What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-28 compared with 2022-03-10 · 96 added, 161 removed, 588 unchanged (30% of the section changed)

32 unchanged sentences

As discussed in Note 1 to the consolidated financial statements, the Company will require additional financing to fund future operations.

Management’s plans in regard to this matter are described in Note 1.

Management’s plans in regard to this matter are also described in Note 1.

Critical Audit Matters

49 unchanged sentences

290,000,000 shares authorized at December 31, 2022 and December 31, 2021;

46,553,511 and 28,372,634 shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively

46,553,511 shares issued and outstanding at December 31, 2022 and December 31, 2021

Additional paid-in capital

14 unchanged sentences

Interest income and other expense, net

Gain from sale of property and equipment

Gain on deconsolidation of Angel Pharmaceuticals

4 unchanged sentences

Other comprehensive loss:

Unrealized gain (loss) on marketable securities

Unrealized loss on marketable securities

Cumulative foreign currency translation adjustment

8 unchanged sentences

Balance at December 31, 2019

Retirement of common stock in exchange for common stock warrant

( 1,458,000 )

Issuance of common stock warrant in exchange for retirement of common stock

Common stock issued on exercise of stock options

Vesting of restricted stock issued upon early exercise of stock options

Stock-based compensation expense

Unrealized gain on marketable securities

Balance at December 31, 2019

Issuance of common stock in connection with at-the-market offering, net

11 unchanged sentences

Balance at December 31, 2021

Stock-based compensation expense

Unrealized loss on marketable securities

Foreign currency translation adjustment

Balance at December 31, 2022

The accompanying notes are an integral part of these consolidated financial statements.

8 unchanged sentences

Stock-based compensation

Gain from sale of property and equipment

Gain on deconsolidation of Angel Pharmaceuticals

13 unchanged sentences

Purchases of property and equipment

Net cash provided by investing activities

Proceeds from sale of property and equipment

Net cash (used in) provided by investing activities

Cash flows from financing activities

3 unchanged sentences

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of the period

11 unchanged sentences

and Corvus Hong Kong Limited.

All significant intercompany accounts and transactions have been eliminated from the consolidated financial statements.

All intercompany accounts and transactions have been eliminated from the consolidated financial statements.

Initial Public Offering

12 unchanged sentences

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, protection of proprietary technology, dependence on key personnel, contract manufacturer and contract research organizations, compliance with government regulations and the need to obtain additional financing to fund operations.

Since commencing operations in 2014, the majority of the Company’s efforts have been focused on the research and development of mupadolimab (formerly CPI-006), CPI-818 and ciforadenant.

The Company believes that it will continue to expend substantial resources for the foreseeable future as it continues clinical development of, seek regulatory approval for and, if approved, prepare for the commercialization of mupadolimab, CPI-818 and ciforadenant, as well as product candidates under the Company’s other development programs.

These expenditures will include costs associated with research and development, conducting preclinical studies and clinical trials, obtaining regulatory

approvals, manufacturing and supply, sales and marketing and general operations.

Since commencing operations in 2014, the majority of the Company’s efforts have been focused on the research and development of CPI-818, ciforadenant and mupadolimab.

The Company believes that it will continue to expend substantial resources for the foreseeable future as it continues clinical development of, seek regulatory approval for and, if approved, prepare for the commercialization of CPI-818, ciforadenant and mupadolimab, as well as product candidates under the Company’s other development programs.

These expenditures will include costs associated with research and development, conducting preclinical studies and clinical trials, obtaining regulatory approvals, manufacturing and

supply, sales and marketing and general operations.

In addition, other unanticipated costs may arise.

Because the outcome of any clinical trial and/or regulatory approval process is highly uncertain, the Company may not be able to accurately estimate the actual amounts necessary to successfully complete the development, regulatory approval process and commercialization of mupadolimab, CPI-818, and ciforadenant or any other product candidates.

The Company does not expect its existing capital resources to be sufficient to enable it to fund the completion of its clinical trials and remaining development program of mupadolimab, CPI-818 and ciforadenant through commercialization.

Because the outcome of any clinical trial and/or regulatory approval process is highly uncertain, the Company may not be able to accurately estimate the actual amounts necessary to successfully complete the development, regulatory approval process and commercialization of CPI-818, ciforadenant and mupadolimab, or any other product candidates.

The Company does not expect its existing capital resources to be sufficient to enable it to fund the completion of its clinical trials and remaining development program of CPI-818, ciforadenant and mupadolimab through commercialization.

