CytomX Therapeutics, Inc. 10-Q

Item 4 Controls and Procedures 30 PART II – OTHER INFORMATION Item 1. Legal Proceedings 31 Item 1A. Risk Factors 31 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 71 Item 3. Defaults Upon Senior Securities 71 Item 4. Mine Safety Disclosures 71 Item 5. Other Information 71 Item 6. Exhibits 72 Signatures 73 2 Forward-Looking Statements This Quarterly Report on Form 10-Q contains certain forward-looking statements that involve risks and uncertainties. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would,” “annualized” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. A number of important factors could cause our actual results to differ materially from those indicated in these forward-looking statements, including those factors identified in “Risk Factors” or “Management’s Discussion and Analysis of Financial Condition and Results of Operations” or the following:  the extent to which the COVID-19 pandemic and related governmental regulations and restrictions may impact our business, including our research, clinical trials, including ongoing site initiation and patient enrollment, manufacturing and financial condition;  our expectations regarding the potential benefits, activity, effectiveness and safety of our product candidates and therapeutics developed utilizing our Probody® platform technology;  the initiation, timing, progress and results of our ongoing clinical trials, research and development programs, preclinical studies, and Investigational New Drug application (“IND”), Clinical Trial Application, New Drug Application (“NDA”), Biologics License Application (“BLA”), and other regulatory submissions;  the timing of the completion of our ongoing clinical trials and the timing and availability of clinical data from such clinical trials;  our ability to identify and develop additional product candidates;  our dependence on collaborators for developing, obtaining regulatory approval for and commercializing product candidates in the collaboration;  our or a collaborator’s ability to obtain and maintain regulatory approval of any of our product candidates;  our receipt and timing of any milestone payments or royalties under any research collaboration and license agreements or arrangements;  our expectations and beliefs regarding the evolution of the market for cancer therapies and development of the immuno-oncology industry;  the rate and degree of market acceptance of any approved product candidates;  the commercialization of any approved product candidates;  our ability to establish and maintain collaborations and retain commercial rights for our product candidates in such collaborations;  the implementation of our business model and strategic plans for our business, technologies and product candidates;  our estimates of our expenses, ongoing losses, future revenue and capital requirements;  our ability to obtain additional funds for our operations;  our or any collaborator’s ability to obtain and maintain intellectual property protection for our technologies and product candidates and our ability to operate our business without infringing the intellectual property rights of others;  our reliance on third parties to conduct our preclinical studies or any future clinical trials;  our reliance on third-party supply and manufacturing partners to supply the materials and components for, and manufacture, our research and development, preclinical and clinical trial product supplies;  our ability to attract and retain qualified key management and technical personnel; 3  our ability to secure and maintain licenses of intellectual property to protect our technologies and product candidates;  our financial performance; and  developments relating to our competitors or our industry. Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A. Risk Factors and discussed elsewhere in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business and the markets for certain drugs and therapeutic biologics, including data regarding the estimated size of those markets, their projected growth rates and the incidence of certain medical conditions. Information that is based on estimates, forecasts, projections or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained these industry, business, market and other data from reports, research surveys, studies and similar data prepared by third parties, industry, medical and general publications, government data and similar sources. In some cases, we do not expressly refer to the sources from which these data are derived. Except where the context otherwise requires, in this Quarterly Report on Form 10-Q, “we,” “us,” “our” and the “Company” refer to CytomX Therapeutics, Inc. Trademarks This Quarterly Report on Form 10-Q includes trademarks, service marks and trade names owned by us or other companies. All trademarks, service marks and trade names included in this Quarterly Report on Form 10-Q are the property of their respective owners. 