Royalty Monetization Agreement and $ 1.4 million is Zejula non-cash revenue related to the Zejula Royalty Monetization Agreement, see Note 5.

Of the royalty revenue recognized, $ 0.2 million is JEMPERLI non-cash revenue related to the JEMPERLI Royalty Monetization Agreement and the remaining is Zejula and JEMPERLI revenue prior to the royalty monetization agreements.

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.

There was no royalty revenue recognized during the year ended December 31, 2020.

All royalty revenue related to Zejula global net sales starting July 2022, will be paid directly to a wholly-owned subsidiary of DRI Healthcare Trust pursuant to the Zejula Royalty Monetization Agreement, see Note 5.

We earned and recognized one clinical milestone for $ 5.0 million during the year ended December 31, 2022.

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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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, 2021 under the GSK Agreement are as follows:

Milestones under the GSK Agreement are as follows:

(JEMPERLI/Dostarlimab) Anti-TIM-3

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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

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 — — — —

Phase 3 clinical trial initiation - first indication $ 5.0 M Q3'18 $ 5.0 M Q4'22 $ 5.0 M —

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

Filing of the first BLA (1) - first indication

$ 10.0 M Q1'20 — — — —

$ 10.0 M Q1'20 $ 10.0 M — $ 10.0 M —

Filing of the first MAA (2) - first indication

$ 5.0 M Q1'20 — — — —

$ 5.0 M Q1'20 $ 5.0 M — $ 5.0 M —

Filing of the first BLA - second indication

$ 10.0 M Q1'21 — — — —

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

$ 10.0 M Q1'21 $ 10.0 M — $ 10.0 M —

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

First MAA approval - first indication

$ 10.0 M Q2'21 — — — —

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

$ 10.0 M Q2'21 $ 10.0 M — $ 10.0 M —

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

Filing of the first MAA - second indication (3)

$ 5.0 M — $ 5.0 M — $ 5.0 M —

First MAA approval - second indication (3)

$ 10.0 M — $ 10.0 M — $ 10.0 M —

First commercial sales milestone (3)

$ 15.0 M — $ 15.0 M — $ 15.0 M —

Second commercial sales milestone (3)

$ 25.0 M — $ 25.0 M — $ 25.0 M —

Third commercial sales milestone (3)

$ 50.0 M — $ 50.0 M — $ 50.0 M —

Fourth commercial sales milestone $ 75.0 M — $ 75.0 M — $ 75.0 M —

Milestones recognized through December 31, 2022 $ 93.0 M — $ 13.0 M — $ 8.0 M —

Milestones that may be recognized in the future $ 180.0 M — $ 260.0 M — $ 265.0 M —

(1) Biologics License Application (“BLA”)

(2) Marketing Authorization Application (“MAA”)

(3) For JEMPERLI, the filing and approval of the first MAA for a second indication and first three commercial sales milestones are included as part of the royalty monetization agreement with Sagard, see Note 5

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 $ 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 $ 10.3 million in revenue under the GSK Agreement during the year ended December 31, 2022, of which $ 5.0 million was related to one milestone and $ 5.3 million was related to royalty revenue.

We recognized $ 63.2 million in revenue 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.

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.

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 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, 2021, 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 BMS’s 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 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, 2021 under the BMS Agreement are as follows:

Milestone Event Amount Quarter Recognized

Completion of first in vivo toxicology studies using GLPs

$ 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.

Cash is generally received within 30 days of milestone achievement.

There was no revenue recognized under this agreement during the years ended December 31, 2022, 2021, and 2020.

Revenue was last recognized under this agreement in 2016.

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.

JEMPERLI Royalty Monetization Agreement

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

Under the terms of the JEMPERLI Royalty Monetization Agreement, we received $ 250.0 million in exchange for royalties and milestones 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 JEMPERLI 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 JEMPERLI Royalty Monetization Agreement will expire resulting in us regaining all subsequent JEMPERLI royalties and milestones.

As of December 31, 2022, Sagard has received a total of $ 1.8 million in royalties and milestones.

The JEMPERLI Royalty Monetization Agreement includes a call option pursuant to which at any time after December 1, 2024, we may reacquire our interest in the specified royalties by paying Sagard (in cash) a specified amount as described in the JEMPERLI Royalty Monetization Agreement.

The exercise of this call option is at our sole discretion, which we currently do not anticipate exercising.

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.

The aggregate future estimated payments, less the $ 249.6 million, net of proceeds, will be recognized as non-cash interest expense over the life of the agreement.

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

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

As of December 31, 2022, the estimated effective rate under the agreement was 5.5 %.

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.

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 our 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.

We recognized JEMPERLI non-cash royalty revenue of approximately $ 2.3 million and $ 0.2 million during the years ended December 31, 2022 and 2021, respectively and non-cash interest expense of approximately $ 20.4 million and $ 1.5 million during the years ended December 31, 2022 and 2021, respectively.

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.