In addition, its operating plan may change as a result of many factors.

6 unchanged sentences

The current COVID-19 (coronavirus) pandemic, which is impacting worldwide economic activity, poses risks that the Company or its employees, contractors, suppliers, and other partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities.

The extent to which COVID-19 impacts the Company’s business, including its clinical trials and financial condition, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the impact of variants of the COVID-19 virus, the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.

The extent to which COVID-19 impacts the Company’s business, including its clinical trials and financial condition, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the spread of the disease, the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.

As COVID-19 continues to spread around the globe, including the spread of more contagious and virulent variants, we will likely experience disruptions, including delays or difficulties in enrolling patients in our clinical trials, delays or difficulties in clinical site initiation, interruption of key clinical trial activities, delays in clinical sites receiving the supplies and materials needed to conduct our clinical trials and delays in necessary interactions with local regulatory authorities.

5 unchanged sentences

The Exchange Warrants were classified as equity in accordance with Accounting Standards Codification Topic 480, Distinguishing Liabilities from Equity, and Accounting Standards Codification Topic 815, Derivatives and Hedging, and the fair value of the Exchange Warrants was recorded as a credit to additional paid-in capital and is not subject to remeasurement.

The Company determined that the fair value of the Exchange Warrants was substantially

similar to the fair value of the retired shares on the issuance date due to the negligible exercise price for the Exchange Warrants.

During the year ended December 31, 2021, the Exchange Warrants were fully exercised, resulting in the issuance of 1,457,947 shares of common stock on a net exercise basis.

The Company determined that the fair value of the Exchange Warrants was substantially similar to the fair value of the retired shares on the issuance date due to the negligible exercise price for the Exchange

In September 2021, the Exchange Warrants were fully exercised, resulting in the issuance of 1,457,947 shares of common stock on a net exercise basis.

Summary of Significant Accounting Policies

13 unchanged sentences

Actual results could differ from such estimates.

Foreign Currency Translation

Angel Pharmaceuticals Co., Ltd.’s (“Angel Pharmaceuticals”) functional currency is the Chinese renminbi (RMB).

Angel Pharmaceuticals’ consolidated financial statements are reported in RMB.

Financial information is translated from RMB to the U.S.

dollar (the reporting currency) for inclusion in our consolidated financial statements.

Income, expenses and cash flows are translated at average exchange rates prevailing during the fiscal period, assets and liabilities are translated at fiscal period-end exchange rates, and stockholders’ equity is held at historical rates.

Resulting translation adjustments are included as a component of accumulated other comprehensive income in stockholders' equity.

Out of Period Adjustment

In the three months ended June 30, 2021, the Company recorded a cumulative translation adjustment that affected the Company’s balance sheet at June 30, 2021 by increasing its investment in Angel Pharmaceuticals and accumulated other comprehensive income in the equity section of the balance sheet by $ 1.4 million.

$ 0.9 million of this amount was an out of period adjustment related to the year ended December 31, 2020.

The impact of the out of period adjustment in the quarter ended March 31, 2021 was to reduce the Company’s investment in Angel Pharmaceuticals and other comprehensive income by $ 83,000 .

The Company has concluded that the out of period adjustment is not material to the consolidated financial statements for the fiscal year ended December 31, 2020 or the interim financial statements for the quarter ended March 31, 2021.

Concentrations of Credit Risk and Other Risks and Uncertainties

10 unchanged sentences

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance.

The Company views its operations and manages its business in one operating segment, that of the development of and commercialization of precisely targeted oncology therapies.

The Company views its operations and manages its business in one operating segment, that of the development of and commercialization of drugs and antibodies that target critical elements of the immune system.

Cash, Cash Equivalents and Marketable Securities

7 unchanged sentences

Investments in Equity Securities

Investments in equity securities over which the Company is able to exercise significant influence over the investee, but does not control the investee, and is not the primary beneficiary of the investee’s activities that are considered Variable Interest Entities (“VIEs”) are accounted for using the equity method.

Adjustments are made to investments accounted for using the equity method for any earnings or losses incurred and are recorded in loss from operations.

Investments in equity securities which do not have readily determinable fair values and for which the Company is not able to exercise significant influence over the investee are accounted for under the measurement alternative which is the cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar securities of the same investee and adjustments related to the basis differences, if any.

The Company uses the equity method of accounting for its equity investment if the investment provides the ability to exercise significant influence, but not control, over operating and financial policies of the investee.

