BioAtla, Inc. 10-Q

Item 1 . Financial Statements. BioAtla, Inc. Condensed Consol idated Balance Sheets (in thousands, except par value and share amounts) June 30, 2022 December 31, 2021 (unaudited) Assets Current assets: Cash and cash equivalents $ 202,290 $ 244,979 Prepaid expenses and other current assets 4,907 2,313 Total current assets 207,197 247,292 Property and equipment, net 3,277 3,676 Operating lease right-of-use asset, net 2,867 3,300 Other assets 155 154 Total assets $ 213,496 $ 254,422 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable and accrued expenses $ 24,032 $ 18,424 Operating lease liabilities 1,475 1,389 Total current liabilities 25,507 19,813 Operating lease liabilities, less current portion 3,231 3,982 Liability to licensor 19,806 19,806 Total liabilities 48,544 43,601 Commitments and contingencies (Note 6 ) Stockholders’ equity: Preferred stock, $ 0.0001 par value; 200,000,000 shares authorized at June 30, 2022 and December 31, 2021; 0 shares issued and outstanding at June 30, 2022 and December 31, 2021 — — Common stock, $ 0.0001 par value; 350,000,000 shares authorized at June 30, 2022 and December 31, 2021; 35,993,458 shares and 35,799,233 shares issued and outstanding at June 30, 2022 and December 31, 2021 4 4 Class B common stock, $ 0.0001 par value; 15,368,569 shares authorized at June 30, 2022 and December 31, 2021; 1,492,059 shares issued and outstanding at June 30, 2022 and December 31, 2021 — — Additional paid-in capital 404,427 397,136 Accumulated deficit ( 239,479 ) ( 186,319 ) Total stockholders' equity 164,952 210,821 Total liabilities and stockholders’ equity $ 213,496 $ 254,422 See accompanying notes. 1 BioAtla, Inc. Unaudited Condensed Consolidated State ments of Operations and Comprehensive Loss (in thousands, except share and per share amounts) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Collaboration and other revenue $ — $ 250 $ — $ 250 Operating expenses: Research and development expense 20,711 14,850 37,634 25,273 General and administrative expense 8,344 15,860 15,767 24,234 Total operating expenses 29,055 30,710 53,401 49,507 Loss from operations ( 29,055 ) ( 30,460 ) ( 53,401 ) ( 49,257 ) Other income (expense): Interest income 146 80 231 178 Interest expense — ( 1 ) — ( 3 ) Other income 3 — 10 — Total other income (expense) 149 79 241 175 Consolidated net loss and comprehensive loss $ ( 28,906 ) $ ( 30,381 ) $ ( 53,160 ) $ ( 49,082 ) Net loss per common share, basic and diluted $ ( 0.77 ) $ ( 0.90 ) $ ( 1.42 ) $ ( 1.46 ) Weighted-average shares of common stock outstanding, basic and diluted 37,420,327 33,678,893 37,371,614 33,671,298 See accompanying notes. 2 BioAtla, Inc. Unaudited Condensed Consoli dated Statements of Stockholders’ Equity (in thousands, except share amounts) Three Months Ended June 30, 2022 Common Stock Class B Common Stock Additional Paid-in Accumulated Total Stockholders’ Shares Amount Shares Amount Capital Deficit Equity Balance at March 31, 2022 35,891,284 $ 4 1,492,059 $ — $ 400,622 $ ( 210,573 ) $ 190,053 Stock-based compensation expense — — — — 3,842 — 3,842 Issuance of common stock under equity incentive plans 92,692 — — — — — — Issuance of common stock for Employee Stock Purchase Plan 9,482 — — — 19 — 19 Taxes related to net share settlement of equity awards — — — — ( 56 ) — ( 56 ) Net loss — — — — — ( 28,906 ) ( 28,906 ) Balance at June 30, 2022 35,993,458 $ 4 1,492,059 $ — $ 404,427 $ ( 239,479 ) $ 164,952 Three Months Ended June 30, 2021 Common Stock Class B Common Stock Additional Paid-in Accumulated Total Stockholders’ Shares Amount Shares Amount Capital Deficit Equity Balance at March 31, 2021 32,171,560 $ 3 1,492,059 $ — $ 305,531 $ ( 109,618 ) $ 195,916 Stock-based compensation expense — — — — 12,298 — 12,298 Issuance of common stock under equity incentive plans 138,461 — — — — — — Issuance of common stock for Employee Stock Purchase Plan 5,280 — — — 190 — 190 Net loss — — — — — ( 30,381 ) ( 30,381 ) Balance at June 30, 2021 32,315,301 $ 3 1,492,059 $ — $ 318,019 $ ( 139,999 ) $ 178,023 See accompanying notes. 3 BioAtla, Inc. Unaudited Condensed Consolidated Statements of Stockholders’ Equity (in thousands, except share amounts) Six Months Ended June 30, 2022 Common Stock Class B Common Stock Additional Paid-in Accumulated Total Stockholders’ Shares Amount Shares Amount Capital Deficit Equity Balance at December 31, 2021 35,799,233 $ 4 1,492,059 $ — $ 397,136 $ ( 186,319 ) $ 210,821 Stock-based compensation expense — — — — 7,474 — 7,474 Issuance of common stock under equity incentive plans 184,743 — — — — — — Issuance of common stock for Employee Stock Purchase Plan 9,482 — — — 19 — 19 Taxes related to net share settlement of equity awards — — — — ( 202 ) — ( 202 ) Net loss — — — — — ( 53,160 ) ( 53,160 ) Balance at June 30, 2022 35,993,458 $ 4 1,492,059 $ — $ 404,427 $ ( 239,479 ) $ 164,952 Six Months Ended June 30, 2021 Common Stock Class B Common Stock Additional Paid-in Accumulated Total Stockholders’ Shares Amount Shares Amount Capital Deficit Equity Balance at December 31, 2020 32,171,560 $ 3 1,492,059 $ — $ 300,888 $ ( 90,917 ) $ 209,974 Stock-based compensation expense — — — — 16,941 — 16,941 Issuance of common stock under equity incentive plans 138,461 — — — — — — Issuance of common stock for Employee Stock Purchase Plan 5,280 — — — 190 — 190 Net loss — — — — — ( 49,082 ) ( 49,082 ) Balance at June 30, 2021 32,315,301 $ 3 1,492,059 $ — $ 318,019 $ ( 139,999 ) $ 178,023 See accompanying notes. 4 BioAtla, Inc. Unaudited Condensed Conso lidated Statements of Cash Flows (in thousands) Six Months Ended June 30, 2022 2021 Cash flows from operating activities Net loss $ ( 53,160 ) $ ( 49,082 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 601 636 Loss on disposal of property and equipment 6 4 Stock-based compensation 7,474 16,941 Accrued interest — 3 Changes in operating assets and liabilities: Prepaid expenses and other assets ( 2,595 ) ( 2,646 ) Accounts payable and accrued expenses 5,849 5,716 Right-of-use assets and lease liabilities, net ( 232 ) ( 111 ) Net cash used in operating activities ( 42,057 ) ( 28,539 ) Cash flows from investing activities Purchases of property and equipment ( 179 ) ( 736 ) Proceeds from sale of property and equipment 3 — Net cash used in investing activities ( 176 ) ( 736 ) Cash flows from financing activities Payment of initial public offering costs — ( 1,911 ) Proceeds from issuance of common stock under Employee Stock Purchase Plan 19 190 Payments for taxes related to net settlement of equity awards ( 475 ) — Net cash used in financing activities ( 456 ) ( 1,721 ) Net decrease in cash and cash equivalents ( 42,689 ) ( 30,996 ) Cash and cash equivalents, beginning of period 244,979 238,605 Cash and cash equivalents, end of period $ 202,290 $ 207,609 Supplemental disclosure of non-cash investing and financing activities Property and equipment additions included in accounts payable and accrued expenses $ 33 $ 42 Tax related to net settlement of equity awards included in accounts payable and accrued expenses $ 18 $ — See accompanying notes. 