Cogent Biosciences, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. 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 this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2019. Overview On July 6, 2020, we completed our acquisition of Kiq Bio LLC (formerly Kiq LLC), a Delaware limited liability company (“Kiq”), in accordance with the terms of the Agreement and Plan of Merger, dated July 6, 2020 (the “Merger Agreement”). On October 2, 2020, we filed an amendment to our certificate of incorporation to change our name from Unum Therapeutics Inc. to Cogent Biosciences, Inc. The name change became effective on October 6, 2020. In connection with the name change, our common stock began trading under the ticker symbol “COGT.” We are a biotechnology company focused on developing precision therapies for genetically defined diseases. Our most advanced program, PLX9486, is a clinical-stage, selective KIT D816V inhibitor that is being developed to treat systemic mastocytosis (“SM”) and gastrointestinal stromal tumor (“GIST”) patients. PLX9486 has been administered to more than 50 advanced solid tumor and GIST patients in a Phase 1 / 2 clinical trial, with the vast majority of those patients living with advanced GIST. GIST is a disease frequently driven by mutations in the KIT tyrosine kinase, and resistance to therapy can be seen with the emergence of new KIT mutations. Anti-tumor activity for PLX9486 was observed in both single agent and combination settings, including in combination with sunitinib, an approved treatment option for GIST patients. Clinical data for PLX9486 were previously presented by Plexxikon, a member of the Daiichi Sankyo Group, at the Connective Tissue Oncology Society meeting in November 2017, and the American Society of Clinical Oncology meeting in June 2018. On July 6, 2020, we shared updated clinical data in 18 patients dosed with PLX9486 in combination with sunitinib as part of our corporate presentation describing the Kiq acquisition, showing median progression free survival of eleven months. This was a heavily-treated advanced GIST population, where 72 percent of patients had previously been treated with sunitinib, 66 percent of patients had received three-or-more Tyrosine kinase inhibitors (“TKIs”), and 50 percent of patients had received four-or-more TKIs. The overall response rate was 16.6 percent, including two partial responses and one complete response. Based on these results, we are planning an FDA interaction to explore further clinical development of PLX9486 in combination with sunitinib in GIST patients, and plan to initiate an additional clinical study in GIST in the second half of 2021. In addition to continuing the development of PLX9486 in GIST patients, we are pursuing development of the compound in patients living with advanced systemic mastocytosis (“ASM”) and indolent systemic mastocytosis (“ISM”). The vast majority of ASM patients have a KIT D816V mutation, and have a significantly diminished quality of life with median survival less than 3.5 years. For patients with ISM, there are no available approved therapies, and while their lifespan is not impacted by the disease, these patients suffer from a poor quality of life and new treatment options are badly needed. Emerging clinical data for other kinase inhibitors with activity against KIT D816V have shown that the disease is highly sensitive to inhibition of the target. PLX9486 was specifically designed to selectively inhibit KIT mutations on exon 17, including KIT D816V, and we aim to expand the clinical development of this program to treat systemic mastocytosis patients. Subject to feedback from regulatory authorities, we expect to initiate clinical trials in ASM patients in the first half of 2021, followed by trials in ISM patients in the second half of 2021. We expect to rapidly assess PLX9486 activity in mastocytosis patients by monitoring levels of serum tryptase, a relevant biomarker of disease activity which is elevated in these patients. Worldwide rights to develop and commercialize PLX9486, as well as an additional selective KIT inhibitor, PLX0206, were exclusively licensed by Kiq from Plexxikon. Under the terms of the May 2020 agreement, Plexxikon received an upfront payment and is eligible for additional development milestones and mid- to high- single-digit royalty payments. Patents protecting PLX9486 include composition of matter claims which have issued in the US and other key territories and provide exclusivity through 2033 and potentially beyond. In addition to our small molecule efforts, we have developed proprietary technologies which enable cell therapy programs targeting cancers utilizing a patient's engineered T cells. Our ACTR (“Antibody-Coupled T cell Receptor”) product candidates incorporate a novel chimeric receptor that are designed to enable a co-administered, tumor-specific antibody to direct T cell targeting toward tumor cells. All ACTR clinical trials are closed to further enrollment. We anticipate completing all closeout activities of 3 of 4 ACTR clinical trials by December 31, 2020. We anticipate closing out the last ACTR clinical trial in the first half of 2021. 