The Company’s proportionate share of the net income (loss) resulting from the equity method investment is reported under the line item captioned “loss from equity method investment” in the Consolidated Statements of Operations and Comprehensive Loss and the carrying value of the equity method investments is reported under the line captioned “Investment in Angel” in the Consolidated Balance Sheets.

The Company’s equity method investments are reported at cost and adjusted each period for the Company’s share of the investee’s income or loss and the foreign currency translation adjustment as applicable.

For equity method investees with a functional currency different than the Company’s reporting currency, the Company follows the guidance under ASC 830-10-15-5, pursuant to which, the foreign currency financial statements of a foreign investee accounted for by the equity method should be translated to the reporting entity's reporting currency.

The Company evaluates equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable.

Factors considered by the Company when reviewing an equity method investment for impairment include the length of time (duration) and the extent (severity) to which the fair value of the equity method investment has been less than cost, the investee’s financial condition and near-term prospects and the intent and ability to hold the investment for a period of time sufficient to allow for anticipated recovery.

An impairment that is other-than-temporary is recognized in the period identified.

See Note 5 Equity Method Investment, for further information.

Property and Equipment, Net

8 unchanged sentences

The Company regularly reviews the carrying value and estimated lives of all of its long-lived assets, including property and equipment, to determine whether indicators of impairment may exist which warrant adjustments to carrying values or estimated useful lives.

The determinants used for this evaluation include management’s estimate of the asset’s ability to generate positive income from operations and positive cash flow in future periods as well as the strategic significance of the assets to the Company’s business objectives.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to future undiscounted net cash flows expected to be generated by the asset or asset group.

Should impairment exist, the impairment loss to be recognized is measured by the amount by which the carrying amount of the asset exceeds the projected discounted future net cash flows arising from the asset.

All long-lived assets are maintained in the United States of America.

Research and Development Expenses

The Company records research and development expenses as incurred.

The Company accounts for nonrefundable advance payments for goods and services that will be used in future research and development activities as expenses when the goods have been received or when the service has been performed rather than when the payment is made.

Research and development expenses consist of costs incurred by the Company for the discovery and development of the Company’s product candidates and include:

● employee-related expenses, including salaries, benefits, travel and non-cash stock-based compensation expense;

● external research and development expenses incurred under arrangements with third parties, such as contract research organizations, contract manufacturing organizations, academic and non-profit institutions and consultants;

● costs to acquire technologies to be used in research and development that have not reached technological feasibility and have no alternative future use;

● license fees;

● other expenses, which include direct and allocated expenses for laboratory, facilities and other costs.

Clinical Trial Accruals

20 unchanged sentences

The Company applies judgment in the determination of the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

Based on the available evidence, the Company is unable, at this time, to support the determination that it is more likely than not that its deferred tax assets will be utilized in the future.

Based on the available evidence, the

Company is unable, at this time, to support the determination that it is more likely than not that its deferred tax assets will be utilized in the future.

Accordingly, the Company recorded a full valuation allowance for all periods presented.

The Company intends to maintain a valuation allowance until sufficient evidence exists to support its reversal.

The Company recognizes benefits of uncertain tax positions if it is more likely than not such positions will be sustained upon examination based solely on their technical merits as the largest amount of benefit that is more likely

than not to be realized upon the ultimate settlement.

The Company recognizes any material interest and penalties related to unrecognized tax benefits in income tax expense.

4 unchanged sentences

Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders.

The Company’s only element of other comprehensive loss in any period presented was unrealized gains and losses on available-for-sale marketable securities.

The Company’s elements of other comprehensive loss in any period presented were unrealized gains and losses on available-for-sale marketable securities and cumulative foreign currency translation adjustments.

Net Loss per Share

5 unchanged sentences

In December 2019, the FASB issued ASU No.

2019-12, "Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes", which is intended to improve consistency and simplify several areas of existing guidance.

ASU 2019-12 removes certain exceptions to the general principles related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

This new standard became effective for the Company for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

Early adoption is permitted.

The Company adopted this standard effective January 1, 2021.

Adoption of this standard in the first quarter of fiscal year 2021 did not have a material impact on the Company’s consolidated financial statements.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.

ASU 2019-12 simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

ASU 2019-12 is effective in 2021 and interim periods within that year and permits for an early adoption.

The Company adopted ASU 2019-12 effective January 1, 2021.

The adoption of the guidance did not have a material impact on its financial statements and related disclosures.

