Compass Therapeutics, Inc. 10-K

Item 8. Financial Statements and Supplementary Data.   COMPASS THERAPEUTICS, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS     Page(s) Report of Independent Registered Public Accounting Firm   125     Consolidated Financial Statements   Consolidated Balance Sheets 126 Consolidated Statements of Operations and Comprehensive Loss 127 Consolidated Statements of Changes in Stockholders’ Equity 128 Consolidated Statements of Cash Flows 129 Notes to Consolidated Financial Statements 130               124     Report of Independent Registered Public Accounting Firm   To the Board of Directors and Stockholders Compass Therapeutics, Inc.   Opinion on the Financial Statements   We have audited the accompanying consolidated balance sheets of Compass Therapeutics, Inc. and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America.   Basis for Opinion   These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.   We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.   /s/ CohnReznick LLP   We have served as the Company’s auditor since March 2020. Melville, New York March 15, 2023   125       Compass Therapeutics, Inc. and Subsidiaries Consolidated Balance Sheets (In thousands, except par value per share data)         December 31,       2022     2021                     Assets                 Current assets:                 Cash and cash equivalents   $ 34,946     $ 144,514   Marketable securities     151,663       —   Prepaid expenses and other current assets     8,182       2,591   Total current assets     194,791       147,105   Property and equipment, net     1,567       2,243   Operating lease, right-of-use ("ROU") asset     2,967       4,089   Other assets     320       320   Total assets   $ 199,645     $ 153,757   Liabilities and Stockholders' Equity                 Current liabilities:                 Accounts payable   $ 3,382     $ 867   Accrued expenses     11,690       8,775   Operating lease obligations, current portion     1,097       989   Total current liabilities     16,169       10,631   Operating lease obligations, net of long-term portion     1,838       3,048   Total liabilities     18,007       13,679                     Commitments and Contingencies (Note 11)                     Stockholders' equity:                 Common stock, $ 0.0001 par value: 300,000 shares authorized; 126,495 and 101,303 shares issued at December 31, 2022 and 2021, respectively; 126,302 and 100,832 shares outstanding at December 31, 2022 and 2021, respectively     13       10   Additional paid-in-capital     454,741       373,657   Accumulated other comprehensive loss     ( 302 )     —   Accumulated deficit     ( 272,814 )     ( 233,589 ) Total stockholders' equity     181,638       140,078   Total liabilities and stockholders' equity   $ 199,645     $ 153,757       The accompanying notes are an integral part of these consolidated financial statements.   126       Compass Therapeutics, Inc. and Subsidiaries Consolidated Statements of Operations and Comprehensive Loss (In thousands, except per share data)         Year Ended December 31,       2022     2021   Operating expenses:                 Research and development   $ 29,997     $ 20,337   General and administrative     11,658       10,927   In-process R&D     —       50,618   Total operating expenses     41,655       81,882   Loss from operations     ( 41,655 )     ( 81,882 ) Other income (expense)     2,430       ( 299 ) Loss before income tax expense     ( 39,225 )     ( 82,181 ) Income tax expense     —       —   Net loss   $ ( 39,225 )   $ ( 82,181 ) Net loss per share - basic and diluted   $ ( 0.37 )   $ ( 1.31 ) Basic and diluted weighted average shares outstanding     105,186       62,870                     Other comprehensive loss:                 Net loss   $ ( 39,225 )   $ ( 82,181 ) Unrealized loss on marketable securities     ( 302 )     —   Comprehensive loss   $ ( 39,527 )   $ ( 82,181 )     The accompanying notes are an integral part of these consolidated financial statements.   127       Compass Therapeutics, Inc. and Subsidiaries Consolidated Statements of Changes in Stockholders ’ Equity (In thousands)         Common Stock     Additional Paid-in     Accumulated Other Comprehensive     Accumulated     Total Stockholders'       Shares     Amount     Capital     Loss     Deficit     Equity   Balance at December 31, 2020     51,221     $ 5     $ 191,348     $ —     $ ( 151,408 )   $ 39,945   Common shares issued for Trigr Therapeutics, Inc. acquisition     10,265       1       50,299       —       —       50,300   Common shares issued in Public Offering, net of issuance costs of $ 8.5 million     38,987       4       127,981       —       —       127,985   Share-based awards     359       —       —       —       —       —   Stock-based compensation     —       —       4,029       —       —       4,029   Net loss     —       —       —       —       ( 82,181 )     ( 82,181 ) Balance at December 31, 2021     100,832     $ 10     $ 373,657     $ 0     $ ( 233,589 )   $ 140,078   Common shares issued in PIPE Offering, net of issuance costs of $ 4.5 million     25,000     $ 3     $ 75,739     $ —     $ —     $ 75,742   Common stock issued upon exercise of options     6       —       15       —       —       15   Share-based awards     559       —       —       —       —       —   Stock-based compensation     —       —       5,330       —       —       5,330   Cancelled shares     ( 95 )     —       —       —       —       —   Unrealized loss on marketable securities     —       —       —       ( 302 )     —       ( 302 ) Net loss     —       —       —       —       ( 39,225 )     ( 39,225 ) Balance at December 31, 2022     126,302     $ 13     $ 454,741     $ ( 302 )   $ ( 272,814 )   $ 181,638         The accompanying notes are an integral part of these consolidated financial statements.   