4 PART I – FINANCIAL INFORMATION Item 1. Condensed Financi al Statements (Unaudited) CYTOMX THERAPEUTICS, INC. CONDENSED BAL ANCE SHEETS (in thousands, except share and per share data) June 30, December 31, 2021 2020 (Unaudited) (1) Assets Current assets: Cash and cash equivalents $ 256,146 $ 191,859 Short-term investments 10,031 124,260 Accounts receivable 931 798 Prepaid expenses and other current assets 3,897 7,096 Total current assets 271,005 324,013 Long-term investments 99,914 — Property and equipment, net 6,699 6,950 Intangible assets, net 1,094 1,167 Goodwill 949 949 Restricted cash 917 917 Operating lease right-of-use asset 20,961 22,495 Other assets 901 2,172 Total assets $ 402,440 $ 358,663 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 1,755 $ 2,996 Accrued liabilities 19,253 23,059 Deferred revenue, current portion 72,369 74,869 Total current liabilities 93,377 100,924 Deferred revenue, net of current portion 158,189 186,261 Operating lease liabilities - long term 19,921 21,675 Total liabilities 271,487 308,860 Commitments and contingencies (Note 11) Stockholders' equity: Convertible preferred stock, $ 0.00001 par value; 10,000,000 shares authorized and no shares issued and outstanding at June 30, 2021 and December 31, 2020. — — Common stock, $ 0.00001 par value; 150,000,000 shares authorized and 65,157,003 and 48,251,819 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively 1 1 Additional paid-in capital 615,849 499,964 Accumulated other comprehensive income (loss) 15 ( 47 ) Accumulated deficit ( 484,912 ) ( 450,115 ) Total stockholders' equity 130,953 49,803 Total liabilities and stockholders' equity $ 402,440 $ 358,663 __________________ (1) The condensed balance sheet as of December 31, 2020 was derived from the audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020. See accompanying notes to condensed financial statements. 5 CYTOMX THERAPEUTICS, INC. CONDENSED STATEMENTS OF OPERA TIONS AND COMPREHENSIVE LOSS (in thousands, except share and per share data) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 Revenues $ 16,288 $ 16,608 $ 32,259 $ 66,201 Operating expenses: Research and development 26,100 24,066 48,472 66,880 General and administrative 9,393 8,680 18,619 18,252 Total operating expenses 35,493 32,746 67,091 85,132 Loss from operations ( 19,205 ) ( 16,138 ) ( 34,832 ) ( 18,931 ) Interest income 44 454 112 1,530 Other income (expense), net ( 82 ) 5 ( 77 ) 16 Loss before income taxes ( 19,243 ) ( 15,679 ) ( 34,797 ) ( 17,385 ) Benefit from income taxes — — — ( 13,911 ) Net loss $ ( 19,243 ) $ ( 15,679 ) $ ( 34,797 ) $ ( 3,474 ) Net loss per share, basic and diluted $ ( 0.30 ) $ ( 0.34 ) $ ( 0.55 ) $ ( 0.08 ) Shares used to compute net loss per share, basic and diluted 65,055,998 46,057,063 63,023,349 45,890,510 Other comprehensive income (loss): Unrealized gain (loss) on investments, net of tax 58 ( 320 ) 62 ( 41 ) Comprehensive loss $ ( 19,185 ) $ ( 15,999 ) $ ( 34,735 ) $ ( 3,515 ) See accompanying notes to condensed financial statements. 6 CYTOMX THERAPEUTICS, INC. STATEMENTS OF STOC KHOLDERS’ EQUITY (in thousands, except share data) (Unaudited) Accumulated Additional Other Total Common Stock Paid-in Comprehensive Accumulated Stockholders' Shares Amount Capital Income/(Loss) Deficit Equity Balance at December 31, 2020 48,251,819 $ 1 $ 499,964 $ ( 47 ) $ ( 450,115 ) $ 49,803 Issuance of common stock in follow-on offering, net of issuance costs 16,428,571 - 107,712 - - 107,712 Exercise of stock options 322,507 - 1,023 - - 1,023 Stock-based compensation - - 3,034 - - 3,034 Other comprehensive income - - - 4 - 4 Net loss - - - - ( 15,554 ) ( 15,554 ) Balance at March 31, 2021 65,002,897 $ 1 $ 611,733 $ ( 43 ) $ ( 465,669 ) $ 146,022 Exercise of stock options 68,971 - 173 - - 173 Issuance of common stock under the ESPP 85,135 - 518 - - 518 Stock-based compensation - - 3,425 - - 3,425 Other comprehensive income - - - 58 - 58 Net loss - - - - ( 19,243 ) ( 19,243 ) Balance at June 30, 2021 65,157,003 $ 1 $ 615,849 $ 15 $ ( 484,912 ) $ 130,953 Accumulated Additional Other Total Common Stock Paid-in Comprehensive Accumulated Stockholders' Shares Amount Capital Income/(Loss) Deficit Equity Balance at December 31, 2019 45,523,088 $ 1 $ 468,285 $ 57 $ ( 417,230 ) $ 51,113 Exercise of stock options 395,528 - 2,157 - - 2,157 Stock-based compensation - - 4,013 - - 4,013 Other comprehensive income - - - 279 - 279 Net income - - - - 12,205 12,205 Balance at March 31, 2020 45,918,616 $ 1 $ 474,455 $ 336 $ ( 405,025 ) $ 69,767 Exercise of stock options 199,139 - 1,179 - - 1,179 Issuance of common stock under the ESPP 72,315 - 369 - - 369 Stock-based compensation - - 3,513 - - 3,513 Other comprehensive loss - - - ( 320 ) - ( 320 ) Net loss - - - - ( 15,679 ) ( 15,679 ) Balance at June 30, 2020 46,190,070 $ 1 $ 479,516 $ 16 $ ( 420,704 ) $ 58,829 See accompanying notes to condensed financial statements. 