Net Loss per Share

2 unchanged sentences

Net loss - basic and diluted

Weighted average common shares outstanding

weighted average common shares subject to repurchase

Weighted average common shares outstanding used to compute basic and diluted net loss per share

25 unchanged sentences

Marketable securities

As of December 31, 2021, marketable securities had a maximum remaining maturity of eleven months .

As of December 31, 2022, marketable securities had a maximum remaining maturity of twelve months .

As of December 31, 2022 and 2021, the fair value of available for sale marketable securities by type of security were as follows (in thousands):

7 unchanged sentences

In August 2020, the Company established Angel Pharmaceuticals Co.

(“Angel”), a wholly-owned corporate venture in the People’s Republic of China (“China”) designed to develop, manufacture, and commercialize CPI-006, CPI-444, and CPI-818 compounds for distribution within the countries of China, Taiwan, Macao, and Hong Kong (collectively, the “Territories”) based on intellectual property licenses to be contributed to Angel by the Company.

(“Angel”), a wholly-owned corporate venture in the People’s Republic of China (“China”) designed to develop, manufacture, and commercialize CPI-818, ciforadenant and mupadolimab compounds for distribution within the countries of China, Taiwan, Macao, and Hong Kong (collectively, the “Territories”) based on intellectual property licenses to be contributed to Angel by the Company.

In October 2020, Angel raised financing from third-party investors, the licenses were entered into and the Company’s ownership interest was reduced to 53.2 %.

1 unchanged sentence

Angel is not required to make any payments to the Company regarding the licensed compounds or the additional services outlined in the agreement.

After a 7 year Exclusive Grant Back Period, Angel license grants to the company for sole or jointly owned IP will be non-exclusive, fully paid and sublicensable.

During the Exclusive Grant Back Period, Angel license grants to the company for sole and joint IP are exclusive, fully paid and sublicensable.

Pursuant to the terms of the agreement, during the Exclusive Grant Back Period, Angel grants to Corvus an exclusive, fully paid-up and sublicensable license for sole and jointly owned IP.

After the 7 year Exclusive Grant Back Period, the licenses for sole and jointly owned IP that Angel grants to the company will be non-exclusive, fully paid, and sublicensable.

As a result of the financing, the Company reassessed its interest in Angel and determined that while Angel is a VIE, the Company is not considered the primary beneficiary of such VIE since Corvus does not have the power, through voting or similar rights and the license agreements, to direct the activities of Angel that most significantly impact Angel’s economic performance.

2 unchanged sentences

As of December 31, 2022, the Company’s ownership interest in Angel was approximately 49.7 %, excluding 7 % of Angel’s equity reserved for issuance under the Angel ESOP.

The Company recognized its share of losses in Angel for the total amount of $4.8 million and $ 0.2 million as loss from equity method investment on the consolidated statement of operations for the years ended December 31, 2021 and 2020, respectively.

The Company recognized its share of losses in Angel for the total amount of $ 10.0 million, $ 4.8 million and $ 0.2 million as loss from equity method investment on the consolidated statement of operations for the years ended December 31, 2022, 2021 and 2020, respectively.

Since inception through December 31, 2022, Angel has not recorded any revenue.

Summary Financial Information

Summary financial information for Angel Pharmaceuticals is as follows:

Balance Sheet Data (unaudited)

Balance Sheet Data

December 31, 2022

6 unchanged sentences

Stockholders' equity

Statement of Operations Data (unaudited)

Year Ended December 31,

Statement of Operations Data

(in thousands)

15 unchanged sentences

The Company’s license agreement with Scripps will terminate upon expiration of its obligation to pay royalties to Scripps under the license agreement.

The Company’s license agreement with Scripps is terminable by the consent of the parties, at will by the Company upon providing 90 days written notice to Scripps, or by Scripps for certain material

breaches, or if the Company undergoes a bankruptcy event.

In addition, Scripps may terminate the license on a product-by-product basis, or the entire agreement, if the Company fails to meet specified diligence obligations related to the development and commercialization of licensed products.

The Company’s license agreement with Scripps is terminable by the consent of the parties, at will by the Company upon providing 90 days written notice to Scripps, or by Scripps for certain material breaches, or if the Company undergoes a bankruptcy event.

In addition, Scripps may terminate the license on a product-by-product basis, or the entire agreement, if the Company fails to meet specified diligence obligations related to

the development and commercialization of licensed products.