20 With the acqu isition of Kiq and the focus on development of novel prec ision kinase inhibitors, we are directing our cell therapy efforts towards the identification of an external partner who will have responsibility for future development of the technology and developm ent of product candidates. On August 28, 2020, we completed the sale of our BOXR technology and Autologous Cell Therapy Industrial Automation (“ACTIA”) technology (collectively, the “BOXR Platform”), to Sotio LLC (“Sotio”) (the “BOXR Platform Transaction”), pursuant to an asset purchase agreement by and among Cogent, Sotio and Sotio NV as Guarantor (the “BOXR Platform Purchase Agreement”). Pursuant to the BOXR Platform Purchase Agreement, Sotio has agreed to pay us total cash consideration of up to $11.5 million, consisting of an upfront payment of $8.1 million ($1.73 million of which was placed in escrow for 90 days for general representations and warranties) and potential milestone payments of up to $3.4 million in the aggregate upon the achievement of certain milestones related to the issuance of Specified Claims (as described in the BOXR Platform Purchase Agreement) by the U.S. Patent and Trademark Office and the European Patent Office. Since our inception in 2014, we have focused significant efforts and financial resources on establishing and protecting our intellectual property portfolio, conducting research and development of our product candidates, manufacturing drug product material for use in preclinical studies and clinical trials, staffing our company, and raising capital. We do not have any products approved for sale and have not generated any revenue from product sales. To date, we have funded our operations primarily with proceeds from the sales of preferred stock, our initial public offering of common stock and Concurrent Private Placement, and payments received under our Collaboration Agreement with Seattle Genetics. On April 1, 2019, we filed a shelf registration statement on Form S-3 with the SEC. The shelf registration statement allows us to sell from time-to-time up to $150.0 million of common stock, preferred stock, debt securities, warrants, or units comprised of any combination of these securities, for its own account in one or more offerings. The terms of any offering under the shelf registration statement will be established at the time of such offering and will be described in a prospectus supplement filed with the SEC prior to the completion of any such offering. Additionally, on April 1, 2019 and pursuant to the Form S-3, we entered into a Sales Agreement (the “Sales Agreement”) with Cowen and Company, LLC (“Cowen”), pursuant to which we may issue and sell, from time to time, shares of our common stock having an aggregate offering price of up to $50.0 million through Cowen as the sales agent. As of September 30, 2020, no shares have been issued or sold under this Sales Agreement. On March 19, 2020, we entered into a Purchase Agreement (the “LPC Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“LPC”), pursuant to which we may elect to sell to LPC up to $25.0 million in shares of our common stock, subject to certain limitations and conditions set forth in the LPC Purchase Agreement. Pursuant to the LPC Purchase Agreement, we issued 181,595 shares of common stock to LPC as a commitment fee. As of September 30, 2020, 1,061,583 registered common shares have been sold to LPC under the LPC Purchase Agreement for proceeds of $10.7 million. On March 26, 2020, we announced that we would be exploring strategic alternatives in order to maximize stockholder value and that we had engaged Ladenburg Thalmann & Co. Inc. to act as our strategic financial advisor to assist in the strategic review process. As of July 6, 2020, we successfully signed and closed the acquisition of Kiq. On July 9, 2020, we completed Private Investment in Public Equity (“PIPE”) with existing and new investors to raise gross proceeds of $104.4 million in which the investors were issued shares of Series A Non-Voting Convertible Preferred Stock (“Series A Preferred Stock”) at a price of $880 per share or, $3.52 per share on an as-converted-to-common basis. In August 2020, our board of directors unanimously approved an amendment to our certificate of incorporation, which would allow the board to effect a reverse stock split of all issued and outstanding shares of our common stock, at a ratio ranging from 1-for-4 to 1-for-8, inclusive, subject to stockholder approval. On October 9, 2020, the Company filed a Definitive Proxy Statement which included the proposal that our stockholders approve the amendment to our certificate of incorporation to effect the reverse stock split and a proposal that the stockholders approve the conversion of the shares of Series A Preferred Stock issued in the Kiq acquisition and the private placement . The proposals were approved by the stockholders at a special meeting held on November 6, 2020 and our board of directors approved a ratio of 1-for-4 for the reverse stock split. The amendment to our certificate of incorporation to effect the reverse stock split at a ratio of 1-for-4 was filed with the Delaware Secretary of State on November 6, 2020. Since our inception, we have incurred significant operating losses. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates. Our net losses were $63.5 million for the nine months ended September 30, 2020. As of September 30, 2020, we had an accumulated deficit of $187.4 million. We expect to continue to incur significant expenses and operating losses for at least the next several years. We expect that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly if and as we: • continue additional clinical trials for our product candidates; • continue to discover and develop additional product candidates; • acquire or in-license other product candidates and technologies; 21 • maintain, expand, and protect our intellectual property portfolio; • hire additional clinical, scientific, and commercial personnel; • establish manufacturing capabilities in-house; • establish a commercial manufacturing source and secure supply chain capacity sufficient to provide commercial quantities of any product candidates for which we may obtain regulatory approval; • seek regulatory approvals for any product candidates that successfully complete clinical trials; • establish a sales, marketing, and distribution infrastructure to commercialize any products for which we may obtain regulatory approval; and • add operational, financial, and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts, as well as to support our transition to a public reporting company. We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. If we obtain regulatory approval for any of our product candidates and do not enter into a commercialization partnership, we expect to incur significant expenses related to developing our internal commercialization capability to support product sales, marketing, and distribution. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances, and marketing, distribution, or licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back, or discontinue the development and commercialization of one or more of our product candidates. Because of the numerous risks and uncertainties associated with pharmaceutical 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 or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. As of September 30, 2020, we had cash and cash equivalents of $129.4 million. We expect that our current cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements into 2023. The COVID-19 Pandemic In March 2020, the World Health Organization declared the outbreak of a novel strain of coronavirus, or COVID-19, as a pandemic, which continues to spread throughout the United States and worldwide. We could be materially and adversely affected by the risks, or the public perception of the risks, related to an epidemic, pandemic, outbreak, or other public health crisis, such as the recent outbreak of COVID-19. We are monitoring the global outbreak and spread of COVID-19 and have taken steps to identify and mitigate the adverse impacts on, and risks to, our business posed by its spread and actions taken by governmental and health authorities to address the COVID-19 pandemic. The spread of COVID-19 has caused us to modify our business practices, including implementing a work-from-home policy for all employees who are able to perform their duties remotely and restricting all nonessential travel, and we expect to continue to take actions as may be required or recommended by government authorities or as we determine are in the best interests of our employees, the patients we serve and other business partners in light of COVID-19. Given the fluidity of the COVID-19 pandemic however, we do not yet know the full extent of the potential impact of COVID-19 on our business operations. The ultimate extent of the impact of any epidemic, pandemic, outbreak, or other public health crisis on our business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of such epidemic, pandemic, outbreak, or other public health crisis and actions taken to contain or prevent the further spread, among others. Accordingly, we cannot predict with certainty the extent to which our business, financial condition and results of operations will be affected. We will continue to work diligently with our partners and stakeholders to continue advancing our product candidate under regulatory review as well as in our clinical studies to the extent safe to do so for patients, caregivers and healthcare practitioners, and ensuring the continuity of our manufacturing and supply chain. For additional information related to the potential impact of COVID-19 on our business, please read Part II-Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q. 22 Components of Our Results of Operations Revenue To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the near future. If our development efforts for our product candidates are successful and result in regulatory approval or additional license or collaboration agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from additional collaboration or license agreements that we may enter into with third parties. We expect that our revenue for the next several years will be derived primarily from any collaborations that we may enter into in the future. In June 2015, we entered into a Collaboration Agreement with Seattle Genetics (the “Collaboration Agreement”). Pursuant to the terms of the Collaboration Agreement, we and Seattle Genetics agreed to jointly develop two product candidates incorporating our ACTR platform and Seattle Genetics’ antibodies. Under the Collaboration Agreement, we conduct preclinical research and clinical development activities related to the two specified product candidates through Phase 1 clinical development, and Seattle Genetics provides the funding for those activities. As a result of the Collaboration Agreement with Seattle Genetics, we recognized revenue of $0.3 million and $1.0 million for the three months ended September 30, 2020 and 2019, respectively, and $7.9 million and $7.2 million for the nine months ended September 30, 2020 and 2019, respectively, related to the upfront payment received from Seattle Genetics under our Collaboration Agreement as well as reimbursements of research and development costs. On January 16, 2020, we and Seattle Genetics announced an agreement to terminate the ATTCK-17-01 Phase 1 clinical trial and other research activities under the collaboration. Pursuant to terms of the Termination Agreement, among other things, (i) Seattle Genetics paid us $5.75 million, (ii) Seattle Genetics surrendered, assigned and transferred to us all of its right, title and interest in the 207,961 shares of our common stock owned by Seattle Genetics, (iii) we will continue to be responsible for and pay all expenses for the wind-down of the ACTR-BCMA trial and (iv) Seattle Genetics paid all research and development costs incurred through the Termination Effective Date. In addition, the exclusivity provisions in the Collaboration Agreement terminate and each party will be free to research, develop and commercialize their individual intellectual property (either by themselves or with third parties, subject to the intellectual property rights of the other party. In considering all facts known, including the suspension of the ATTCK-17-01 clinical trial as announced in November 2019 and the expected termination of the Collaboration Agreement in January 2020, as of December 31, 