7 CYTOMX THERAPEUTICS, INC. CONDENSED STATEMEN TS OF CASH FLOWS (in thousands) (Unaudited) Six Months Ended June 30, 2021 2020 Cash flows from operating activities: Net loss $ ( 34,797 ) $ ( 3,474 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Amortization of intangible assets 73 72 Depreciation and amortization 1,278 1,187 Amortization of premium (accretion of discounts) on investments 281 ( 314 ) Stock-based compensation expense 6,459 7,526 Non-cash lease expense 1,534 1,415 Changes in operating assets and liabilities Accounts receivable ( 133 ) ( 193 ) Prepaid expenses and other current assets 3,199 ( 12,782 ) Other assets 1,271 636 Accounts payable ( 1,173 ) 579 Accrued liabilities and other long-term liabilities ( 5,559 ) ( 11,302 ) Deferred revenue ( 30,572 ) 64,014 Net cash (used in) provided by operating activities ( 58,139 ) 47,364 Cash flows from investing activities: Purchases of property and equipment ( 1,096 ) ( 1,086 ) Purchases of investments ( 99,898 ) ( 44,707 ) Maturities of investments 113,994 97,687 Net cash provided by investing activities 13,000 51,894 Cash flows from financing activities: Proceeds from issuance of common stock, net of issuance costs 107,712 - Proceeds from employee stock purchase plan and exercise of stock options 1,714 3,705 Net cash provided by financing activities 109,426 3,705 Net increase in cash, cash equivalents and restricted cash 64,287 102,963 Cash, cash equivalents and restricted cash, beginning of period 192,776 189,342 Cash, cash equivalents and restricted cash, end of period $ 257,063 $ 292,305 Supplemental disclosures of noncash investing items: Purchases of property and equipment in accounts payable and accrued liabilities $ 54 $ 618 See accompanying notes to condensed financial statements. 8 CytomX Therapeutics, Inc. Notes to Condensed Financi al Statements (Unaudited) 1. Description of the Business CytomX Therapeutics, Inc. (the “Company”) is a clinical-stage, oncology-focused biopharmaceutical company with a vision of transforming lives with safer, more effective therapies. The Company aims to build a commercial enterprise to maximize its impact on the treatment of cancer. The Company is advancing potential first-in-class and best-in-class antibody-based therapeutics created using its Probody® therapeutic technology platform that could meaningfully improve outcomes for cancer patients. Its proprietary and unique Probody technology platform is designed to enable “conditional activation” of antibody-based drugs in the tumor microenvironment while minimizing drug activity in healthy tissues and in circulation. The Company is located in South San Francisco, California and was incorporated in the state of Delaware in September 2010. 2. Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation The accompanying interim condensed financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Unaudited Interim Financial Information The accompanying interim condensed financial statements and related disclosures are unaudited, have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the results of operations for the periods presented. The condensed balance sheet data, as of December 31, 2020, was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. The condensed results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results to be expected for the full year or for any other future year or interim period. The accompanying condensed financial statements should be read in conjunction with the audited financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC. Use of Estimates The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with original maturities of three months or less at the date of purchase to be cash equivalents. Restricted Cash Restricted cash represents a standby letter of credit issued pursuant to an office lease entered in December 2015. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed balance sheets that sum to the total of the amounts shown in the condensed statements of cash flows. June 30, 2021 December 31, 2020 June 30, 2020 December 31, 2019 (in thousands) Cash and cash equivalents $ 256,146 $ 191,859 $ 291,388 $ 188,425 Restricted cash - non-current assets 917 917 917 917 Total $ 257,063 $ 192,776 $ 292,305 $ 189,342 9 CYTOMX THERAPEUTICS, INC. Notes to Condensed Financial Statements (Unaudited)—(Continued) Investments All investments have been classified as available-for-sale (“AFS”) and are carried at fair value as determined based upon quoted market prices or pricing models for similar securities at period end. Investments that are not required for use in current operations and that mature in more than 12 months are classified as long-term investments in the accompanying condensed balance sheets. The amortized cost of securities is adjusted for amortization of premiums and accretion of discounts to maturity. Dividend and interest income are recognized when earned. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of securities sold. The Company assesses impairment of its AFS debt securities investments at each reporting period. Unrealized gains resulting from the excess of the fair value over the amortized cost basis of an investment are reported as a component of accumulated other comprehensive income (loss), net of tax. Unrealized losses or impairments resulting from the fair value of the AFS debt security being below the amortized cost basis are evaluated, using the discounted cash flow model, for identification of credit losses and non-credit related losses. Any credit losses are charged to earnings against the allowance for credit losses of the security, limited to the difference between the fair value and the amortized cost basis of the security. Any difference between the fair value of the security and the amortized cost basis, less the allowance for credit losses, are reported in other comprehensive income (loss). Expected cash inflows due to improvements in credit are recognized through a reversal of the allowance for credit losses subject to the total allowance previously recognized. In the event of impairment of any security, if management (i) has the intent to sell such security or (ii) will more-likely-than-not be required to sell such security before recovery of its amortized cost basis, such AFS debt security’s amortized cost basis will be written down to its fair value through earnings along with any existing allowance for credit losses. Comprehensive Income (Loss) Comprehensive income (loss) represents all changes in stockholders’ equity except those resulting from distributions to stockholders. The Company’s non-credit related unrealized gains and losses on investments during the period represents the component of other comprehensive income (loss) that is excluded from the reported net loss. Revenue Recognition The Company’s revenues are primarily derived through its license, research, development and commercialization agreements. The terms of these types of agreements may include (i) licenses for the Company’s technology or programs, (ii) research and development services, and (iii) services or obligations in connection with participation in research or steering committees. Payments to the Company under these arrangements typically include one or more of the following: nonrefundable upfront and license fees, research funding, milestone and other contingent payments to the Company for the achievement of defined collaboration objectives and certain preclinical, clinical, regulatory and sales-based events, as well as royalties on sales of any commercialized products. The Company assesses whether the promises in its arrangements with customers are distinct performance obligations that should be accounted for separately. Judgment is required to determine whether the license to the Company’s intellectual property is distinct from the research and development services or participation on steering committees. The Company’s collaboration and license agreements may include contingent payments related to specified research, development and regulatory milestones. Such milestone payments are typically payable under the collaborations when the collaboration partner claims or selects a target, or initiates or advances a covered product candidate in preclinical or clinical development, upon submission for marketing approval of a covered product with regulatory authorities, or upon receipt of actual marketing approvals of a covered product or for additional indications. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. At each reporting date, the Company re-evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price by using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price in such period of determination. The Company’s collaboration and license agreements may also include contingent payments related to sales-based milestones. Sales-based milestones are typically payable when annual sales of a covered product reach specified levels. Sales-based milestones are recognized at the later of when the associated performance obligation has been satisfied or when the sales occur. Unlike other contingency payments, such as regulatory milestones, sales-based milestones are not included in the transaction price based on estimates at the inception of the contract; instead, they are included when the sales or usage occur. 10 CYTOMX THERAPEUTICS, INC. Notes to Condensed Financial Statements (Unaudited)—(Continued) The transaction price in each arrangement is allocated to the identified performance obligations based on the relative standalone selling price (“SSP”) of each distinct performance obligation, which requires judgment. In instances where SSP is not directly observable, such as when a license or service is not sold separately, SSP is determined using information that may include market conditions and other observable inputs. Due to the early stage of the Company’s licensed technology, the license of such technology is typically combined with research and development services and steering committee participation as one performance obligation. In the event that the Company receives non-cash consideration such as consideration in the form of a research license and research support services from the counterparty, the transaction price of a non-monetary exchange that has commercial substance is estimated based on the fair value of the non-cash consideration received, which may be determined through a valuation analysis. In certain cases, the Company’s performance creates an asset that does not have an alternative use to the customer and the Company has an enforceable right to payment at all times for performance completed to date. In these cases, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. AbbVie Ireland Unlimited Company (“AbbVie”), one