Scripps may also terminate the agreement after the third anniversary of the effective date of the agreement if it reasonably believes, based on reports the Company provides to Scripps, that the Company has not used commercially reasonable efforts as required under the agreement, subject to a specified notice and cure period.

4 unchanged sentences

In February 2017, the Company made a milestone payment of $ 3.0 million to Vernalis following the expansion of a cohort of patients with renal cell cancer treated with single agent ciforadenant in the Company’s Phase 1/1b clinical trial.

The aggregate potential milestone payments are approximately $ 220 million for all The Company has also agreed to pay Vernalis tiered incremental royalties based on the annual net sales of licensed products containing ciforadenant on a product-by-product and country-by-country basis, subject to certain offsets and reductions.

During the year ended December 31, 2022, no clinical or regulatory milestones were completed or paid to Vernalis and the aggregate potential milestone payments were approximately $ 220 million for all indications as of December 31, 2022.

The Company has also agreed to pay Vernalis tiered incremental royalties based on the annual net sales of licensed products containing ciforadenant on a product-by-product and country-by-country basis, subject to certain offsets and reductions.

The tiered royalty rates for products containing ciforadenant range from the mid-single digits up to the low-double digits on a country-by-country net sales basis.

5 unchanged sentences

Vernalis may also terminate the agreement if the Company challenges a licensed patent or undergoes a bankruptcy event.

Genentech Collaboration Agreement

In October 2015, the Company entered into a clinical trial collaboration agreement with Genentech to evaluate the safety, tolerability and preliminary efficacy of ciforadenant combined with Genentech’s investigational cancer immunotherapy, Tecentriq, a fully humanized monoclonal antibody targeting PD-L1, in a variety of solid tumors in our Phase 1/1b clinical trial.

Pursuant to this agreement, the Company will be responsible for the conduct and cost of the relevant studies, under the supervision of a joint development committee made up of the Company’s representatives and representatives of Genentech.

Genentech will supply Tecentriq.

At this time, no further patients are being enrolled in this trial.

As part of the agreement, the Company granted Genentech certain rights of first negotiation to participate in future clinical trials that the Company may conduct evaluating the administration of ciforadenant in combination with an anti-PD-1 or anti-PD-L1 antibody.

If both parties do not reach agreement on the terms of any such participation by Genentech within a specified time period, the Company retains the right to collaborate with third parties in such activities.

The Company also granted Genentech certain rights of first negotiation should the Company decide to license development and commercialization rights to ciforadenant.

Should both parties not reach agreement on the terms of such a license within a specified time of period, the Company retains the right to enter into a license with another third party.

This agreement will expire after a set period of time following the provision by the Company of the final clinical study report to Genentech, which has not yet been finalized.

In May 2017, the Company entered into a second clinical trial collaboration agreement with Genentech.

Under the new agreement, ciforadenant administered in combination with Tecentriq will be evaluated in a Phase 1b/2 randomized, controlled clinical study as second-line therapy in patients with NSCLC who are resistant and/or refractory to prior therapy with an anti-PD-(L)1 antibody.

This study has completed patient enrollment of 16 patients.

Genentech was responsible for the conduct of the study and the Company will share the cost of the Phase 1b/2 trial, which began enrolling patients in the fourth quarter of 2017.

The Company is responsible for supplying ciforadenant and retains global development and commercialization rights to ciforadenant.

This agreement will expire after a set period of time following the provision by Genentech of a final study report to the Company.

Monash License Agreement

1 unchanged sentence

Upon execution of the agreement, the Company made a one-time cash payment to Monash of $ 275,000 and reimbursed Monash for certain patent prosecution costs incurred prior to execution of the agreement.

The Company recorded these payments as research and development expenses for the year ended December 31, 2017.

The Company is also obligated to pay an annual license maintenance fee to Monash of $ 25,000 until a certain development milestone is met with respect to the licensed product, after which no further maintenance fee will be due.

The Company is also required to make development and sales milestone payments to Monash with respect to the licensed products in the aggregate of up to $ 45.1 million.

The Company is also required to make development and sales milestone payments to Monash with respect to the licensed products.

During the year ended December 31, 2022, no development or sales milestones were completed or paid to Monash and the aggregate potential milestones were $ 45.1 million as of December 31, 2022.

The Company is also required to pay to Monash tiered royalties on net sales of licensed products sold by it, its affiliates and its sublicensees at a rate ranging in the low-single digits.