128       Compass Therapeutics, Inc. and Subsidiaries Consolidated Statements of Cash Flows (In thousands)       Year Ended December 31,       2022     2021   Cash flows from operating activities:                 Net loss   $ ( 39,225 )   $ ( 82,181 ) Adjustments to reconcile net loss to net cash used in operating activities:                 Depreciation and amortization     782       566   Gain on disposal of equipment     ( 70 )     ( 42 ) Noncash interest expense     —       41   Stock-based compensation     5,330       4,029   Amortization of premium and discount on marketable securities     ( 801 )     —   Write-off of in-process R&D     —       50,618   ROU asset amortization     1,122       1,058   Changes in operating assets and liabilities:                 Prepaid expenses and other current assets     ( 5,591 )     534   Accounts payable     2,515       ( 194 ) Accrued expenses     2,915       7,016   Operating lease liability     ( 1,102 )     ( 1,111 ) Net cash used in operating activities     ( 34,125 )     ( 19,666 ) Cash flows from investing activities:                 Purchases of marketable securities     ( 200,119 )     —   Proceeds from sale or maturities of marketable securities     48,955       —   Purchases of property and equipment     ( 212 )     ( 1,568 ) Asset acquisition costs     —       ( 318 ) Proceeds from sale of equipment     176       116   Net cash used in investing activities     ( 151,200 )     ( 1,770 ) Cash flows from financing activities:                 Net proceeds from issuance of common stock     76,237       128,267   Issuance costs from issuance of common stock     ( 495 )     ( 281 ) Proceeds from exercise of stock options     15       —   Repayment of borrowings under loan     —       ( 9,375 ) Net cash provided by financing activities     75,757       118,611   Net change in cash, cash equivalents and restricted cash     ( 109,568 )     97,175   Cash, cash equivalents and restricted cash at beginning of year     144,514       47,339   Cash, cash equivalents and restricted cash at end of year   $ 34,946     $ 144,514   Supplemental disclosure of cash flow information                 Cash paid for interest   $ —     $ 370   ROU asset acquired through operating leases   $ —     $ 5,148   Issuance of common stock for acquisition of Trigr Therapeutics, Inc.   $ —     $ 50,300   Fixed asset costs included in accrued expenses   $ —     $ 187   Unrealized loss on marketable securities   $ 302     $ —       The accompanying notes are an integral part of these consolidated financial statements.   129     Compass Therapeutics, Inc. and Subsidiaries Notes to Consolidated Financial Statements       1. Formation and Business of the Company   Compass Therapeutics, Inc. (“Compass” or the “Company”) is a clinical-stage, oncology-focused biopharmaceutical company developing proprietary antibody-based therapeutics to treat multiple human diseases. Our scientific focus is on the relationship between angiogenesis and the immune system. Our pipeline includes novel product candidates that leverage our understanding of the tumor microenvironment, including both angiogenesis-targeted agents and immune-oncology focused agents. These product candidates are designed to optimize critical components required for an effective anti-tumor response to cancer. These include modulation of the microvasculature via angiogenesis-targeted agents; induction of a potent immune response via activators on effector cells in the tumor microenvironment; and alleviation of immunosuppressive mechanisms used by tumors to evade immune surveillance. We plan to advance our product candidates through clinical development as both standalone therapies and in combination with our proprietary drug candidates as long as their continued development is supported by clinical and nonclinical data. References to Compass or the Company herein include Compass Therapeutics, Inc. and its wholly-owned subsidiaries.   The Company is subject to risks and uncertainties common to companies in the biotechnology and pharmaceutical industries. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s technology will be obtained, that any products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable. The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its employees and consultants.     2. Liquidity, Uncertainties and Going Concern   The Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.   Since its inception, the Company has funded its operations primarily with proceeds from the sale of its equity securities and borrowings under the 2018 Credit Facility. The Company has incurred recurring losses since its inception and had an accumulated deficit of $ 273 million on December 31, 2022. The Company expects to continue to generate operating losses for the foreseeable future. The Company expects that its cash, cash equivalents and marketable securities will be sufficient to fund its operating expenses and capital expenditure requirements into 2026. The future viability of the Company beyond that point is dependent on its ability to raise additional capital to finance its operations.   The Company is subject to risks common to early stage companies in the biotechnology industry including, but not limited to: having a limited operating history and no products approved for commercial sale; having a history of significant losses; its need to obtain additional financing; dependence on its ability to advance its current and future product candidates through clinical trials, marketing approval and commercialization; the lengthy and expensive nature and uncertain outcomes of the clinical development process; the lengthy, time consuming and unpredictable nature of the regulatory approval process; the results of preclinical studies and early stage clinical trials that may not be predictive of future results; dependence on its key personnel; risks related to patent protection and the Company’s pending patent applications; dependence on third party collaborators for the discovery, development and commercialization of current and future product candidates; and significant competition from other biotechnology and pharmaceutical companies. Even if the Company’s development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.   130       3. Summary of Significant Accounting Policies   Basis of Presentation   The accompanying consolidated financial statements are presented in U.S. dollars and have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and as amended by Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).   Principles of Consolidation   The accompanying consolidated financial statements include the accounts of Compass Therapeutics, Inc., and its wholly-owned subsidiaries, including Compass Therapeutics LLC, Compass Therapeutics Advisors Inc., Trigr Therapeutics, Inc. and Compass Therapeutics Securities Corporation. All intercompany accounts and transactions have been eliminated in consolidation.   Use of Estimates   The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, the accrual of research and development expenses, useful lives of equipment, interest rate and term operating lease ROU and liability, the percentage of completion of contractual arrangements, future cash expenditures for liquidity estimates, the valuation of common stock and estimates associated with stock-based awards. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Actual results could differ from those estimates. Changes in estimates are recorded prospectively in the period that they become known.   