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(in thousands) December 31, 2022

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

Proceeds from sale of future royalties 250,000

Liability related to sale of future JEMPERLI royalties and milestones - balance at 12/31/2021 $ 251,093

Issuance costs related to the sale of future royalties ( 130 )

Amortization of issuance costs 54

Royalty and milestone payments to Sagard ( 1,782 )

Non-cash interest expense recognized 20,305

Liability related to sale of future royalties - ending balance $ 269,540

Zejula Royalty Monetization Agreement

In October 2020, in connection with Amendment No.

3 to the GSK Agreement, GSK agreed, under the terms of a settlement agreement (the “GSK Settlement Agreement”), to pay us a royalty on all GSK net sales of Zejula starting January 1, 2021.

Under the GSK Settlement Agreement, the royalty is paid at a rate of 1.0 % but is subject to reduction due to royalties paid to third parties, with a minimum royalty payable under the GSK Settlement Agreement of 0.5 % of global net sales of Zejula.

The current effective royalty rate is 0.5 %.

In September 2022, we signed a purchase and sale agreement (the “Zejula Royalty Monetization Agreement”) with a wholly-owned subsidiary of DRI Healthcare Trust (“DRI”) to monetize all of our future royalties on global net sales of Zejula under the GSK Settlement Agreement.

Under the terms of the Zejula Royalty Monetization Agreement, we received $ 35.0 million in exchange for all royalties payable by GSK to us under the GSK Settlement Agreement on global net sales of Zejula starting in July 2022 (the “Purchased Royalty Interest”).

In addition, under the Zejula Royalty Monetization Agreement, we are entitled to receive an additional $ 10.0 million payment from DRI if Zejula is approved by the U.S.

Food and Drug Administration for the treatment of endometrial cancer on or prior to December 31, 2025.

The proceeds received from DRI of $ 35.0 million were recorded as a liability, net of transaction costs of $ 0.2 million, which will be amortized over the estimated life of the arrangement using the effective interest rate method.

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

The aggregate future estimated payments, less the $ 34.8 million, of net proceeds, will be recorded as non-cash interest expense over the life of the arrangement.

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

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

As of December 31, 2022, the estimated effective rate under the agreement was 5.2 %.

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 DRI and the changes in our forecasted royalties.

We recognized Zejula non-cash royalty revenue of approximately $ 1.4 million and non-cash interest expense of approximately $ 0.7 million for the year ended December 31, 2022.

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, 2022:

(in thousands) December 31, 2022

Liability related to sale of future Zejula royalties and milestones - balance at 12/31/2021 $ —

Proceeds from sale of future royalties 35,000

Issuance costs related to the sale of future royalties ( 184 )

Amortization of issuance costs 7

Royalty and milestone payments to DRI ( 692 )

Non-cash interest expense recognized 742

Liability related to sale of future royalties and milestones - ending balance $ 34,873

Fair Value Measurements and Available for Sale Investments

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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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Total $ 108,694 $ ( 217 ) $ — $ — $ 108,694 $ ( 217 )

As of December 31, 2021 and 2020, unrealized losses on available-for-sale investments were no t material, and accordingly, no allowance for credit losses were recorded.

As of December 31, 2022 and 2021, unrealized losses on available-for-sale investments were $ 5.1 million and $ 0.2 million, respectively, with unrealized losses of $ 0.9 million, on available for sale investments that were in an unrealized loss position for greater than 12 months as of December 31, 2022.

We do not intend to sell the investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost basis, accordingly, no allowance for credit losses was recorded.

Stockholders’ Equity

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Stock options

Restricted stock units

Shares Reserved For:

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Total 8,497,035

Open Market Sales Agreement

In November 2022, we entered into the Cowen Sales Agreement with Cowen and Company, LLC, through which we may offer and sell shares of our common stock, having an aggregate offering of up to $ 150.0 million through Cowen and Company, LLC as our sales agent.

As of December 31, 2022, we had sold no shares under this agreement.

Equity Incentive Plans

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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.

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 prior 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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The ESPP automatically increased by 276,472 shares as of January 1, 2022.

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.

As of December 31, 2022, 49,967 shares have been issued under the ESPP.

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, 2021 is as follows:

A summary of the activity related to stock option awards during the year ended December 31, 2022 is as follows:

Weighted-Average

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Total cash received from the exercise of stock options was approximately $ 11.3 million during the year ended December 31, 2022.

Time-based Restricted Stock Units

Each Restricted Stock Unit represents one equivalent share of our common stock to be issued after satisfying the applicable continued service-based vesting criteria over a specified period.

The fair value of these RSUs is based on the closing price of our common stock on the date of the grant.

We measure compensation expense over the expected vesting period on a straight-line basis.

The RSUs do not entitle the participants to the rights of holders of common stock, such as voting rights, until the shares are issued.

Number of Restricted Stock Units Weighted-Average Grant Date Fair Value Weighted-Average

Outstanding at January 1, 2022 — $ — $ —

Granted 1,030,443 $ 26.14

Forfeitures and cancellations ( 1,600 ) $ 23.62

Outstanding at December 31, 2022 1,028,843 $ 26.14 1.17 $ 31,884

RSU expected to vest at December 31, 2022 1,028,843 $ 26.14 1.17 $ 31,884

Stock-Based Compensation Expense

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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.