In addition, should the Company sublicense its rights under the agreement, the Company has agreed to pay a percentage of sublicense revenue received at specified rates that are currently at low double digit percentages and decrease to single digit percentages based on the achievement of development milestones.

percentages and decrease to single digit percentages based on the achievement of development milestones.

The term of the Company’s agreement with Monash continues until the expiration of its obligation to pay royalties to Monash thereunder.

The license agreement is terminable at will by the Company upon providing 30 days written notice to Monash, or by either party for material breaches by the other party.

In addition, Monash may terminate the entire agreement or convert the license to a non-exclusive license if the Company has materially breached our obligation to use commercially reasonable efforts to develop and commercialize a licensed product, subject to a specified notice and cure mechanism.

In addition, Monash may terminate the entire agreement or convert the license to a non-exclusive license if the Company has materially breached its obligation to use commercially reasonable efforts to develop and commercialize a licensed product, subject to a specified notice and cure mechanism.

Balance Sheet Components (in thousands):

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Accrued legal and accounting

During the years ended December 31, 2022, 2021, and 2020, the Company recorded $ 0.4 million, $ 0.5 million and $ 0.6 million in depreciation expense, respectively.

As of December 31, 2022, the amended and restated certificate of incorporation authorizes the Company to issue 290 million shares of common stock and 10 million shares of preferred stock.

5 unchanged sentences

The issuance and sale of shares of common stock by the Company pursuant to the Sales Agreements are deemed an “at-the-market” offering under the Securities Act of 1933, as amended.

Jefferies is entitled to compensation for its services equal to up to 3.0 % of the gross proceeds of any shares of common stock sold through Jefferies under the Sales Agreements.

During the year ended December 31, 2021, the Company sold 6,609,605 shares under its at-the-market offering program resulting in net proceeds of $ 29.0 million.

Jefferies is entitled to compensation

for its services equal to up to 3.0 % of the gross proceeds of any shares of common stock sold through Jefferies under the Sales Agreements.

During the year ended December 31, 2022, the Company did not sell any shares of common stock under its at-the-market offering program.

As of December 31, 2022, the Company had sold 6,920,339 shares of common stock for gross proceeds of $ 31.1 million under the 2020 Sales Agreement.

As of December 31, 2022, $ 18.9 million remained for sale under the 2020 Sales Agreement and $ 40.0 million remained for sale under the 2021 Sales Agreement.

22 unchanged sentences

( 1,706,400 )

Options exercised

Options forfeited

1 unchanged sentence

Balance at December 31, 2022

The following tables summarize information about stock options outstanding at December 31, 2021 and 2020:

Options Outstanding

Options Vested

at December 31, 2021

Exercise Price

Life (in Years)

Exercise Price

Life (in Years)

Options Outstanding

Options Vested

at December 31, 2020

Exercise Price

Life (in Years)

Exercise Price

Life (in Years)

The weighted average grant date fair value of options granted for the years ended December 31, 2022, 2021 and 2020, was $ 0.69 , $ 1.93 and $ 2.66 , respectively.

Options outstanding and exercisable that had vested or were expected to vest at December 31, 2021 were as follows:

Options outstanding that had vested or were expected to vest at December 31, 2022 were as follows:

Exercise Price

21 unchanged sentences

Treasury securities with similar maturities as of the date of the grant.

The Company uses an average historical stock price volatility of a peer group of publicly traded companies to be representative of its expected future stock price volatility, as the Company does not have sufficient trading history for its common stock.

The Company uses an average historical stock price volatility of a peer group of publicly traded companies to be representative of its expected future stock price volatility.

For purposes of identifying these peer companies, the Company considers the industry, stage of development, size and financial leverage of potential comparable companies.

For each grant, the Company measures historical volatility over a period equivalent to the expected term.

For each grant, the Company measures historical volatility over a period equivalent to the

expected term.

The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.

15 unchanged sentences

FIN48 Reserve

Deconsolidation gain

Investment in Angel

Gain on transfer of intellectual property

2 unchanged sentences

The effective tax rate is different from the federal statutory tax rate primarily due to a foreign rate differential and a valuation allowance against deferred tax assets as a result of the Company’s history of losses.

The significant components of the Company’s net deferred tax assets are as follows (in thousands)

The principal components of the Company’s net deferred tax assets are as follows (in thousands)

Deferred tax assets

4 unchanged sentences

Operating lease liability

IRC 174 capitalization

Total deferred tax assets

4 unchanged sentences

The Company recorded a valuation allowance against its deferred tax assets at December 31, 2022 and 2021 because Company management believed that it was more likely than not that these assets would not be fully realized in the future.