5 BioAtla, Inc. Notes to Unaudited Condensed Consolidated Financial Statements 1. Organization and Summary of Significant Accounting Policies Organization BioAtla, LLC was formed in Delaware in March 2007 and, after undergoing two separate reorganizations in 2019 and in 2020, was converted to a Delaware corporation in July 2020 and was renamed BioAtla, Inc. (the “Company”). The Company has a proprietary platform for creating biologics, including its conditionally active biologics (“CAB” or “CABs”). CABs have been designed to be active only under certain conditions found in diseased tissue, while remaining inactive in normal tissue. The Company is currently in clinical development of its two lead CAB antibody drug conjugates (“CAB ADC”) targeting AXL and ROR2 receptors, and its CAB immune-oncology antibody targeting CTLA-4. Basis of Presentation and Principles of Consolidation Prior to the reorganization in July 2020 (or "Corporate Reorganization"), the consolidated financial statements included the accounts of BioAtla, LLC and those of its majority owned subsidiary Himalaya Therapeutics SEZC that had no material operations. Himalaya Therapeutics SEZC also had a wholly owned subsidiary, Himalaya Therapeutics HK Limited that had no material operations. All intercompany balances were eliminated in consolidation. In connection with the Corporate Reorganization, Himalaya Therapeutics SEZC and Himalaya Therapeutics HK Limited were deconsolidated without material impact to the consolidated financial statements. Subsequent to the Corporate Reorganization, BioAtla, Inc. became a single legal entity with no consolidated variable interest entities ("VIEs") or subsidiaries. The unaudited condensed consolidated financial statements as of June 30, 2022, and for the three and six months ended June 30, 2022 and 2021, have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”), and with accounting principles generally accepted in the United States (“GAAP”) applicable to interim financial statements. These unaudited condensed consolidated financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, consisting of only normal recurring accruals, which in the opinion of management are necessary to present fairly the Company’s financial position as of the interim date and results of operations for the interim periods presented. Interim results are not necessarily indicative of results for a full year or future periods. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2021 , included in its Annual Report on Form 10-K filed with the SEC on February 28, 2022. Liquidity and Going Concern The Company has incurred cumulative operating losses and negative cash flows from operations since its inception and expects to continue to incur significant expenses and operating losses for the foreseeable future as it continues the development of its product candidates. As of June 30, 2022, the Company had an accumulated deficit of $ 239.5 million . The Company plans to continue to fund its losses from operations and capital funding needs through public or private equity or debt financings or other sources. If the Company is not able to secure adequate additional funding, the Company may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, or suspend or curtail planned programs. Any of these actions could materially harm the Company’s business, results of operations and future prospects. Management is required to perform a two-step analysis of the Company’s ability to continue as a going concern. Management must first evaluate whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern (Step 1). If management concludes that substantial doubt is raised, management is also required to consider whether its plans alleviate that doubt (Step 2). Management’s assessment included the preparation of cash flow forecasts resulting in management’s conclusion that there is not substantial doubt about the Company’s ability to continue as a going concern as its current cash and cash equivalents will be sufficient to fund the Company’s operations for a period of at least one year from the issuance date of these unaudited condensed consolidated financial statements. Use of Estimates The preparation of the Company’s condensed consolidated financial statements requires it to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the Company’s condensed consolidated financial statements and accompanying notes. The most significant estimates in the Company’s condensed consolidated financial statements relate to revenue recognition, accruals for research and development costs, and equity-based compensation. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue and expenses that are not readily apparent from other sources. Actual 6 results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected. Concentrations of Risk Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash and cash equivalents. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held. Stock-Based Compensation Stock-based compensation expense represents the grant date fair value of equity awards, consisting of stock options, restricted stock units (“RSUs”) and employee stock purchase plan rights, over the requisite service period of the awards (usually the vesting period) on a straight-line basis. The Company estimates the fair value of stock option grants and employee stock purchase plan rights using the Black-Scholes option pricing model. Prior to the Company’s IPO, the fair value of RSUs was based on the estimated fair value of the underlying common stock on the date of grant and, subsequent to the Company’s IPO, the fair value is based on the closing sales price of the Company’s common stock on the date of grant. Equity award forfeitures are recognized as they occur. Leases The Company determines if an arrangement is a lease at inception. An arrangement is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. If a lease is identified, classification is determined at lease commencement. Operating lease liabilities are recognized at the present value of the future lease payments at the lease commencement date. The Company’s leases do not provide an implicit interest rate and therefore the Company estimates its incremental borrowing rate to discount lease payments. The incremental borrowing rate reflects the interest rate that the Company would have to pay to borrow on a collateralized basis an amount equal to the lease payments in a similar economic environment over a similar term. Operating lease right-of-use (“ROU”) assets are based on the corresponding lease liability adjusted for any lease payments made at or before commencement, initial direct costs, and lease incentives. Renewals or early terminations are not accounted for unless the Company is reasonably certain to exercise these options. Operating lease expense is recognized and the ROU asset is amortized on a straight-line basis over the lease term. Variable lease costs are not included in the calculation of the ROU asset and the related lease liability and are recognized as incurred. The Company has a single lease agreement with lease and non-lease components, which are accounted for as a single lease component. Payments for short-term leases, defined as leases with a term of twelve months or less, are expensed on a straight-line basis over the lease term. The Company does not currently have any short-term leases. Operating leases are included in operating lease right-of-use assets, operating lease liabilities, and operating lease liabilities, non-current on the Company’s consolidated balance sheets. The Company does not have any finance leases. Comprehensive Loss Comprehensive loss is defined as a change in equity during a period from transactions and other events and circumstances from non-owner sources. There have been no items qualifying as other comprehensive loss and, therefore, for all periods presented, the Company’s comprehensive loss was the same as its reported net loss. Net Loss Per Share Basic net loss per common share is computed by dividing the net loss by the weighted-average number of common shares outstanding for the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares and dilutive common stock equivalents outstanding for the period determined using the treasury-stock method. Dilutive common stock equivalents are comprised of RSUs, common stock options outstanding under the Company’s stock option plan, and contingently issuable shares under the Company's ESPP plan. 7 Potentially dilutive securities not included in the calculation of diluted net loss per share because to do so would be anti-dilutive are as follows (in common stock equivalents): Six Months Ended June 30, 2022 2021 Common stock warrants — 717,674 Common stock options 2,727,336 850,149 Restricted stock units 739,959 1,781,576 ESPP shares 41,292 — Total 3,508,587 3,349,399 Recent Accounting Pronouncements There were no new accounting standards that had a material impact on the Company’s consolidated financial statements during the three or six months ended June 30, 2022, and there were no other new accounting standards or pronouncements that were issued but not yet effective as of June 30, 2022 that the Company expects to have a material impact on its consolidated financial statements. 