Segment Information   Operating segments are defined as components of an enterprise for which separate and discrete information is available for evaluation by the chief operating decision-maker in deciding how to allocate resources and assess performance. The Company has one operating segment. The Company’s chief operating decision-maker, its chief executive officer, manages the Company’s operations on a consolidated basis for the purpose of allocating resources. All the Company’s long-lived assets are held in the United States.   Cash and Cash Equivalents   The Company considers all highly liquid investments that are readily convertible into cash with original maturities of three months or less from the date of purchase to be cash equivalents. Cash and cash equivalents include cash held in banks and amounts held in money market funds or commercial paper. Cash equivalents are stated at cost, which approximates market value. Cash and Cash equivalents were $ 34.9 million and $ 144.5 million on December 31, 2022 and 2021, respectively.   131     Marketable Securities   All of the Company’s investment securities are debt securities and bank instruments. The Company carries these investments at fair value. Unrealized gains and losses, if any, are reported as a separate component of stockholders’ equity. The cost of investment securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion are included in interest income. Realized gains and losses, if any, are also included in interest income. The cost of securities sold is based on the specific identification method.   Concentrations of Credit Risk   Financial instruments, which potentially subject the Company to concentrations of credit risk, principally consist of cash equivalents and marketable securities. The Company invests its excess cash primarily in money market funds, U.S. treasury notes, and high quality, marketable debt instruments of corporations in accordance with the Company’s investment policy. The Company’s investment policy defines allowable investments and establishes guidelines relating to credit quality, diversification, and maturities of its investments to preserve principal and maintain liquidity. The Company has not experienced any realized losses related to its cash equivalents and marketable securities.   Property and Equipment   Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization are recorded using the straight-line method over the estimated useful lives of the related assets as follows:   Asset Classification   Estimated Useful Life Equipment   5 years Furniture and fixtures   7 years Software   5 years Leasehold improvements   Lesser of estimated useful life or lease term   Estimated useful lives are periodically assessed to determine if changes are appropriate. Maintenance and repairs are charged to expense as incurred. When assets are retired or otherwise disposed of, the cost of these assets and related accumulated depreciation or amortization are eliminated from the consolidated balance sheet and any resulting gains or losses are included in the consolidated statement of operations and comprehensive loss in the period of disposal. Costs for capital assets not yet placed into service are capitalized as construction-in-progress and depreciated once placed into service.   Impairment of Long-Lived Assets   Long-lived assets consist of property, equipment and right-of-use (“ROU”) assets. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset group for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset group to its carrying value. An impairment loss would be recognized in the consolidated statements of operations when estimated undiscounted future cash flows expected to result from the use of an asset group are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset group over its fair value, determined based on discounted cash flows. The Company did not record any impairment losses on long-lived assets during the years ended December 31, 2022 and 2021.   132     Fair Value Measurements   Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:     ● Level 1 – Quoted prices in active markets for identical assets or liabilities.     ● Level 2 – Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets and liabilities, or other inputs that are observable or can be corroborated by observable market data.     ● Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.   To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.   An entity may choose to measure many financial instruments and certain other items at fair value at specified election dates. Subsequent unrealized gains and losses on items for which the fair value option has been elected are reported in earnings.   Research and Development Costs   Costs associated with internal research and development and external research and development services, including drug development and preclinical studies, are expensed as incurred. Research and development expenses include costs for salaries, employee benefits, subcontractors, facility-related expenses, depreciation and amortization, stock-based compensation, third -party license fees, laboratory supplies, and external costs of outside vendors engaged to conduct discovery, preclinical and clinical development activities and clinical trials as well as to manufacture clinical trial materials and other costs. The Company recognizes external research and development costs based on an evaluation of the progress to completion of specific tasks using information provided to the Company by its service providers.   Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such prepaid expenses are recognized as an expense when the goods have been delivered or the related services have been performed, or when it is no longer expected that the goods will be delivered, or the services rendered.   133     Costs associated with licenses of technology acquired as part of collaborative arrangements are expensed as incurred and are generally included in research and development expense in the consolidated statements of operations if it is determined the license has no alternative future use.   Accrued Research and Development Expenses   The Company has entered into various research and development and other agreements with commercial firms, researchers, universities and others for provisions of goods and services. These agreements are generally cancelable, and the related costs are recorded as research and development expenses as incurred. The Company records accruals for estimated ongoing research and development costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies or clinical trials, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ materially from the Company’s estimates. The Company’s historical accrual estimates have not been materially different from the actual costs.   