The valuation allowance increased by approximately $ 11.4 million and $ 1.5 million for the years ended

December 31, 2021 and 2020, respectively.

The valuation allowance increased by approximately $ 9.2 million and $ 11.4 million for the years ended December 31, 2022 and 2021, respectively.

Changes in the valuation allowance for deferred tax assets relate primarily to the increase in the Company’s net operating loss carryforward.

1 unchanged sentence

The NOLs will begin to expire in 2034, if not utilized.

As of December 31, 2022, the amount of federal NOL carryforwards that does not expire, is $ 155.3 million.

Utilization of the net operating loss carryforwards are subject to various limitations due to the ownership change limitations provided by Internal Revenue Code (IRC) Section 382 and similar state provisions.

On March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, an economic stimulus package in response to the COVID-19 global pandemic and the Families First Coronavirus Response Act, or FFCR Act, which permits employees of certain organizations paid sick time stemming from COVID-19-related issues.

The CARES Act contains several corporate income tax provisions, including making remaining alternative minimum tax credits immediately refundable;

providing a 5-year carryback of NOLs generated in tax years 2018, 2019, and 2020, and removing the 80% taxable income limitation on utilization of those NOLs if carried back to prior tax years or utilized in tax years beginning before 2021;

temporarily liberalizing the interest deductibility rules under Section 163(j) of the CARES Act, by raising the adjusted taxable income limitation from 30% to 50% for tax years 2019 and 2020 and giving taxpayers the election of using 2019 adjusted taxable income for purposes of computing 2020 interest deductibility.

The CARES Act did not have a material impact on the Company’s tax provision for the years ended December 31, 2020 or 2021.

The Consolidated Appropriations Act, 2021, which was enacted on December 27, 2020, has expanded, extended, and clarified selected CARES Act provisions, specifically on Paycheck Protection Program loans and Employee Retention Tax Credits, 100% deductibility of business meals as well as other tax extenders.

The Consolidated Appropriations Act did not have a material impact on the Company’s tax provision for the years ended December 31, 2020 or 2021.

On June 29, 2020, Assembly Bill 85 (“A.B.

85”) was signed into California law.

85 provides for a three-year suspension of the use of net operating losses for medium and large businesses and a three-year cap on the use of business incentive tax credits to offset no more than $5.0 million of tax per year.

85 suspends the use of net operating losses for taxable years 2020, 2021 and 2022 for certain taxpayers with taxable income of $1.0 million or more.

The carryover period for any net operating losses that are suspended under this provision will be extended.

85 also requires that business incentive tax credits including carryovers may not reduce the applicable tax by more than $5.0 million for taxable years 2020, 2021 and 2022.

The Company does not expect the impact of this standard on its consolidated financial statements to be material.

California Senate Bill 113 (SB 113), was signed into law by Governor Newsom on February 9, 2022.

The legislation contains important California tax law changes, including reinstatement of business tax credits and net NOL deductions limited by AB 85 mentioned above.

The new tax law should be accounted for under ASC 740 in the period of enactment (2022) but is not expected to have a material impact on the Company’s tax provision due to its taxable loss position.

As of December 31, 2022, the Company also had $ 8.6 million of federal and $ 4.7 million of state research and development tax credit carryforwards available to reduce future income taxes.

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The state research and development tax credits have no expiration date.

In December 2017, the Tax Cuts and Jobs Act (TCJA) was signed into law, significantly reforming the Internal Revenue Code of 1986, as amended (IRC).

The TCJA contained certain provisions that went into effect on January 1, 2022, including a provision impacting Section 174 of the IRC whereby for tax years beginning on or after January 1, 2022, taxpayers are required to capitalize and amortize, rather than deduct, research and development (R&D) expenses.

The R&D expenses under Section 174 must be amortized over five years for research performed in the U.S.

and 15 years for research performed outside the U.S.

The mandatory capitalization requirement did not impact the Company’s net deferred tax assets and 2022 cash tax liabilities.

The Company will continue to monitor the effect of these provisions and is in the process of analyzing the potential impact to its income taxes and financial position in future years.

income and foreign withholding taxes have not been recognized on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that are essentially permanent in duration.

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Sublease income is recognized on a straight-line basis as other income in our consolidated statements of operations.

For the year ended December 31, 2021, the Company recognized $ 0.2 million of sublease income.