2. Balance Sheet Details Prepaid expenses and other current assets consist of the following (in thousands): June 30, 2022 December 31, 2021 Prepaid research and development $ 2,739 $ 1,811 Prepaid insurance 1,471 — Other prepaid expenses and current assets 697 502 Total $ 4,907 $ 2,313 Property and equipment consist of the following (in thousands): Useful life (years) June 30, 2022 December 31, 2021 Furniture, fixtures and office equipment 3 - 7 $ 2,172 $ 2,123 Laboratory equipment 5 2,265 2,123 Leasehold improvements 2 - 3 3,687 3,687 8,124 7,933 Less accumulated depreciation and amortization ( 4,847 ) ( 4,257 ) Total $ 3,277 $ 3,676 Accounts payable and accrued expenses consist of the following (in thousands): June 30, 2022 December 31, 2021 Accounts payable $ 4,822 $ 1,179 Accrued compensation 1,833 2,671 Accrued research and development 15,598 13,501 Other accrued expenses 1,779 1,073 Total $ 24,032 $ 18,424 3. Fair Value Measurements The carrying amounts of the Company’s current financial assets and current financial liabilities are considered to be representative of their respective fair values because of the short-term nature of those instruments. As of June 30, 2022 and December 31, 2021 , the Company had no financial assets or liabilities measured at fair value on a recurring basis. The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that 8 market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1: Observable inputs such as quoted prices in active markets. Level 2: Inputs, other than the quoted prices in active markets that are observable either directly or indirectly. Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. 4. Debt The Company did no t have any outstanding debt as of June 30, 2022 or December 31, 2021. As of June 30, 2021, the Company had $ 0.7 million outstanding under a promissory note issued pursuant to the Paycheck Protection Program (“PPP”) of the CARES Act. The loan was subsequently forgiven in July 2021 and recognized as other income on the Company's Statement of Operations. For the three and six months ended June 30, 2021 , the Company recognized interest expense related to its outstanding debt of $ 1,000 and $ 3,000 , respectively. 5. Leases The Company has a single operating lease for its corporate headquarters and laboratory space in San Diego, California. The lease expires in July 2025 and the Company has an option to extend the term of the lease for an additional five years . Additionally, the lease includes certain rent abatement, rent escalations, tenant improvement allowances and additional charges for common area maintenance and other costs. The components of lease expense included in the Company’s condensed consolidated statements of operations include (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (unaudited) (unaudited) Operating lease expense $ 261 $ 261 $ 521 $ 521 Variable lease expense 64 128 196 256 Total lease expense, net $ 325 $ 389 $ 717 $ 777 Variable lease costs are primarily related to payments made to lessors for common area maintenance, property taxes, insurance, and other operating expenses. The Company did not have any short-term leases or finance leases for the three and six months ended June 30, 2022 and 2021, respectively. The weighted average remaining lease term and weighted average discount rate for operating leases were as follows: As of June 30, 2022 2021 (unaudited) Weighted average remaining lease term (in years) 3.0 4.0 Weighted average discount rate percentage 3.50 % 3.50 % Supplemental cash flow information related to leases under which the Company is the lessee was as follows (amounts in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (unaudited) (unaudited) Cash paid for amounts included in the measurement of operating leases $ 377 $ 316 $ 754 $ 632 9 As of June 30, 2022, future minimum payments under the Company's non-cancelable operating lease under ASC 842 were as follows (in thousands): Operating lease Six months ending December 31, 2022 $ 801 2023 1,636 2024 1,685 2025 845 Thereafter — Total future lease payments 4,967 Less: imputed interest ( 261 ) Total operating lease liabilities $ 4,706 6. Commitments and Contingencies From time to time, the Company may be subject to various claims and suits arising in the ordinary course of business. The Company is not currently a party to any legal proceedings the outcome of which the Company believes, if determined adversely to the Company, would individually or in the aggregate have a material adverse effect on the Company’s business, operating results or financial condition. 7. Stockholders’ Equity 2020 Equity Incentive Plan The Company may grant awards of common stock under the 2020 Equity Incentive Plan (the "2020 Plan") to the Company’s employees, consultants and non-employee directors pursuant to option awards, stock appreciation rights awards, restricted stock awards, restricted stock unit awards, performance stock awards, performance stock unit awards and other stock-based awards. As of June 30, 2022 and December 31, 2021 , the total number of common shares authorized for issuance under the 2020 Plan was 7,658,509 and 6,226,540 , respective ly. On January 1st of each year, commencing with the first January 1st following the effective date of the 2020 Plan, the shares authorized for issuance under the 2020 Plan shall be increased by a number of shares equal to the lesser of 4% of the total number of shares outstanding on the immediately preceding December 31st and such lesser number of shares determined by the Company’s board of directors. The maximum term of the options granted under the 2020 Plan is no more than ten years. Awards under the 2020 Plan generally vest at 25 % one year from the vesting commencement date and ratably each month thereafter for a period of 36 months , subject to continuous service. Stock-based compensation expense for the three and six months ended June 30, 2022 and 2021 has been reported in the condensed consolidated statements of operations and comprehensive loss as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Research and development $ 1,398 $ 1,154 $ 2,698 $ 2,109 General and administrative 2,444 11,144 4,776 14,832 Total $ 3,842 $ 12,298 $ 7,474 $ 16,941 Restricted Stock Units The following table summarizes RSU activity under the 2020 Plan for the six months ended June 30, 2022: Number of Shares Weighted - Average Grant Date Fair Value Outstanding at December 31, 2021 975,046 $ 18.00 Granted — $ — Vested ( 224,353 ) $ 18.00 Forfeited ( 10,734 ) $ 18.00 Outstanding at June 30, 2022 739,959 $ 18.00 10 As of June 30, 2022, total unrecognized stock-based compensation expense for RSUs was $ 13.3 million, which is expected to be recognized over a remaining weighted-average period of approximately 1.8 years . During the six months ended June 30, 2021, the Company modified 138,461 RSU's under the Transition Agreement (See Note 9). Stock Options The following table summarizes stock option activity under the 2020 Plan for the six months ended June 30, 2022: Number of Options Weighted - Average Exercise Price Per Share Weighted -Average Remaining Contractual Term (In Years) Aggregate Intrinsic Value Balance at December 31, 2021 1,086,902 $ 26.76 9.22 $ 991,495 Granted 1,645,200 $ 6.40 Exercised — $ — Forfeited ( 4,766 ) $ 11.63 Balance at June 30, 2022 2,727,336 $ 14.50 9.25 $ 62,168 Vested and expected to vest at June 30, 2022 2,727,336 $ 15.49 9.40 $ 62,168 Exercisable at June 30, 2022 343,103 8.28 $ — As of June 30, 2022 , total unrecognized stock-based compensation cost for unvested common stock options was $ 18.1 million, which is expected to be recognized over a remaining weighted-average period of approximately 3.3 years. The