2019, we adjusted the estimated transaction price to be the $25.0 million upfront payment from 2015 and the total payments to be earned for preclinical research and clinical development activities through the Termination Date. During the nine months ended September 30, 2020, we adjusted the transaction price to include the Termination Payment of $5.75 million as well as the aggregate fair value of $0.8 million as of January 16, 2020 of the 207,961 shares of common stock received. All performance obligations have been completed as of September 30, 2020 and all revenue has been recognized under this collaboration agreement. There is no remaining deferred revenue balance as of September 30, 2020. Operating Expenses Research and Development Expenses Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery efforts, and the development of our product candidates, which include: • expenses incurred in connection with the preclinical and clinical development of our product candidates, including under agreements with third parties, such as consultants and contractors and contract research organizations (“CROs”); • the cost of manufacturing drug products for use in our preclinical studies and clinical trials, including under agreements with third parties, such as consultants and contractors and contract manufacturing organizations (“CMOs”); • employee-related expenses, including salaries, related benefits, and stock-based compensation expense for employees engaged in research and development functions; • laboratory supplies and animal care; • facilities, depreciation, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities and insurance; and • payments made under third-party licensing agreements. Our research and development costs include costs for the development of product candidates that were developed Seattle Genetics and for which we have received reimbursement as specified in our Collaboration Agreement. We expense research and development costs as incurred. Advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed. 23 Our direct research and development expenses are tracked on a program-by-program basis and consist of costs, such as fees paid to consultants, contractors, CMOs, and CROs in connection with our preclinical and clinical development activities. We do not allocate employee costs, costs associated with our discovery efforts, laboratory supplies, and facilities, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple product development programs and, as such, are not separately classified. 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. We expect that our research and development expenses will increase substantially in connection with our planned clinical and preclinical development activities in the near term and in the future. At this time, we cannot reasonably estimate or know the nature, timing, and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates. The successful development and commercialization of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the following: • the timing and progress of preclinical and clinical development activities; • the number and scope of preclinical and clinical programs we decide to pursue; • the progress of the development efforts of parties with whom we have entered, or may enter, into collaboration arrangements; • our ability to maintain our current research and development programs and to establish new ones; • our ability to establish new licensing or collaboration arrangements; • the successful completion of clinical trials with safety, tolerability, and efficacy profiles that are satisfactory to the U.S. Food and Drug Administration (“FDA”) or any comparable foreign regulatory authority; • the receipt of regulatory approvals from applicable regulatory authorities; • the success in establishing and operating a manufacturing facility, or securing manufacturing supply through relationships with third parties; • our ability to obtain and maintain patents, trade secret protection, and regulatory exclusivity, both in the United States and internationally; • our ability to protect our rights in our intellectual property portfolio; • the commercialization of our product candidates, if and when approved; • the acceptance of our product candidates, if approved, by patients, the medical community, and third-party payors; • competition with other products; and • a continued acceptable safety profile of our therapies following approval. A change in the outcome of any of these variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any of our product candidates. General and Administrative Expenses General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in executive, finance, and administrative functions. General and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal, patent, consulting, investor and public relations, accounting, and audit services. We anticipate that our general and administrative expenses will increase in the future as of a result of the costs associated with the asset acquisition of PLX9486 as well as the expansion of operations subsequent to the acquisition. Acquired In-process Research and Development (“IPR&D”) We expense acquired IPR&D in connection with an asset acquisition when there is no alternative future use, as determined by Management in accordance with GAAP . 