For the years ended December 31, 2022 and 2021, the Company recognized $ 0.6 million and $ 0.2 million of sublease income, respectively.

Commitments and Contingencies

As of December 31, 2021, the Company had total non-cancellable purchase commitments of $ 9.3 million for the purchase of drug substance in 2022.

Contingencies

In August 2015, the Company entered into an agreement for a line of credit of $ 0.1 million for the purpose of issuing its landlord a letter of credit of $ 0.1 million as a security deposit under its facility lease.

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Pursuant to the Company’s license agreements with each of Vernalis and Scripps, it has obligations to make future milestone and royalty payments to these parties, respectively.

However, because these amounts are contingent,

they have not been included on the Company’s balance sheet.

However, because these amounts are contingent, they have not been included on the Company’s balance sheet.

For further discussion of the Vernalis and Scripps licensing agreements, see Note 6.

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Board of Directors

(1) Peter Thompson, M.D., a member of our Board of Directors since November 2014, is a Private Equity Partner at OrbiMed Advisors, LLC.

(1) Peter Thompson, M.D., a member of our Board of Directors since November 2014, is a Member of OrbiMed Advisors, LLC.

As more fully described in Note 5, the Company holds a 49.7 % ownership in Angel Pharmaceuticals and, in connection with intellectual property licensing agreements between the Company and Angel Pharmaceuticals, the Company provides operational support and clinical drug supplies to Angel Pharmaceuticals.

Third-party and internal personnel costs incurred by the Company are billed to Angel Pharmaceuticals in the period incurred and recorded as an offset to expenses.

During the year ended December 31, 2021, the Company billed Angel for approximately $ 0.2 million in internal personnel costs and $ 1.6 million in third-party costs.

Of the third-party costs, approximately $ 0.6 million were associated with clinical drug supply manufactured and expensed in prior years.

The remaining $ 1.0 million in third-party costs were primarily associated with clinical drug supply passthrough costs incurred during the year ended December 31, 2021 and did not have an impact on the Company’s consolidated statements of operations.

During the years ended December 31, 2022 and 2021, the Company billed Angel for approximately $ 0.1 million and $ 0.2 million in internal personnel costs, respectively, and $ 1.3 million and $ 1.6 million in third-party costs, respectively.

Of the third-party costs billed to Angel in the years ending December 31, 2022 and 2021, approximately $ 0.5 million and $ 0.6 million, respectively, were associated with clinical drug supply manufactured and expensed in prior years.

The remaining $ 0.8 million and $ 1.0 million in third-party costs were primarily associated with

clinical drug supply passthrough costs incurred during the years ended December 31, 2022 and 2021, respectively, and did not have an impact on the Company’s consolidated statements of operations.

In addition to the provision of clinical supplies to Angel Pharmaceuticals, Angel Pharmaceuticals may provide clinical supplies to the Company on an as needed basis.

These supplies are recorded as research and development expense.

During the year ended December 31, 2022, Angel Pharmaceuticals billed the Company for approximately $ 0.2 million in third-party costs associated with clinical drug supply provided to the Company.

In August 2021, the Company entered into an agreement to sublease 7,585 square feet of its office and laboratory space in Burlingame, California to Angel Pharmaceuticals.

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Sublease income is recognized on a straight-line basis as other income in our consolidated statements of operations.

For the year ended December 31, 2021, the Company recognized $ 0.2 million of sublease income.

For the years ended December 31, 2022 and 2021, the Company recognized $ 0.6 million and $ 0.2 million of sublease income, respectively.

In July 2021, Linda S.

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ICON is a clinical research organization and provides services to support the Company’s clinical trials.

During the year ended December 31, 2021, the Company recorded approximately $ 246,000 in clinical trial expenses under its agreements with ICON.

Quarterly Selected Financial Data (unaudited)

Quarter Ended

September 30,

(in thousands, except per share amounts)

Operating expenses

Net loss per share, basic and diluted

Quarter Ended

September 30,

(in thousands, except per share amounts)

Operating expenses

Net income (loss)

Net income (loss) per share, basic and diluted

Subsequent Event

During the years ended December 31, 2022 and 2021, the Company recorded approximately $ 429,000 and $ 246,000 , respectively, in clinical trial expenses under its agreements with ICON.

Subsequent Events

The Company has evaluated subsequent events through the filing of this Annual Report on Form 10-K and determined that there have been no events that have occurred that would require adjustments to its disclosures in the consolidated financial statements.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data