weighted- average grant date fair value of stock options granted during the six months ended June 30, 2022 was $ 4.07 per share . The total fair value of options vested during the six months ended June 30, 2022 was $ 3.8 million. During the six months ended June 30, 2021 the Company modified 7,747 stock options under the Transition Agreement (See Note 9). The assumptions used in the Black-Scholes option pricing model to determine the fair value of stock option grants were as follows: Six Months Ended June 30, 2022 2021 Expected volatility 74.8 % 74.8 % Risk-free interest rate 2.05 % 0.98 % Expected dividend yield 0.0 % 0.0 % Expected term 6.04 years 5.94 years Expected volatility. As the Company’s common stock does not have a significant trading history, the expected volatility assumption is based on volatilities of a peer group of similar companies whose share prices are publicly available. The peer group was developed based on companies in the biotechnology industry. Risk-free interest rate. The Company bases the risk-free interest rate assumption on the U.S. Treasury’s rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. Expected dividend yield. The Company bases the expected dividend yield assumption on the fact that it has never paid cash dividends and has no present plans to pay cash dividends. Expected term. For employees, the expected term represents the period of time that options are expected to be outstanding. Because the Company has minimal historical exercise behavior, it determines the expected life assumption using the simplified method, which is an average of the contractual term of the option and its vesting period. For nonemployees, the expected term is generally the contractual term of the option. Employee Stock Purchase Plan The BioAtla, Inc. Employee Stock Purchase Plan (the “ESPP”) permits participants to purchase common stock through payroll deductions of up to 15 % of their eligible compensation. As of June 30, 2022 and December 31, 2021, a total of 1,229,148 shares and 833,993 shares, respectively, of common stock were authorized for issuance under the ESPP. The number of shares of common stock 11 authorized for issuance will automatically increase on January 1 of each calendar year, from January 1, 2021 through January 1, 2030 by the least of (i) 1.0 % of the total number of common shares of our common stock outstanding on December 31 of the preceding calendar year (calculated on a fully diluted basis), (ii) 929,658 common shares or (iii) a number determined by the Company’s board of directors that is less than (i) and (ii). In February 2021, employees began to enroll in the ESPP and the Company’s first offering period commenced. The Company issued 9,482 common shares under the ESPP during the six months ended June 30, 2022 . Comparatively, the Company issued 5,280 common shares under the ESPP during the six months ended June 30, 2021. As of June 30, 2022 , 1,208,484 shares of common stock remained available for issuance under the ESPP. Stock-based compensation expense related to the ESPP for the three and six months ended June 30, 2022 and 2021 was immaterial. Common Stock Warrants The Company issued warrants in 2016 in connection with certain advisory services. The warrants became exercisable upon our IPO for a period of 365 and 450 days. Upon adoption of ASU No. 2018-07 on October 1, 2020, the measurement date of the warrants became fixed in accordance with the guidance, and such fair value was nominal since the warrants were deeply out-of-the-money. In December 2021, a total of 566,586 warrants with an exercise period of 365 days after our IPO expired unexercised. The remaining 151,088 warrants with an exercise period of 450 days after the Company's IPO expired unexercised in March 2022. Accordingly, there are no remaining common stock warrants outstanding and exercisable as of June 30, 2022. Common Stock Reserved for Future Issuance Common stock reserved for future issuance are as follows in common equivalent shares: June 30, 2022 December 31, 2021 Warrants for the purchase of common stock — 151,088 Common stock options and restricted stock units issued and outstanding 3,467,295 2,061,948 Awards available for future issuance under the 2020 Plan 3,014,123 3,211,854 Awards available for future issuance under the ESPP 1,208,484 822,811 Total common stock reserved for future issuance 7,689,902 6,247,701 8. Collaboration, License and Option Agreements BeiGene In April 2019, the Company entered into a Global Co-Development and Collaboration agreement (the “BeiGene Collaboration”) with BeiGene, Ltd. and BeiGene Switzerland GmbH (collectively “BeiGene”), a commercial-stage biopharmaceutical company, for the development, manufacturing and commercialization of the Company’s investigational CAB CTLA-4 antibody (BA3071). The Company and BeiGene amended the Global Co-Development and Collaboration agreement in December 2019 and in October 2020 (the “Amended BeiGene Collaboration”). In 2019, BeiGene paid the Company an upfront non-refundable payment of $ 20.0 million and $ 5.0 million for reimbursement of manufacturing costs. Under the terms of the Amended BeiGene Collaboration, BeiGene was generally responsible for developing BA3071 and for global regulatory filings and commercialization. Subject to the terms of the Amended BeiGene Collaboration, BeiGene held an exclusive license with the Company to develop and manufacture the BA3071 candidate globally, and BeiGene was responsible for all costs of development, manufacturing and commercialization globally. The Amended BeiGene Collaboration provided that the Company was eligible to receive tiered royalties on sales worldwide, subsequent development and regulatory milestone payments globally and commercial milestones in the BeiGene territory. On November 18, 2021, the Company entered into Amendment No. 3 to the Amended BeiGene Collaboration (“Amendment No.3”). Under Amendment No. 3, the Amended BeiGene Collaboration was terminated, subject to survival of certain provisions, and the Company regained the rights to know-how and materials under the Amended BeiGene Collaboration and assumed responsibility for the global development and commercialization of BA3071. As consideration for Amendment No.3, the Company agreed to pay BeiGene mid-single digit royalties on sales worldwide and on a limited basis will share in any upfront and milestone payments received through a sublicense of BA3071. As part of Amendment No.3, the Company reclassified its remaining $ 19.8 million of deferred revenue as a long-term liability which is expected to settle as licensing payments are made to BeiGene in accordance with the resulting amendment. In the event the license is terminated, the liability will be extinguished with no further payment to BeiGene. For the three and six months ended June 30, 2022 and 2021 , the Company did no t recognize any revenue related to the collaboration agreement with BeiGene. As of June 30, 2022 and December 31, 2021 , the Company had a $ 19.8 million Liability to Licensor, and $ 19.8 million of deferred revenue which was classified as current, respectively. 