24 Other Income (Expense) Interest Income Interest income consists of interest earned on our cash equivalents and marketable securities balances. Our interest income has not been significant due to low interest earned on invested balances. Other Income Other income consists of sublease and miscellaneous income and expense unrelated to our core operations. Change in fair value of the CVR liability This consists of changes in the fair value of the CVR liability. Income Taxes Since our inception, we have not recorded any current or deferred tax benefit for the net losses we have incurred in each year or for our earned research and development tax credits, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss carryforwards and tax credits will not be realized. Accordingly, a full valuation allowance has been established against the deferred tax assets as of December 31, 2019. We reevaluate the utilization of net operating loss carryforwards and tax credits at each reporting period. As of December 31, 2019, we had U.S. federal and state net operating loss carryforwards of $109.8 million and $110.8 million. Utilization of the U.S. federal and state net operating loss carryforwards and research and development tax credit carryforwards may be subject to annual limitation under Section 382 of the Internal Revenue Code of 1986, and corresponding provisions of state law, due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50% over a three-year period. As a result of the shares issued in July 2020 related to the acquisition of Kiq and the sale of Series A convertible preferred stock, the Company has likely experienced a change of control, as defined by Section 382. If the Company has experienced a change of control, as defined by Section 382, at any time since inception, utilization of the federal and state net operating loss carryforwards or research and development tax credit carryforwards would be subject to annual limitation under Section 382. Under Section 382, the annual limitation is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before utilization. The Company is completing a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception, as well as the resulting amount of the limitation on the Company's net operating loss carryforwards and research and development tax credit carryforwards. As of December 31, 2019, we also had U.S. federal and state research and development tax credit carryforwards of $5.3 million and $1.6 million, respectively, which may be available to offset future income tax liabilities and begin to expire in 2034 and 2030, respectively. As of December 31, 2019, we have Massachusetts investment tax credits of $0.1 million which generally have a 3 year carryover period. 25 Results of Operations Comparison of the three months ended September 30, 2020 and 2019 The following table summarizes our results of operations for the three months ended September 30, 2020 and 2019: Three Months Ended September 30, 2020 2019 Change (in thousands) Collaboration revenue $ 312 $ 1,020 $ (708 ) Operating expenses: Research and development 5,003 10,335 (5,332 ) General and administrative 5,598 2,721 2,877 Acquired in-process research and development 46,910 — 46,910 Total operating expenses 57,511 13,056 44,455 Loss from operations (57,199 ) (12,036 ) (45,163 ) Other income (expense): Interest income 23 31 (8 ) Gain on disposal of long-lived assets 7,463 82 7,381 Other income 239 — 239 Change in fair value of CVR liability (509 ) — (509 ) Total other income (expense), net 7,216 113 7,103 Net loss $ (49,983 ) $ (11,923 ) $ (38,060 ) Collaboration Revenue Collaboration revenue recognized during the three months ended September 30, 2020 and 2019 was $0.3 million and $1.0 million, respectively, this decrease is due to the termination of the Collaboration Agreement with Seattle Genetics. We recognize revenue from the upfront payment we received as well as ongoing reimbursements of research and development costs from Seattle Genetics by applying the costs-to-cost method over the performance period. Collaboration revenue fluctuates based upon our pattern of performance for each performance obligation and changes in estimated transaction price and costs to complete our performance obligations. All performance obligations under the Collaboration Agreement are complete as of September 30, 2020 and all revenue has been recognized under this collaboration agreement. There is no remaining deferred revenue balance as of September 30, 2020. Research and Development Expenses Three Months Ended September 30, 2020 2019 Change (in thousands) Direct research and development expenses: Legacy programs $ (444 ) $ 3,662 $ (4,106 ) PLX9486 794 — $ 794 Unallocated expenses: Personnel related (including stock-based compensation) 3,678 3,980 $ (302 ) Laboratory supplies, facility related and other 975 2,693 (1,718 ) Total research and development expenses $ 5,003 $ 10,335 $ (5,332 ) Research and development expenses decreased by $5.3 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 primarily due to the conclusion of our legacy clinical trials and preclinical efforts and a reduced headcount, related to the restructuring, offset by stock compensation expense charges of $1.4 million based on the acceleration of all outstanding options related to the Kiq acquisition. The three months ended September 30, 2020 includes a change in estimate of $0.8 million which resulted in a cost reversal for amounts associated with our legacy clinical trials. 26 General and Administrative Expenses General and administrative expenses for the three months ended September 30, 2020 were $5.6 million, compared to $2.7 million for the three months ended September 30, 2019. The increase in general and administrative expenses was primarily due to an increase personnel costs of $1.5 million based on the acceleration of all outstanding options related to the Kiq acquisition. Professional and consultant fees and facility and other costs increased $1.4 million as a result of the transactions occurring during the three-months ended September 30, 2020, including increased legal, audit and consulting costs. Acquired In-process Research and Development (“IPR&D”) We expensed acquired IPR&D, with an estimated fair value of $46.9 million, including $2.1 million of associated transaction costs, in connection with the Kiq asset acquisition as there was no alternative future use, as determined by Management in accordance with GAAP . Interest Income Interest income for the three months ended