Patent Costs   All patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty about the recovery of the expenditure. Amounts incurred are classified as general and administrative expense in the consolidated statements of operations.   Stock-Based Compensation   The Company recognizes the grant‑date fair value of stock‑based awards issued to employees and nonemployee board members as compensation expense on a straight‑line basis over the service period of the award. The Company uses the Black‑Scholes option pricing model to determine the grant‑date fair value of stock options and adjusts expense for forfeitures in the periods they occur.   The fair value of each equity award was determined by the Company on the date of grant and by using the methods and assumptions discussed below. Certain of these inputs are subjective and generally require judgment to determine.   Stock price: The stock price used to value equity awards is based on the closing price of the Company’s common stock as reported on the date of the grant. For equity awards issued after June 2020 until the Company started trading on a public market in the second quarter of 2021, the valuation of the Company’s common stock was $ 5.00 per share, which was the share price paid by outside investors in the Company’s Private Placement in June 2020.   Expected term : The expected term of the equity award represents the weighted average period the award is expected to be outstanding. The Company uses the simplified method for estimating the expected term as provided by the Securities and Exchange Commission. The simplified method calculates the expected term as the average time to vesting and the contractual life of the award.   Expected volatility – Due to the Company’s limited operating history and lack of Company-specific historical or implied volatility, the expected volatility assumption was determined by examining the historical volatilities of a group of industry peers whose share prices are publicly available.   Risk-free interest rate – The risk-free rate assumption is based on U.S. Treasury instruments, the terms of which were consistent with the expected term of the Company’s equity award.   Expected dividend – The Company has not paid and does not intend to pay dividends.   134     Net Loss per Share   Basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during each period. Diluted loss per share includes the effect, if any, from the potential exercise or conversion of securities, such as convertible preferred stock, stock options, restricted stock units, unvested restricted stock awards and common stock warrants that would result in the issuance of incremental shares of common stock. In computing the basic and diluted net loss per share, the weighted average number of shares remains the same for both calculations due to the fact that when a net loss exists, dilutive shares are not included in the calculation as the impact is anti-dilutive.   The following potentially dilutive securities outstanding as of December 31, 2022 and 2021 have been excluded from the computation of diluted weighted average shares outstanding, as they would be anti-dilutive:       December 31,       2022     2021       (000's)   Restricted stock units     900       1,200   Stock options     5,378       3,659   Nonvested restricted stock     193       471   Total     6,471       5,330     Income Taxes   Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. Deferred tax assets are reduced, as necessary, by a valuation allowance when management determines it is more likely than not that some or all of the deferred tax benefits will not be realized.   The Company files income tax returns in the U.S. Federal jurisdiction and in various states. The Company has tax net operating loss carryforwards that are subject to examination for a number of years beyond the year in which they were generated for tax purposes. Since a portion of these net operating loss carryforwards may be utilized in the future, many of these net operating loss carryforwards will remain subject to examination.   Recently Adopted Accounting Pronouncements   In February 2016, the FASB issued ASU No. 2016 02, Leases , which requires a lessee to record a ROU asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. The standard continues to have two types of leases for income statement recognition purposes: operating leases and finance leases. Operating leases result in the recognition of a single lease expense on a straight-line basis over the lease term, similar to the treatment for operating leases under the old standard. Finance leases result in an accelerated expense similar to the accounting for capital leases under the old standard. The new standard also contains amended guidance regarding the identification of embedded leases in service contracts and the identification of lease and non-lease components of an arrangement. The Company adopted the new standard on January 1, 2021, using a modified retrospective approach and as a result did not adjust prior periods. Adoption of the standard resulted in the recording of $ 5.1 million of operating lease ROU assets and operating lease liabilities but did not have a material impact on the Company’s net loss or cash flows. There were no operating leases acquired in 2022.   135     In December 2019, the FASB issued ASU No. 2019 - 12, Income Taxes (Topic 740 ): Simplifying the Accounting for Income Taxes ("ASU 2019 - 12" ), which is intended to simplify the accounting for income taxes. ASU 2019 - 12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The new standard was effective beginning January 1, 2022. The adoption of ASU 2019 - 12 did not have a material impact on the Company’s financial position and results of operations upon adoption.   There are no other pending accounting pronouncements that are expected to have a material impact on the Company’s consolidated financial statements.     