12 Service Contracts Prior to developing its own programs, the Company entered into various fixed price research services contracts. In connection with those service contracts, the Company may receive future milestone payments if certain clinical, regulatory and commercialization milestones are achieved. The Company is also eligible to receive royalties based on certain product sales. The Company recognized revenue of $ 0.3 million, included in “Collaboration and Other Revenue”, for the three and six months ended June 30, 2021 related to the achievement of a clinical milestone on a fixed price service contract. The Company did no t recognize any revenue related to its legacy service contracts during the three or six months ended June 30, 2022. BMS Collaboration In January 2022, the Company entered into a Master Clinical Trial Collaboration Agreement (the “BMS Collaboration”) with Bristol-Myers Squibb Company (“BMS”) pursuant to which the Company and BMS will investigate the Company’s CAB-ADC candidates, mecbotamab vedotin (BA3011) and ozuriftamab vedotin (BA3021), each in combination with Opdivo (the “BMS Compound”) in clinical trials (each a “Combined Therapy Study”). Opdivo has received approval for several anti-cancer indications. Under the BMS Collaboration, the Company will serve as the study sponsor for each Combined Therapy Study and will be responsible for the costs associated with trial execution. BMS will supply the Company with clinical drug supply of the BMS Compound at no cost to the Company for each study as well as provide input on certain clinical and regulatory aspects of each Combined Therapy Study in exchange for jointly owning clinical data. The BMS collaboration may be early terminated if a party is in material breach, if either party files for bankruptcy, or due to the existence of a material safety issue. Subject to earlier termination, the BMS Collaboration shall remain in effect until completion and delivery of final study documents for each of the Combined Therapy Study to both parties. Himalaya Therapeutics Exclusive Rights Agreement On January 1, 2020, the Company entered into an Amended and Restated Exclusive Rights Agreement (the “Amended Rights Agreement”) with Himalaya Therapeutics SEZC. Under the terms of the Amended Rights Agreement, Himalaya Therapeutics SEZC acquired the rights to 10 CAB-antibodies for the territory of China, Macao, Hong Kong and Taiwan with future rights to 2 or more CAB-antibodies, global rights to a CAB-HER2-bispecific-antibody and global co-development rights with us to an IL-22 non-CAB-antibody. Payments to the Company may include upfront payments, milestone payments and double-digit royalties, which represent a variable interest held by the Company, but no payments have been made to the Company to date. Himalaya Therapeutics SEZC is a related party. 13 9. Related Party Transactions Carolyn Anderson Short Transition Agreement On March 23, 2021, the Company entered into a transition agreement with Ms. Anderson Short, our Co-founder and Executive Vice President and Chief of Intellectual Property and Strategy. Pursuant to this transition agreement, Ms. Anderson Short continued in her role with the same base salary and employee benefits until her employment with the Company was terminated on May 31, 2021. Upon her separation from the Company and subject to her execution of a release of claims, Ms. Anderson Short received the following severance benefits as set forth in the transition agreement, which satisfied existing severance obligations owing to her under a legacy pre-IPO severance agreement she had entered into with the Company on July 1, 2018: (i) a lump sum payment equal to 18 months of Ms. Anderson Short’s then-current base salary, (ii) a payment at her targeted bonus rate for 2021, pro-rated to the date of her termination of employment, and (iii) full accelerated vesting of her equity awards including 7,747 stock options and 138,461 restricted stock units. The modification of these equity awards resulted in an incremental fair value of $ 7.0 million which was recognized on a straight-line basis over the transition service period which ended on the separation date. For the three and six months ended June 30, 2021 , the Company recognized $ 0.8 million and $ 1.0 million, respectively, related to the lump sum salary payment and target bonus. The Company also recognized non-cash stock-based compensation charges of $ 8.4 million and $ 9.4 million related to the modified equity awards for the three and six months ended June 30, 2021, respectively. No unrecognized stock-based compensation remained as of June 30, 2021. Himalaya Therapeutics Clinical Trial Agreement In April 2022, the Company entered into a Clinical Trial Agreement with Himalaya Therapeutics SEZC. Under the agreement, Himalaya Therapeutics SEZC agreed to provide services related to the initiation of clinical trials for BA3021 in the People’s Republic of China. For the first year following effectiveness of the agreement, the Company has agreed to pay Himalaya Therapeutics SEZC for the full-time use of two of its personnel. Payments are due and payable by BioAtla to Himalaya Therapeutics SEZC on a quarterly calendar basis and are non-refundable. For the three and six months ended June 30, 2022, the Company recognized $ 0.1 million in research and development expense related to the Clinical Trial Agreement. The Company did not have any amounts due from or due to Himalaya Therapeutics SEZC as of June 30, 2022. 10. 401(k) Plan The Company maintains a defined contribution 401(k) plan available to eligible employees. Employee contributions are voluntary and are determined on an individual basis, limited to the maximum amount allowable under federal tax regulations. The Company, at its discretion, may make certain matching contributions to the 401(k) plan. As of June 30, 2022 and December 31, 2021 , the Company had no t made any matching contributions. 14 Item 2 . Management’s Discussion and Analysis of Financial Condition and Results of Operations. You should read the following discussion and analysis together with our unaudited financial statements and notes thereto included in “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year ended December 31, 2021 included in the Annual Report on Form 10-K, filed with the Securities and Exchange Commission, or the SEC, on February 28, 2022. In addition to historical information, this Quarterly Report contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth under the caption “Risk Factors” in the Annual Report, and the caption “Risk Factors” in this Quarterly Report, as updated by our subsequent filings under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Furthermore, past operating results are not necessarily indicative of results that may occur in future periods. Overview We are a clinical-stage biopharmaceutical company developing our novel class of highly specific and selective antibody-based therapeutics for the treatment of solid tumor cancer. Our CABs capitalize on our proprietary discoveries with respect to tumor biology, enabling us to target known and widely validated tumor antigens that have previously been difficult or impossible to target. Our novel CAB therapeutic candidates exploit characteristic pH differences between the tumor microenvironment and healthy tissue. Unlike healthy tissue, the tumor microenvironment is acidic, and we have designed our antibodies to selectively bind to their targets on tumor cells under acidic pH conditions but not on targets in normal tissues. Our approach is to identify the necessary targeting and potency required for cancer cell destruction, while aiming to eliminate or greatly reduce on-target, off-tumor toxicity—one of the fundamental challenges of existing cancer therapies. We are a United States-based company with research facilities in San Diego, California and, through our contractual relationship with BioDuro-Sundia, a provider of preclinical development services, in Beijing, China. Since the commencement of our operations, we have focused substantially all of our resources on conducting research and development activities, including drug discovery, preclinical studies and clinical trials of our product candidates, including the ongoing Phase 2 clinical trials of mecbotamab vedotin and ozuriftamab vedotin, establishing and maintaining our intellectual property portfolio, manufacturing clinical and research material through third parties, hiring personnel, establishing product development and commercialization collaborations with third parties, raising capital and providing general and administrative support for these operations. Since 2014, such research and development activities have exclusively related to the research, development, manufacture and Phase 1 and Phase 2 clinical testing of our CAB antibody-based product candidates and the strengthening of our proprietary CAB technology platform and pipeline. We have incurred significant losses to date. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our current and future product candidates. Our net losses were $28.9 million and $53.2 million for the three and six months ended June 30, 2022, respectively, compared to $30.4 million and $49.1 million for three and six months ended June 30, 2021, respectively. As of June 30, 2022, we had an accumulated deficit of $239.5 million. These losses have resulted primarily from costs incurred in connection with research and development activities and general and administrative costs associated with our operations. We do not expect to generate meaningful revenue from product sales for the foreseeable future, and we expect to continue to incur significant operating expenses for the foreseeable future due to the cost of research and development, including identifying and designing product candidates and conducting preclinical studies and clinical trials, and the regulatory approval process for our product candidates. We expect our expenses, and the potential for losses, to increase as we conduct clinical trials of our lead product candidates and seek to expand our pipeline. We expect our expenses and capital requirements will increase substantially in connection with our ongoing activities as we: • advance the clinical development of mecbotamab vedotin; • advance the clinical development of ozuriftamab vedotin; • advance the clinical development of BA3071; • expand our pipeline of bispecific and other CAB antibody-based product candidates; • continue to invest in our CAB technology platform; • maintain, protect and expand our intellectual property portfolio, including patents, trade secrets and know-how; • seek marketing approvals for any product candidates that successfully complete clinical trials; • establish additional product collaborations and commercial manufacturing relationships with third parties; • build sales, marketing and distribution infrastructure and relationships with third parties to commercialize product candidates for which we may obtain marketing approval; 15 • continue to expand our operational, financial and management information systems; and • attract, hire and retain additional clinical, scientific, management, administrative and commercial personnel. Furthermore, we expect to incur additional costs associated with operating as a public company. As a result, we will require substantial additional capital to develop our product candidates and fund operations for the foreseeable future. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity offerings, debt financings, collaborations and other similar arrangements. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our development efforts. We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities. Because of the numerous risks and uncertainties associated with product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to raise capital, maintain our research and development efforts, expand our business or continue our operations at planned levels, and as a result we may be forced to substantially reduce or terminate our operations. As of June 30, 2022, our cash and cash equivalents totaled approximately $202.3 million. Based on our current operating plan, our current cash and cash equivalents are expected to be sufficient to fund our ongoing operations into the second half of 2024. However, we have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Impact of COVID-19 on Our Business The worldwide COVID-19 pandemic may affect our ability to complete our current preclinical studies and clinical trials, initiate and complete our planned preclinical studies and clinical trials, disrupt regulatory activities or have other adverse effects on our business, results of operations, financial condition and prospects. In addition, the pandemic has caused substantial disruption in the financial markets and may adversely impact economies worldwide, both of which could adversely affect our business, operations and ability to raise funds to support our operations. To date, we have experienced modest business disruptions, including with respect to clinical trials we are conducting, and non-material impairments as a result of the pandemic. Our mecbotamab vedotin Phase 2 sarcoma trial remains on schedule and the Phase 2 interim analysis for mecbotamab vedotin NSCLC and ozuriftamab vedotin studies have experienced some modest delays. We are following, and plan to continue to follow, recommendations from federal, state and local governments regarding workplace policies, practices and procedures. In March 2020, we implemented a remote working policy for many of our employees and began restricting non-essential travel. During 2022 we modified our hybrid work policy to allow for more flexibility based on department needs and travel requirements. We are complying with all applicable guidelines for our clinical trials, including remote clinical monitoring. In April 2020, we borrowed $0.7 million under the Paycheck Protection Program under the CARES Act and we received full loan forgiveness from the U.S. Small Business Association in July 2021, resulting in the recognition of $0.7 million to other income for the twelve months ended December 31, 2021. We are continuing to monitor the potential impact of the pandemic, but we cannot be certain what the overall impact will be on our business, financial condition, results of operations and prospects. Financial Operations Overview Revenue To date, we have not generated any revenue from the sale of products and do not expect to generate meaningful revenue in the near future. In 2019 we entered into a collaboration agreement with BeiGene, Ltd. The agreement was amended several times and was terminated in November 2021, which resulted in the Company assuming responsibility for development of BA3071. We received a total of $25 million in non-refundable payments from BeiGene from this collaboration. Pursuant to the terms of the November 2021 amendment, we agreed to pay single digit royalties to BeiGene and agreed to share on a limited basis in any upfront and milestone payments, if received, through a sublicense of BA3071. In addition, we may in the future seek third-party collaborators or joint venture partners for development and commercialization of additional CAB product candidates. We did not recognize any collaboration revenue for the three or six months ended June 30, 2022 and 2021. Prior to developing our own programs, we received revenue from services performed under fixed price service contracts that, in some cases, provided for potential milestone and royalty payments to us. We did not recognize any revenue from our legacy service 16 contracts for the three and six months ended June 30, 2022. We recognized $0.3 million in revenues from our legacy service contracts for the three and six months ended June 30, 2021, respectively. Operating Expenses Research and Development Research and development expenses consist primarily of costs incurred in the discovery and development of our product candidates. • External expenses consist of: • Fees paid to third parties such as contractors, clinical research organizations (CROs) and consultants, and other costs related to preclinical and clinical trials; • Fees paid to third parties such as contract manufacturing organizations (CMOs) and other vendors for manufacturing research and clinical trial materials; and • Expenses related to laboratory supplies and services. • Unallocated expenses consist of: • Personnel-related expenses, including salaries, benefits and equity-based compensation expenses, for personnel in our research and development functions; and • Related equipment and facilities depreciation expense. We expense research and development costs in the periods in which they are incurred. Nonrefundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and capitalized. The capitalized amounts are then expensed as the related goods are delivered