September 30, 2020 and 2019 remained consistent at $0.1 million as a result of lower interest rates on the invested balances in the current year. Gain on disposal of long-lived assets Gain on disposal of long-lived assets, net increased to $7.5 million for the three months ended September 30, 2020 compared to $0.1 million for the three months ended September 30, 2019. The 2020 gain represents the net proceeds of the sale of BOXR Platform assets as well as the proceeds from the sale of other long-lived assets in the three months ended September 30, 2020. The prior year gain is the result of the sale of certain long-live assets. Other income Other income for the three months ended September 30, 2020 represents sublease income recognized resulting from the sublease of a portion of our leased office space to Sotio. No sublease income was recorded for the three months ended September 30, 2019. Change in fair value of CVR liability Change in fair value of CVR liability for the three months ended September 30, 2020 represents the change in the fair value of the CVR liability. Comparison of the nine months ended September 30, 2020 and 2019 The following table summarizes our results of operations for the nine months ended September 30, 2020 and 2019: Nine Months Ended September 30, 2020 2019 Change (in thousands) Collaboration revenue $ 7,871 $ 7,211 $ 660 Operating expenses: Research and development 19,630 33,355 (13,725 ) General and administrative 12,074 8,274 3,800 Acquired in-process research and development 46,910 — 46,910 Total operating expenses 78,614 41,629 36,985 Loss from operations (70,743 ) (34,418 ) (36,325 ) Other income (expense): Interest income 73 206 (133 ) Gain on disposal of long-lived assets 7,470 82 7,388 Other income 239 — 239 Change in fair value of CVR liability (509 ) — (509 ) Total other income (expense), net 7,273 288 6,985 Net loss $ (63,470 ) $ (34,130 ) $ (29,340 ) 27 Collaboration Revenue Collaboration revenue recognized during the nine months ended September 30, 2020 and 2019 was $7.9 million and $7.2 million, respectively, this increase due to the recognition of revenue from payments received from Seattle Genetics under our recently terminated Collaboration Agreement. We recognize revenue from the upfront payment we received as well as ongoing reimbursements of research and development costs from Seattle Genetics by applying the costs-to-cost method over the performance period. Collaboration revenue fluctuates based upon our pattern of performance for each performance obligation and changes in estimated transaction price and costs to complete our performance obligations. On January 16, 2020, Cogent and Seattle Genetics entered into an agreement to terminate the Collaboration Agreement (the “Termination Agreement”) effective as of January 16, 2020 (the “Termination Effective Date”), pursuant to which the parties will cease all research, development, manufacturing and other exploitations of any and all research candidates and development candidates under the Collaboration Agreement, including, without limitation, the development candidate ACTR-BCMA and a research candidate. Pursuant to terms of the Termination Agreement, among other things, (i) Seattle Genetics paid Cogent $5.75 million and (ii) Seattle Genetics surrendered, assigned and transferred to Cogent all of its right, title and interest in the 207,961 shares of Cogent’s common stock owned by Seattle Genetics. We adjusted the estimated transaction price to be the $25.0 million upfront payment from 2015 and the total payments to be earned for preclinical research and clinical development activities through the Termination Date. During the nine months ended September 30, 2020, we adjusted the transaction price to include the Termination Payment of $5.75 million as well as the aggregate fair value of $0.8 million as of January 16, 2020 of the 207,961 shares of common stock received. We also adjusted the costs to complete the remaining performance obligations to represent our best estimate as of September 30, 2020. Revenue during the nine months ended September 30, 2020 includes the termination payments previously discussed. All performance obligations have been completed as of September 30, 2020 and all revenue has been recognized under this collaboration agreement. There is no remaining deferred revenue balance as of September 30, 2020. Research and Development Expenses Nine Months Ended September 30, 2020 2019 Change (in thousands) Direct research and development expenses: Legacy programs $ 3,808 $ 12,937 $ (9,129 ) PLX9486 794 — $ 794 Unallocated expenses: Personnel related (including stock-based compensation) 10,215 11,582 $ (1,367 ) Laboratory supplies, facility related and other 4,813 8,836 (4,023 ) Total research and development expenses $ 19,630 $ 33,355 $ (13,725 ) Research and development expenses decreased by $13.7 million for the nine months ended September 30, 2020 compared to nine months ended September 30, 2019 primarily due to the conclusion of our legacy clinical trials and preclinical efforts and a reduced headcount, related to the restructuring, offset by stock compensation expense charges of $1.4 million based on the acceleration of all outstanding options related to the Kiq acquisition. The nine months ended September 30, 2020 includes a change in estimate of $0.8 million which resulted in a cost reversal for amounts associated with our legacy clinical trials. General and Administrative Expenses General and administrative expenses for the nine months ended September 30, 2020 were $12.1 million, compared to $8.3 million for the nine months ended September 30, 2019. The increase in general and administrative expenses was primarily due to increased personnel costs of $2.8 million, which includes stock compensation expense charges of $1.4 million based on the acceleration of all outstanding options related to the Kiq acquisition. Professional and