4. Fair Value Measurements   The following tables present information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values:       Fair Value Measurements as of December 31, 2022 (000's):       Quoted Prices     Significant                       in Active     Other     Significant               Markets for     Observable     Unobservable               Identical Assets     Inputs     Inputs               (Level 1)     (Level 2)     (Level 3)     Fair Value   Assets                                 Corporate bonds   $ —     $ 87,760     $ —     $ 87,760   Commercial paper     37,682       —       —       37,682   Certificates of deposit     —       19,667       —       19,667   Asset-backed securities     —       6,554       —       6,554   Money market funds (cash equivalents)     9,438       —       —       9,438   Total assets   $ 47,120     $ 113,981     $ —     $ 161,101         Fair Value Measurements as of December 31, 2021 (000's):       Quoted Prices     Significant                       in Active     Other     Significant               Markets for     Observable     Unobservable               Identical Assets     Inputs     Inputs               (Level 1)     (Level 2)     (Level 3)     Fair Value   Assets                                 Money market funds (cash equivalents)   $ 130,005     $ —     $ —     $ 130,005   Total assets   $ 130,005     $ —     $ —     $ 130,005       5. Marketable Securities   The objectives of the Company’s investment policy are to ensure the safety and preservation of invested funds, as well as to maintain liquidity sufficient to meet cash flow requirements. The Company invests its excess cash in securities issued by financial institutions, commercial companies, and government agencies that management believes to be of high credit quality in order to limit the amount of its credit exposure. The Company has not realized any net losses from its investments.   Unrealized gains and losses on investments that are available for sale are recognized in accumulated comprehensive loss, unless an unrealized loss is considered to be other than temporary, in which case the unrealized loss is charged to operations. The Company periodically reviews its investments for other than temporary declines in fair value below cost basis and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.   136     The Company believes the individual unrealized losses represent temporary declines primarily resulting from interest rate changes. Realized gains and losses are included in other income (loss) in the consolidated statements of operations and comprehensive loss and are determined using the specific identification method with transactions recorded on a trade date basis. The Company classifies marketable securities that are available for use in current operations as current assets on the consolidated balance sheet.   The following tables summarize marketable securities held at December 31, 2022 ( in thousands):       Fair Value Measurements as of December 31, 2022 Using:       Amortized Cost     Unrealized gains     Unrealized Losses     Fair Value   Assets                                 Corporate bonds   $ 87,998     $ 12     $ ( 250 )   $ 87,760   Commercial paper     37,680       33       ( 31 )     37,682   Certificates of deposit     19,689       16       ( 38 )     19,667   Asset-backed securities     6,598       3       ( 47 )     6,554   Total assets   $ 151,965     $ 64     $ ( 366 )   $ 151,663         As of       December 31, 2022   Maturing in one year or less   $ 134,620   Maturing after one year through two years     17,043   Total   $ 151,663     There were no marketable securities as of December 31, 2021.   137       6. Property and Equipment   Property and equipment consist of the following:       December 31,       2022     2021       (000's)   Equipment   $ 5,137     $ 5,351   Furniture and fixtures     22       22   Leasehold improvements     1,612       1,531   Software     364       365   Total property and equipment–at cost     7,135       7,269   Less: Accumulated depreciation and amortization     ( 5,568 )     ( 5,026 ) Property and equipment, net   $ 1,567     $ 2,243     Total depreciation and amortization expense for years ended December 31, 2022 and 2021, was $ 0.8 million and $ 0.6 million, respectively.     7. Accrued Expenses   Accrued expenses consist of the following:       December 31,       2022     2021       (000's)   Project expenses   $ 10,038     $ 704   Compensation and benefits     1,556       1,601   Accrued milestone     —       6,000   Other     96       470   Total accrued expenses   $ 11,690     $ 8,775     Project expenses is primarily made up of $ 8.8 million of accrued manufacturing expenses and $ 1.3 million of accrued clinical expenses. Manufacturing expenses are primarily for the manufacture and purchase of drug product for CTX- 009 including $ 6.4 million of minimum contractual obligations.     8. Stockholders ’  Equity   In June 2021, the Company issued 10.3 million shares of its common stock related to the acquisition of Trigr Therapeutics, Inc. (“TRIGR”). In the fourth quarter of 2022, 95 thousand of these shares were cancelled due to contractual obligations outstanding prior to the acquisition. See Note 16 for further information on the TRIGR transaction.   In November 2021, the Company sold through an underwritten public offering, 35,715,000 shares of the Company’s common stock, at a price to the public of $ 3.50 per share, less underwriting discounts and commissions. The Company granted the underwriters a 30 -day option to purchase up to an additional 5,357,250 shares of Common Stock, at the public offering price of $ 3.50 , less any underwriting discounts and commissions. In December 2021, pursuant to this 30 -day option, the Company sold an additional 3,271,857 shares of our common stock, for a total of 38,986,857 shares of common stock sold as part of the Follow-On Public Offering. The aggregate gross proceeds from the Follow-On Public Offering were approximately $ 136.5 million. In connection with the Follow-On Public Offering, we paid the underwriters and other legal and accounting costs of $ 8.5 million, for net proceeds of approximately $ 128.0 million.   138       In November 2022, the Company sold through a Private Investment in Public Entity (“PIPE”) offering of 25,000,000 shares of our common stock at a purchase price of $ 3.21 per share. The gross proceeds to us from the PIPE were $ 80.3 million. In connection with the PIPE, the Company paid $ 4.5 million to the underwriters (and for other legal and accounting costs), for net proceeds of $ 75.7 million.     