and services are performed. We expect our research and development expenses to generally increase for the foreseeable future as we continue to invest in research and development activities to advance our product candidates and our clinical programs and expand our product candidate pipeline. The process of conducting the necessary preclinical and clinical research to obtain regulatory approval is costly and time-consuming. Successful product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. Accordingly, to the extent that our product candidates continue to advance into clinical trials, including larger and later-stage clinical trials, our expenses will increase substantially and may become more variable. The actual probability of success for our product candidates may be affected by a variety of factors, including the safety and efficacy of our product candidates, the quality and consistency in their manufacture, investment in our clinical programs and competition with other products. As a result of these variables, we are unable to determine the duration and completion costs of our research and development projects and programs or when and to what extent we will generate revenue from the commercialization and sale of our product candidates. We may never succeed in achieving regulatory approval for any of our product candidates. General and Administrative Our general and administrative expenses include personnel-related expenses for personnel in our executive, finance, corporate and other administrative functions, intellectual property and patent costs, facilities and other allocated expenses, other expenses for outside professional services, including legal, human resources, investor relations, audit and accounting services and insurance costs. Personnel-related expenses consist of salaries, benefits and equity-based compensation. Our general and administrative expenses have increased as a result of operating as a public company and after losing our emerging growth status. We also expect our general and administrative expenses to increase in the future as we increase our personnel headcount to support our research and development activities to advance our product candidates and clinical stage programs. Interest Income Interest income consists primarily of interest earned on our cash and cash equivalent balances. Our interest income has not been significant to date and we do not expect any material changes. 17 Results of Operations Comparison of the Three Months Ended June 30, 2022 and 2021 Three Months Ended June 30, 2022 2021 Change (in thousands) Collaboration and other revenue $ — $ 250 $ (250 ) Operating expenses: Research and development 20,711 $ 14,850 $ 5,861 General and administrative 8,344 15,860 (7,516 ) Total operating expenses 29,055 30,710 (1,655 ) Loss from operations (29,055 ) (30,460 ) 1,405 Other income (expense): Interest income 146 80 66 Interest expense — (1 ) 1 Other income 3 — 3 Total other income (expense) 149 79 70 Consolidated net loss and comprehensive loss $ (28,906 ) $ (30,381 ) $ 1,475 Research and Development Expense The following table summarizes our research and development expenses allocated by CAB program for the periods indicated: Three Months Ended June 30, 2022 2021 Change (in thousands) External expenses: BA3011 (AXL-ADC) $ 3,565 $ 5,231 $ (1,666 ) BA3021 (ROR2-ADC) 2,244 4,077 (1,833 ) Other CAB Programs 10,021 2,046 7,975 Total external expenses 15,830 11,354 4,476 Personnel and related 2,768 1,659 1,109 Equity-based compensation 1,398 1,154 244 Facilities and other 715 683 32 Total research and development expenses $ 20,711 $ 14,850 $ 5,861 Research and development expenses were $20.7 million and $14.9 million for the three months ended June 30, 2022 and 2021, respectively. The increase of approximately $5.9 million was primarily driven by a $3.7 million increase in clinical development for our clinical programs, a $0.8 million increase in pre-clinical development and manufacturing costs for various programs, a $1.1 million increase in personnel related costs due to an increase in headcount to support ongoing development activities for our programs, and a $0.2 million increase in stock-based compensation due to awards issued in connection with our 2020 Equity Incentive Plan. General and Administrative Expense General and administrative expenses were $8.3 million and $15.9 million for the three months ended June 30, 2022 and 2021, respectively. The decrease of approximately $7.5 million was primarily driven by a $8.7 million decrease in stock-based compensation related to awards issued under our 2020 Equity Incentive Plan, including new awards issued under the plan and the modification of awards issued to one of our co-founders in Q2 2021, and a $0.6 million decrease in personnel related expenses, offset by a $1.6 million increase in audit and legal expense. Interest Income Interest income was $146,000 and $80,000 for the three months ended June 30, 2022 and 2021, respectively. The increase of $66,000 was due to higher yields earned during Q2 2022 compared to the same period in 2021. 18 Comparison of the Six Months Ended June 30, 2022 and 2021 Six Months Ended June 30, 2022 2021 Change (in thousands) Collaboration revenue $ — $ 250 $ (250 ) Operating expenses: Research and development 37,634 $ 25,273 $ 12,361 General and administrative 15,767 24,234 (8,467 ) Total operating expenses 53,401 49,507 3,894 Loss from operations (53,401 ) (49,257 ) (4,144 ) Other income (expense): Interest income 231 178 53 Interest expense — (3 ) 3 Other income 10 — 10 Total other income 241 175 66 Consolidated net loss and comprehensive loss $ (53,160 ) $ (49,082 ) $ (4,078 ) Research and Development Expense The following table summarizes our research and development expenses allocated by CAB program for the periods indicated: Six Months Ended June 30, 2022 2021 Change (in thousands) External expenses: BA3011 (AXL-ADC) $ 8,279 $ 9,777 $ (1,498 ) BA3021 (ROR2-ADC) 4,032 5,378 (1,346 ) Other CAB Programs 15,956 3,820 12,136 Total external expenses 28,267 18,975 9,292 Personnel and related 5,204 2,893 2,311 Equity-based compensation 2,698 2,109 589 Facilities and other 1,465 1,296 169 Total research and development expenses $ 37,634 $ 25,273 $ 12,361 Research and development expenses were $37.6 million and $25.3 million for the six months ended June 30, 2022 and 2021, respectively. The increase of $12.4 million was primarily driven by a $8.2 million increase in clinical development for our clinical programs, a $1.1 million increase in pre-clinical development and manufacturing costs for various programs, a $2.3 million increase in personnel related costs due to an increase in headcount to support ongoing development activities for our programs, and a $0.6 million increase in stock-based compensation due to awards issued in connection with our 2020 Equity Incentive Plan. General and Administrative Expense General and administrative expenses were $15.8 million and $24.2 million for the six months ended June 30, 2022 and 2021, respectively. The decrease of $8.5 million was primarily driven by a $10.0 million decrease in stock-based compensation related to awards issued under our 2020 Equity Incentive Plan, including new awards granted under the plan and the modification of awards issued to one of our co-founders in 2021, and a $0.5 million decrease in personnel related expenses, offset by an increase of $1.9 million in audit and legal services, including a $1.0 million legal settlement. Interest Income Interest income was $231,000 and $178,000 for the six months ended June 30, 2022 and 2021, respectively. The increase of $53,000 was due to higher yields earned compared to the same period in 2021. Liquidity and Capital Resources We have incurred aggregate net losses and negative cash flows from operations since our inception and anticipate we will continue to incur net losses for the foreseeable future. As of June 30, 2022, we had cash and cash equivalents of $202.3 million. 