consultant fees and facility and other costs of have increased $1.0 million as a result of the significant transactions occurring during the nine-months ended September 30, 2020, including increased legal, audit and consulting costs . Acquired In-process Research and Development (“IPR&D”) 28 We expensed acquired IPR&D, with an estimated fair value of $46.9 million, including $2.1 million of associated transaction costs, in connection with the Kiq asset acquisition as there was no alternative future use, as determined by Management in accordance with GAAP . Interest Income Interest income for the nine months ended September 30, 2020 and 2019 was $0.1 million and $0.2 million, respectively. Interest income decreased due to lower invested balances in the current year compared to the prior period. Gain on disposal of long-lived assets Gain on disposal of long-lived assets, net increased to $7.5 million for the nine months ended September 30, 2020 compared to $0.1 million for the nine months ended September 30, 2019. The 2020 gain represents the net proceeds of the sale of BOXR Platform assets as well as the proceeds from the sale of other long-lived assets in the nine months ended September 30, 2020. The prior year gain is the result of the sale of certain long-live assets. Other income Other income for the nine months ended September 30, 2020 represents sublease income recognized resulting from the sublease of a portion of our leased office space to Sotio. No sublease income was recorded for the nine months ended September 30, 2019. Change in fair value of CVR liability Change in fair value of CVR liability for the nine months ended September 30, 2020 represents the change in the fair value of the CVR liability. Liquidity and Capital Resources The COVID-19 outbreak created various impacts to our financials as a result of taking necessary precautions for essential personnel to operate safely both in person as well as remotely. Costs incurred include items like incremental payroll costs, consulting support, IT infrastructure and facilities related costs. The estimated impact of COVID-19 for the year is currently unknown. The final impact may vary based on the duration of the current social and economic conditions. We do not currently believe the accumulated costs will present a material impact to our financial liquidity or position. The extent to which the COVID-19 pandemic continues it may materially impact our financial condition, liquidity or results of operations in the future. Since our inception, we have incurred significant operating losses. We have generated limited revenue to date from funding arrangements with our collaboration partner. We have not yet commercialized any of our product candidates and we do not expect to generate revenue from sales of any product candidates for several years, if at all. We have historically funded our operations primarily through the public offering and private placement of our securities and consideration received from our collaborative agreements. On March 19, 2020, we entered into a Purchase Agreement with LPC, pursuant to which we may elect to sell to LPC up to $25,000,000 in shares of our Common Stock, subject to certain limitations and conditions set forth in the Purchase Agreement. Pursuant to the Purchase Agreement, we issued 181,595 shares of Common Stock to LPC as a commitment fee. As of September 30, 2020, 1,061,583 shares have been sold under this Purchase Agreement for proceeds of $10.7 million. 29 On July 9, 2020, we completed a PIPE and issued 118,638 Series A Preferred Stock to new and existing investors in exchange gross proceeds of $1 04.4 million , or net proceeds of $98.9 million , after deducting commissions and estimated offering costs . As of September 30, 2020, we had cash and cash equivalents of $129.4 million, which will be sufficient to fund out operating expenses and capital expenditure requirements into 2023. Cash Flows The following table summarizes our sources and uses of cash for each of the periods presented: Nine Months Ended September 30, 2020 2019 (in thousands) Cash used in operating activities $ (26,484 ) $ (33,069 ) Cash provided by investing activities 8,420 23,172 Cash provided by financing activities 110,060 108 Net (decrease) increase in cash, cash equivalents and restricted cash $ 91,996 $ (9,789 ) Operating Activities During the nine months ended September 30, 2020, operating activities used $26.5 million of cash, primarily resulting from our net loss of $63.5 million and net cash used by changes in our operating assets and liabilities of $5.9 million, partially offset by net non-cash charges of $42.9 million. Net cash used by changes in our operating assets and liabilities for the nine months ended September 30, 2020 consisted primarily of a $4.1 million decrease in accounts payable and accrued expenses and other current liabilities, a $1.3 million decrease in deferred revenue, a $0.4 million decrease in operating lease liabilities, and a $2.8 million increase in prepaid expenses and other current assets, partially offset by $2.0 million decrease in accounts receivable, a $0.2 million decrease in the right-of-use asset and a $0.4 million decrease in other assets. During the nine months ended September 30, 2019, operating activities used $33.1 million of cash, primarily resulting from our net loss of $34.1 million and from net cash used by changes in our operating assets and liabilities of $2.2 million, partially offset by net non-cash charges of $3.2 million. Net cash used by changes in our operating assets and liabilities for the nine months ended September 30, 2019 consisted primarily of a $3.2 million decrease in deferred revenue and a $0.9 million decrease in prepaid expenses and other current assets and other assets, partially offset by a $0.8 million increase in accounts receivable and a $1.2 million increase in accounts payable and accrued expenses