9. Stock-Based Compensation   Stock-based compensation expense for the years ended December 31, 2022 and 2021 was classified in the consolidated statements of operations as follows:       Year Ended December 31,       2022     2021       (000's)   Research and development   $ 781     $ 658   General and administrative     4,549       3,371   Total   $ 5,330     $ 4,029     Restricted Stock   A summary of the Company’s restricted share activity during the years ended December 31, 2022 and 2021 is as follows:       Shares (000's)     Estimated Fair Value Per Share   Unvested, December 31, 2020     896     $ 2.46   Granted     —     $ —   Vested     ( 359 )   $ 1.83   Forfeited or canceled     ( 66 )   $ 1.70   Unvested, December 31, 2021     471     $ 1.76   Granted     —     $ —   Vested     ( 258 )   $ 1.77   Forfeited or canceled     ( 20 )   $ 1.77   Unvested, December 31, 2022     193     $ 1.74     The weighted average grant date fair value for unvested restricted stock as of December 31, 2022 was $ 1.74 per share. As of December 31, 2022, remaining unrecognized compensation cost related to restricted stock awards to be recognized in future periods totaled $ 0.3 million, which is expected to be recognized over a weighted average period of 0.9 years. No restricted share awards were granted for the year ended December 31, 2022 and 2021.   2020 Plan   In June 2020, the Company’s board of directors adopted the 2020 Plan and reserved 2.9 million shares of common stock for issuance under this plan. The 2020 Plan provides that the number of shares reserved and available for issuance under the 2020 Plan will automatically increase each January 1, beginning on January 1, 2021, by the lesser of (i) 4% of the outstanding number of shares of our common stock on the immediately preceding December 31 or (ii) such number of shares as determined by the plan administrator no later than the immediately preceding December 31. As of December 31, 2022, 2.48 million shares remain available for future grant. On January 1, 2023, an additional 5.06 million shares became available for issuance based on 4% of the outstanding shares of common stock, for a total of 7.54 million shares available for issuance.   139     The 2020 Plan authorizes the board of directors or a committee of the board to grant incentive stock options, nonqualified stock options, restricted stock awards and restricted stock units ("RSUs") to eligible officers, employees, consultants and directors of the Company. Options generally vest over a period of four years and have a contractual life of ten years from the date of grant.   Stock Options:   The following table summarizes the stock option activity for the 2020 Plan:       Number of Nonvested Options (000's)     Weighted Average Exercise Price Per Share     Weighted Average Remaining Contractual Life (in years)     Aggregate Intrinsic Value (000's)   Outstanding at December 31, 2020     2,159     $ 5.00       9.69     $ —   Granted     1,822     $ 5.02       9.27     $ —   Exercised     —     $ —       —     $ —   Forfeited/cancelled     ( 322 )   $ 5.00       —     $ —   Outstanding at December 31, 2021     3,659     $ 5.01       8.98     $ —   Granted     2,277     $ 2.30       8.81     $ —   Exercised     ( 6 )   $ 2.26       —     $ 6   Forfeited/cancelled     ( 552 )   $ 4.78       —     $ 118   Outstanding at December 31, 2022     5,378     $ 3.89       8.24     $ 6,316   Vested at December 31, 2022     2,710     $ 4.65       7.62     $ 1,216     For the year ended December 31, 2022, the weighted average grant date fair value for options granted was $ 3.89 . The aggregate intrinsic value for options vested and outstanding as of December 31, 2022 was $ 1.2 million and $ 6.3 million, respectively. As of December 31, 2022, the unrecognized compensation cost related to outstanding options was $ 5.9 million, expected to be recognized over a weighted average period of approximately 2.7 years.             The weighted average assumptions used in the Black-Scholes option pricing model to determine the fair value of stock options granted to employees and directors during the years ended December 31, 2022 and 2021 were as follows:         Year Ended December 31,       2022     2021   Expected term (in years)     6.0       6.1   Risk-free rate     2.02 %     0.85 % Expected volatility     94 %     91 %     140     RSUs:   The following table summarizes the RSU activity for the 2020 Plan:       Shares (000's)     Weighted Average Price Per Share     Weighted Average Fair Value (000's)   Unvested, December 31, 2020     —     $ —     $ —   Granted     1,200       3.83       4,596   Vested     —       —       —   Forfeited or canceled     —       —       —   Unvested, December 31, 2021     1,200     $ 3.83     $ 4,596   Granted     —     $ —     $ —   Vested     ( 300 )     3.83       ( 1,149 ) Forfeited or canceled     —       —       —   Unvested, December 31, 2022     900     $ 3.83     $ 3,447     Weighted average price per share is the weighted grant price based on the closing market price of each of the stock grants. The weighted average fair value is the weighted average share price times the number of shares.   As of December 31, 2022, remaining unrecognized compensation cost related to RSUs to be recognized in future periods totaled $ 3.3 million, which is expected to be recognized over a weighted average period of 2.9 years. As of December 31, 2022, the total unrecognized compensation cost from all plans to be recognized in future periods totaled approximately $ 9.5 million.     10. License, Research and Collaboration Agreements   Collaboration Agreements   ABL Bio Corporation ("ABL Bio") Agreements   Our wholly-owned subsidiary, TRIGR, and ABL Bio, a South Korean biotechnology company, entered into an exclusive global (excluding South Korea) license agreement (the “TRIGR License Agreement”) which granted TRIGR a license to ABL001, ABL Bio’s bispecific antibody targeting DLL4 and VEGF-A (renamed CTX- 009 ). Under the terms of the agreement, ABL Bio and TRIGR would jointly develop CTX- 009, with ABL Bio responsible for development of CTX- 009 throughout the end of Phase 1 clinical trials and TRIGR responsible for the development of CTX- 009 from Phase 2 and onward. ABL Bio received a $ 5 million upfront payment and $ 6 million development milestone payment. In addition, ABL Bio is eligible to receive up to $ 96 million of development and regulatory milestone payments, and up to $ 303 million of commercial milestone payments and tiered single-digit royalties on net sales of CTX- 009 in Oncology..  ABL Bio is also eligible to receive up to $75 million in development and regulatory milestones and up to $ 110 million in commercial milestone payments and tiered, single-digit royalties on net sales of CTX- 009 in Ophthalmology. The financial terms of the agreement were amended in May 2021 but remain substantially similar to the terms in the TRIGR License Agreement. As a result of the TRIGR acquisition in 2021, the TRIGR License Agreement was assigned to the Company and the Company has assumed all the rights and liabilities of the agreement. See Note 16 for further information on the TRIGR transaction.   