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.

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.

Expected volatility for 2022 and 2021 incorporates the historical volatility of our stock price, and volatility for 2020 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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$ 27,356 $ 15,347 $ 11,499

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.

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.

On March 20, 2022, our then Chief Executive Officer (“former CEO”), resigned by mutual agreement with the Board of Directors.

In connection with his separation agreement, we modified certain equity awards and recognized approximately $ 3.2 million in non-cash stock-based compensation expense.

Given the former CEO had substantially rendered the required services per his separation agreement, we recorded the full expense related to the modification in the period ending March 31, 2022.

Additionally, on March 21, 2022, we awarded our newly appointed Interim President and Chief Executive Officer RSUs for 887,043 shares of the Company’s common stock.

The fair value of the award will be recognized as part of compensation cost, occurring ratably over the stated 24-month requisite service period.

During the year ended December 31, 2022, we recognized $ 9.2 million of non-cash stock-based compensation cost related to the award.

At December 31, 2022, there was $ 27.1 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 2.32 years, $ 16.8 million of unrecognized cost related to unvested RSU awards, which is expected to be recognized over a period of 1.24 years, and $ 0.2 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.

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.

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 $ 11,000 in 2022, $ 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.

For the years ended December 31, 2022, 2021, and 2020, we incurred approximately $ 1.0 million, $ 0.6 million and $ 0.5 million, respectively of costs related to the 401(k) plan.

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Operating Leases

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, 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.

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”).

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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 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.

As our lease does not provide an implicit rate, we used our incremental borrowing rate based on the information available at the lease commencement date 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 8.7 years.

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Cash paid for amounts included in the measurement of lease liabilities Operating 2,316 705 938

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

At December 31, 2022, the future minimum annual obligations for the Company’s operating lease liabilities are as follows:

Years Ending December 31, (in thousands)

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imputed interest ( 3,770 )

Present value of lease liabilities $ 20,955

Total $ 19,450

License Agreements

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Total cash paid under these agreements was $ 0.1 million, $ 0.2 million, and $ 0.3 million during the years ended December 31, 2022, 2021, and 2020, respectively.

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

Future minimum annual obligations under all such license agreements will be $ 0.2 million during 2023 and 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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Accordingly, we have not recognized any liabilities relating to these obligations for any period presented.

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.

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 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.

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:

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

Year Ended December 31,

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Consolidated net loss before income taxes $ ( 128,700 ) $ ( 57,796 ) $ ( 19,931 )

For the year ended December 31, 2022, we recognized income tax expense of $ 24,000 , related to state income taxes.

For the years ended December 31, 2021 and 2020, we recognized no provision or benefit from income taxes.

Significant components of our deferred tax assets and liabilities are as follows:

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Net operating loss carryforwards $ 66,160 $ 67,203

Section 174 Capitalized R&D 16,570 —

Research and development credits 12,844 9,527

Equity compensation 10,021 8,091

Deferred Zejula royalty revenue 7,371 —

Lease liability 4,194 4,451

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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, 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.

As of December 31, 2022, we had federal and state net operating loss carryforwards (“NOLs”), of $ 287.4 million and $ 69.6 million, respectively.

The federal and state NOLs generated prior to 2018 will begin to expire in 2029 and 2028, respectively, unless previously utilized.

The federal NOL includes $ 234.3 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.

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

As of December 31, 2022, we had federal and California research tax credit carryforwards of approximately $ 6.1 million and $ 12.2 million, respectively.

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

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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.

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.

We subsequently extended the analysis period of the study through December 31, 2022, noting ownership changes on January 31, 2017 and March 8, 2021.

To reflect the impact of the January 31, 2017 and March 8, 2021 ownership changes, we reduced federal research credit carryforwards 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.

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Equity compensation ( 297 ) ( 708 ) 871

( 708 ) 871 ( 1,122 )

Return to provision adjustment 76 ( 11 ) ( 661 )

Rate differential ( 34 ) 40 ( 53 )

Non-deductible compensation 2,060 — —

Research credits ( 3,319 ) 8,087 ( 3,389 )

Other ( 6 ) 42 29

Change in the valuation allowance 29,385 4,842 6,678

Income tax benefit $ — $ — $ ( 152 )

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

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.

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.

Income tax expense $ 24 $ — $ —

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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Our policy is to recognize interest and penalties related to income tax matters in the provision for income taxes.

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, Pennsylvania, and Australia.

As of December 31, 2022 and 2021, there were no interest or penalties on uncertain tax benefits.

We file income tax returns in the United States, California, various U.S.

state jurisdictions and Australia.

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

Subsequent Event

Stock Repurchase Plan

In January 2023, our Board of Directors authorized a Stock Repurchase Plan under which we may repurchase up to $ 50.0 million of the Company’s outstanding common stock.

To the extent we repurchase any of our stock, we will provide information regarding such repurchases on a quarterly basis in our Forms 10-Q and 10-K for the applicable completed quarter.

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