and other current liabilities. Investing Activities During the nine months ended September 30, 2020, net cash provided by investing activities of $8.4 million consisted of $8.1 million in proceeds from the disposal of BOXR assets as well as $0.3 million in proceeds from the sale of other property and equipment. During the nine months ended September 30, 2019, net cash provided by investing activities of $23.2 million consisted of maturities and sales of marketable securities of $23.0 million and $0.2 million in proceeds from the sale of property and equipment offset by purchases of property and equipment of less than $0.1 million. Financing Activities During the nine months ended September 30, 2020, net used in financing activities was $110.1 million which consisted of the proceeds from the issuance of Series A non-voting preferred stock and common stock, from the issuance common stock upon stock option exercises and from the issuance of common stock under the Employee Stock Purchase Plan. During the nine months ended September 30, 2019, net cash provided by financing activities was $0.1 million from the proceeds from the issuance of common stock upon stock option exercises. 30 Funding Requirements We expect our expenses to increase in connection with our ongoing activities, particularly as we advance clinical development of our product candidates, preclinical activities, and wind-down our legacy clinical trials. The timing and amount of our operating expenditures will depend largely on: • the initiation, progress, timing, and completion of preclinical studies and clinical trials for our current and future potential product candidates, including the impact of COVID-19 on our ongoing and planned research and development efforts; • any delay in our regulatory filings for our product candidates and any adverse development or perceived adverse development with respect to the applicable regulatory authority’s review of such filings, including without limitation the FDA’s issuance of a “refusal to file” letter or a request for additional information; • adverse results or delays in clinical trials; • our decision to initiate a clinical trial, not to initiate a clinical trial, or to terminate an existing clinical trial; • adverse regulatory decisions, including failure to receive regulatory approval of our product candidates; • changes in laws or regulations applicable to our products, including but not limited to clinical trial requirements for approvals; • adverse developments concerning our manufacturers; • our inability to obtain adequate product supply for any approved product or inability to do so at acceptable prices; • our inability to establish collaborations if needed; • our failure to commercialize our product candidates; • additions or departures of key scientific or management personnel; and • unanticipated serious safety concerns related to the use of our product candidates. • the impact of COVID-19 on the operations of key governmental agencies, such as the FDA, which may delay the development of our current product candidates or any future product candidates; As of September 30, 2020, we had cash and cash equivalents of $129.4 million. We expect that our current cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements into 2023. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. There is no assurance that we will be successful in obtaining benefits from cost saving measures implemented or planned or in obtaining additional financing on terms acceptable to us, if at all, nor is it considered probable under the accounting standards. As such, under the requirements of ASC 205-40, management may not consider the potential for future capital raises or management plans to reduce costs that are not considered probable in their assessment of our ability to meet our obligations. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances, and marketing, distribution, or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures, or declaring dividends. If we raise additional funds through collaborations, strategic alliances, or marketing, distribution, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce, or terminate our research, product development, or future commercialization efforts, or grant rights to develop and market drug candidates that we would otherwise prefer to develop and market ourselves. 31 Critical Accounting Policies and Significant Judgments and Estimates Our condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our condensed consolidated financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. We believe that of our critical accounting policies described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Significant Judgments and Estimates” in our Annual Report on Form 10-K, the following involve the most judgment and complexity: • revenue recognition of collaboration agreements; • accrued research and development expenses; and • stock-based compensation. Accordingly, we believe the policies set forth above are critical to fully understanding and evaluating our financial condition and results of operations. If actual results or events differ materially from the estimates, judgments and assumptions used by us in applying these policies, our reported financial condition and results of operations could be materially affected. Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC. Recently Issued Accounting Pronouncements A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report. Emerging Growth Company Status The Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have irrevocably elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies. 32 Item 3. Quantitative and Qualitati ve Disclosures about Market Risk. We are a smaller reporting company, as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended, for this reporting period and are not required to provide the information required under this item.