In May 2021, TRIGR and ABL Bio terminated license agreements to several preclinical assets. As a result of the return of these assets to ABL Bio and termination of the license agreements, the Company is eligible to receive royalty payments if ABL Bio develops or licenses two bispecific antibodies that were previously licensed to TRIGR.   141     Adimab Agreement   The Company entered into a collaboration agreement with Adimab, LLC ("Adimab") on October 16, 2014. The agreement was amended on February 11, 2015. The agreement also includes provisions for payment of royalties at rates ranging in the single digits as a percentage of future net sales within a specified term from the first commercial sale. There were no milestone payments made during the year ended December 31, 2022. The Company made milestone payments of $ 1.5 million in research and development during the year ended December 31, 2019, upon filing an IND for its product candidates associated with this license and first dosing of patient. As of December 31, 2022, future potential milestone payments in connection with this agreement amounted to $ 2.0 million.     11. Commitments and Contingencies   Leases   The Company adopted ASU 2016 - 02, Leases (Topic 842 ) ("ASU 2016 - 02" ), effective January 1, 2021, using the modified retrospective transition method, in which the new standard is applied as of the date of initial adoption. The Company recognized and measured agreements executed prior to the date of initial adoption that were considered leases on January 1, 2021. No cumulative effect adjustment of initially applying the standard to the opening balance of retained earnings was made upon adoption. The Company elected the package of practical expedients permitted under the transition guidance that will retain the lease classification and initial direct costs for any leases that exist prior to adoption of the standard. In addition, the Company elected the accounting policy of not recording short-term leases with a lease term at the commencement date of 12 months or less on the consolidated balance sheet as permitted by the new standard.   The Company has evaluated its leases and determined that it has one lease that is classified as an operating lease. The classification of this lease is consistent with the Company’s determination under the previous accounting standard.   When available, the Company will use the rate implicit in the lease to discount lease payments to present value; however, the Company’s current lease does not provide an implicit rate. Therefore, the Company used its incremental borrowing rate to discount the lease payments based on the date of the lease commencement.   The Company has one operating lease for its corporate office and laboratory facility (“Facility”) that was signed in December 2020. The Company moved into the Facility in January 2021. The Facility lease has an initial term of four years and five months, beginning on January 1, 2021. The Facility lease contains scheduled rent increases over the lease term. The discount rate used for the Facility lease is 6.25 %, and the remaining lease term of the Facility lease is two years and five months as of December 31, 2022.   142     The table below presents the undiscounted cash flows for the lease term. The undiscounted cash flows are reconciled to the operating lease liabilities recorded on the consolidated balance sheets:       (000's)   Years ending December 31,         2023   $ 1,233   2024     1,379   2025     543   Total minimum lease payments     3,155   Less: amount of lease payments representing interest     ( 220 ) Present value of future minimum lease payments     2,935   Less: operating lease obligations, current portion     ( 1,097 ) Operating lease obligations, long-term portion   $ 1,838     Milestone payments   As part of the ABL Bio agreements, the Company is obligated to pay certain development milestone payments.  In the fourth quarter of 2021, the Company was notified of the completion of Phase 1b of the clinical trial for CTX- 009.   As a result, the Company was obligated to pay a $ 6.0 million milestone payment to ABL Bio on the deliverance of the final report related to the clinical trial. There were no accrued milestone payments as of December 31, 2022. See Note 10 for this and other agreements.     12. Related Parties and Related-Party Transactions   There were no material related party transactions during the years ended December 31, 2022 and 2021.             143         13. Other income (expense)   Other income (expense) consisted of the following:       December 31,       2022     2021       (000's)   Interest income   $ 2,360     $ 29   Interest expense     —       ( 370 ) Realized gain on disposal of equipment     70       42   Total other income (expenses)   $ 2,430     $ ( 299 )     14. Defined Contribution Plan   The Company has a 401 (k) defined contribution plan (the “401 (k) Plan”) for substantially all its employees. Eligible employees may make pre-tax or post-tax (Roth) contributions to the 401 (k) Plan up to statutory limits. Since January 1, 2020, the Company has been matching employee contributions to the plan up to 4 % of salary. The Company made matching contributions of $ 0.1 million and $ 0.1 million for the years ended December 31, 2022 and 2021, respectively.     15. Income Taxes   The Company had no income tax for the years ended December 31, 2022 and 2021.   The effective tax rate of our provision for income taxes differs from the federal statutory rate for the periods presented as follows:       December 31,       2022     2021   Statutory rate     21.0 %     21.0 % State taxes     5.6 %     2.1 % Share-based compensation & other nondeductible expenses     -2.7 %     -1.0 % Write-off of in-process R&D     0.0 %     -12.9 % Research credits     1.4 %     0.8 % Other     -0.1 %     0.0 % Change in valuation allowance     -25.2 %     -10.0 % Total     0.0 %     0.0 %   The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. In determining the need for a valuation allowance, management reviews both positive and negative evidence, including current and historical results of operations, future income projections and the overall prospects of our business. Based upon management’s assessment of all available evidence, the Company believes that it is more-likely-than- not that the deferred tax assets will not be realizable, and therefore, a valuation allowance has been established. The valuation allowance for deferred tax assets was approximately $ 28.0 million and $ 18.1 million as of December 31, 2022 and 2021, respectively.   