19 Debt On April 22, 2020, we received proceeds from a loan pursuant to the Paycheck Protection Program of the CARES Act, "the PPP Loan", in the amount of $0.7 million from City National Bank, as lender. In July 2021, we were notified by our lender that our PPP Loan had been fully forgiven by the U.S. Small Business Administration and that there was no remaining balance on the PPP Loan. We recorded the forgiveness as other income in July 2021. Future Funding Requirements Our primary uses of cash are to fund operating expenses, which consist primarily of research and development expenses related to our programs and related personnel costs. The timing and amount of future funding requirements depends on many factors, including the following: • the initiation, scope, rate of progress, results and costs of our preclinical studies, clinical trials and other related activities for our product candidates; • the costs associated with manufacturing our product candidates and establishing commercial supplies and sales, marketing and distribution capabilities; • the timing and costs of capital expenditures to support our research and development efforts; • the number and characteristics of other product candidates that we pursue; • our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make in connection with the licensing, filing, defense and enforcement of any patents or other intellectual property rights; • the timing, receipt and amount of sales from our potential products; • our need and ability to hire additional management, scientific and medical personnel; • the effect of competing products that may limit market penetration of our product candidates; • our need to implement additional internal systems and infrastructure, including financial and reporting systems; • the economic and other terms, timing and success of any collaboration, licensing, or other arrangements into which we may enter in the future, including the timing of receipt of any milestone or royalty payments under these agreements; • the compliance and administrative costs associated with being a public company; and • the extent to which we acquire or invest in businesses, products or technologies, although we have no commitments or agreements relating to any of these types of transactions. Based on our current operating plan, our current cash and cash equivalents are expected to be sufficient to fund our ongoing operations into the second half of 2024. However, we have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. In addition, we will require additional funding in order to complete development of our product candidates and commercialize our products, if approved. We may seek to raise any necessary additional capital through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. We cannot assure you that, in the event we require additional financing, such financing will be available at acceptable terms to us, if at all. Failure to generate sufficient cash flows from operations, raise additional capital, and reduce discretionary spending should additional capital not become available could have a material adverse effect on our ability to achieve our intended business objectives. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated preclinical studies and clinical trials. To the extent that we raise additional capital through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates. We may also have to forego future revenue streams of research programs at an earlier stage of development or on less favorable terms than we would otherwise choose, or have to grant licenses on terms that may not be favorable to us. Our ability to raise additional funds will depend on financial, economic and other factors, many of which are beyond our control. For example, market volatility resulting from a variety of causes, including the COVID-19 pandemic, supply chain disruptions, and geopolitical disruptions, including the recent conflict between Russia and Ukraine, could adversely impact our ability to access capital as and when needed. We may choose to raise additional capital through the issuance of equity or convertible debt securities due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent we issue additional shares of common stock or other equity or convertible debt securities in the future, there will be further dilution to our investors and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If 20 we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, acquiring other businesses, products or technology, or declaring dividends. If we are unable to obtain additional funding from these or other sources, it may be necessary to significantly reduce our rate of spending through reductions in staff and delay, scale back or stop certain research and development programs. Cash flows The following summarizes our cash flows for the periods indicated: Six Months Ended June 30, 2022 2021 (in thousands) Net cash used in: Operating activities $ (42,057 ) $ (28,539 ) Investing activities (176 ) (736 ) Financing activities (456 ) (1,721 ) Net decrease in cash and cash equivalents $ (42,689 ) $ (30,996 ) Cash Used in Operating Activities Net cash used in operating activities totaled $42.1 million for the six months ended June 30, 2022, which consisted of a consolidated net loss of $53.2 million, a net change of $3.0 million in our operating assets and liabilities and $8.1 million of non-cash transactions. The net change in our operating assets and liabilities was primarily due to an increase in accounts payable and accrued expenses of $5.8 million, offset by an increase in prepaid expenses and other assets of $2.6 million. The non-cash transactions primarily consisted of $7.5 million of stock-based compensation and non-cash charges of $0.6 million related to depreciation and amortization. Net cash used in operating activities for the six months ended June 30, 2021 was $28.5 million, which consisted of a consolidated net loss of $49.1 million, a net change of $3.0 million in our operating assets and liabilities and $17.6 million of non-cash transactions. The net change in our operating assets and liabilities was primarily due to an increase in accounts payable and accrued expenses of $5.7 million, offset by an increase in prepaid expenses and other assets of $2.6 million. The non-cash transactions primarily consisted of $16.9 million of stock-based compensation and non-cash charges of $0.6 million related to depreciation and amortization. Cash Used in Investing Activities Cash used in investing activities was $0.2 million for the six months ended June 30, 2022 and $0.7 million for the six months ended June 30, 2021, respectively, related to the purchase of property and equipment. Cash Used in Financing Activities Net cash used in financing activities was $0.5 million for the six months ended June 30, 2022, which consisted primarily of the payment of taxes related to the net settlement of restricted stock units. Net cash used in financing activities was $1.7 million for the six months ended June 30, 2021, which consisted primarily of our payment of initial public offering costs of $1.9 million, partially offset by the proceeds from the issuance of common stock under our Employee Stock Purchase Plan of $0.2 million. Critical Accounting Policies and Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated, and reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. 21 Our critical accounting policies are those accounting principles generally accepted in the United States that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those principles. For a description of our critical accounting policies, see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” contained in our Annual Report on Form 10-K for the year ended December 31, 2021. There have not been any material changes to the critical accounting policies discussed therein during the six months ended June 30, 2022. Off-Balance Sheet Arrangements We have not entered into any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.