144     As of December 31, 2022, the Company has U.S. federal and state net operating loss carryforwards (“NOLs”) of $ 59.1 million and $ 42.5 million, respectively. As of December 31, 2022, the Company has federal and state research and development credit carryforwards (“R&D credits”) of $ 1.4 million and $ 2.4 million, respectively. For income tax purposes, federal NOLs will not expire since they were generated after 2017 and federal R&D credits will begin expiring in 2039. For income tax purposes, state NOLs and state R&D credits will begin to expire in 2040 and 2031, respectively. Net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service (the “IRS”) and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three -year period in excess of 50% as defined under Sections 382 and 383 in the Internal Revenue Code, which could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the Company’s value immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has not yet conducted a study to determine if any such limitation exists.   The Tax Cuts and Jobs Act of 2017 (“TCJA”) amended IRC Section 174 to require capitalization of all research and developmental (R&D) costs incurred in tax years beginning after December 31, 2021. These costs are required to be amortized with a half-year convention over five years if the R&D activities are performed in the U.S., or over 15 years if the activities were performed outside the U.S. The Company capitalized approximately $ 28.6 million and amortized $ 1.8 million of R&D expenses incurred for the year ended December 31, 2022.  As of December 31, 2022, the Company had no uncertain tax positions, and as such, no related interest or penalties have been recorded in the statement of operations and comprehensive loss. The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense. All tax years of the Company from inception are open to examination by federal tax and state tax authorities. To the extent utilized in future years’ tax returns, net operating loss carryforwards at December 31, 2022 will remain subject to examination until the respective tax year is closed. The Company has not been informed by any tax authorities for any jurisdiction that any of its tax years is under examination as of December 31, 2022.   Significant components of the Company’s deferred tax assets and liabilities are as follows:         December 31,       2022     2021   Deferred tax assets   (000's)   Federal net operating loss carryforwards   $ 12,405     $ 10,847   State net operating loss carryforwards     2,687       2,228   Research and development credits     3,273       2,716   Section 174 Capitalization     7,294       —   Share-based compensation     701       706   Lease liabilities     801       1,131   Capitalized licensing fees     1,591       1,637   Other     70       22   Subtotal     28,822       19,287   Less valuation allowance     ( 28,013 )     ( 18,113 ) Deferred tax assets, net of valuation allowance     809       1,174                     Deferred tax liabilities                 Right-of-use assets     ( 809 )     ( 1,116 ) Other     —       ( 58 ) Net deferred tax assets   $ —     $ —       145       16. Merger Transaction   On May 11, 2021, the Company and Trigr Therapeutics, Inc. (“TRIGR”), a private biotechnology company, entered into a definitive merger agreement (the “Merger Agreement”). Pursuant to the Merger Agreement, the Company, through its wholly-owned subsidiaries and a two -step merger structure, acquired all the outstanding shares of TRIGR (the “TRIGR Merger”). On June 25, 2021, the TRIGR Merger was consummated. Consideration payable to TRIGR shareholders at closing totaled an aggregate of 10,265,133 shares of the Company’s common stock with a fair value of $ 50.3 million (after giving effect to elimination of fractional shares that would otherwise be issued). The Company incurred approximately $ 0.3 million of accounting and legal costs associated with the merger, for a total cost of the transaction of $ 50.6 million which was reported in 2021.   In addition, TRIGR shareholders are eligible to receive up to $ 9.0 million, representing earnout payments based on three independent events. The first earnout payment of $ 2.0 million related to a milestone payment under the Elpiscience agreement, due to the Company upon IND approval of CTX- 009 in China and remitted to the TRIGR shareholders. The IND was approved in China in the fourth quarter of 2021. As a result, the Company acted as a conduit to this transaction and remitted the $ 2 million related to this milestone payment received from Elpiscience. The second potential earnout payment of $ 2 million is contingent upon the Company entering into a regional license agreement with a specific third party. Since the Company has not entered into a regional license agreement with that third party and assesses the probability of reaching such agreement with that party to be low, no provision is being made. The third and last potential earnout is $ 5 million which is dependent on the Company successfully filing a biologics license application in the United States and being granted marketing approval for the product candidate acquired in the transaction, CTX- 009. As CTX- 009 is in early clinical development and the clinical development of CTX- 009 and regulatory strategy are subject to substantial risk, it is not probable that this payment will be made, and as such, no provision is being made.   To determine whether the transaction meets the definition of a business acquisition or an asset acquisition in accordance with ASC 805 - 10 - 55, we had to assess the nature of the transaction and the fair value of the assets acquired in the transaction. Our assessment concluded that the fair value of the transaction was substantially concentrated in a license to a single identifiable asset, CTX- 009, and a potential financial interest (in the form of royalties) in an additional set of early-stage similar assets. The guidance further requires a business acquisition to include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. Because all asset acquisitions include inputs, the existence of a substantive process is what distinguishes a business acquisition from an asset acquisition. Our assessment was that there is no process or outputs that were being acquired with the TRIGR acquisition. As a result, the TRIGR acquisition was considered to fall under the guidance of an asset acquisition rather than a business acquisition. Accordingly, the Company allocated the $ 50.3 million transaction amount and $ 0.3 million of transaction costs to the acquired license. As the license is considered in-process R&D, the Company expensed the acquired asset on the transaction date.       146         Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.   Not applicable.