of the Company’s collaboration partners, entered into a license agreement with Seagen Inc, formerly Seattle Genetics, Inc. (“SGEN”) to license certain intellectual property rights. As part of the Company’s collaboration agreement with AbbVie, the Company is required to pay SGEN sublicense fees for certain milestone achievements and an annual maintenance fee. These sublicense fees are treated as reductions to the transaction price and combined with the performance obligation to which they relate. Contract Balances Customer payments are recorded as deferred revenue upon receipt or when due and may require deferral of revenue recognition to a future period until the Company satisfies its performance obligations under these arrangements. Amounts payable to the Company are recorded as accounts receivable when the Company’s right to consideration is unconditional. Research and Development Expenses The Company records accrued liabilities for estimated costs of research and development activities conducted by third-party service providers, which include the conduct of preclinical and clinical studies, and contract manufacturing activities. The Company records the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced, and includes these costs in accrued liabilities in the balance sheets and within research and development expense in the statements of operations. These costs are a significant component of the Company’s research and development expenses. The Company accrues for these costs based on factors such as estimates of the work completed and in accordance with agreements established with its third-party service providers under the service agreements. The Company makes significant judgments and estimates in determining the accrued liabilities balance in each reporting period. As actual costs become known, the Company adjusts its accrued liabilities. The Company has not experienced any material differences between accrued costs and actual costs incurred. However, the status and timing of actual services performed may vary from the Company’s estimates, resulting in adjustments to expense in future periods. Changes in these estimates that result in material changes to the Company’s accruals could materially affect the Company’s results of operations. Research and development expenses include costs directly attributable to the conduct of research and development programs, including the cost of salaries, payroll taxes, employee benefits, materials, supplies, depreciation on and maintenance of research equipment, the cost of services provided by outside contractors, and the allocated portions of facility costs, such as rent, utilities, insurance, repairs and maintenance, depreciation, and general support services. All costs associated with research and development are expensed as incurred. Stock-based Compensation The Company recognizes compensation costs related to stock options granted to employees based on the estimated fair value of the awards on the date of grant. The Company records forfeitures as they are incurred. The Company estimates the grant date fair value, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model. The grant date fair value of stock-based awards is expensed on a straight-line basis over the period during which the employee is required to provide service in exchange for the award (generally the vesting period). 11 CYTOMX THERAPEUTICS, INC. Notes to Condensed Financial Statements (Unaudited)—(Continued) The Company estimates the fair value of its stock-based awards using the Black-Scholes option-pricing model, which requires the input of assumptions. The assumptions are as follows:  Expected term. The expected term of stock options represents the period that the stock options are expected to remain outstanding and is based on vesting terms, exercise term and contractual lives of the options. The expected term of the ESPP shares is equal to the six-month look-back period.  Expected volatility. The expected stock price volatility for the Company’s stock options is based on the historical stock price volatility over the period which is commensurate with the estimated expected term of the stock awards. Volatility for ESPP shares is equal to the Company’s historical volatility over a six-month offering period.  Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield with a maturity equal to the expected term of the stock options in effect at the time of grant.  Dividend yield. The expected dividend is assumed to be zero as the Company has never paid dividends and has no current plan to pay any dividends on its common stock. Leases The Company determines if an arrangement is or contains a lease at inception. Operating leases are recorded as operating lease right-of-use (“ROU”) assets and operating lease liabilities in the Company’s balance sheet. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company uses an implicit rate when readily available, or its incremental borrowing rate based on the information available at lease commencement date in determining the present value of lease payments. The operating lease ROU assets also include any lease prepayments made and reduced by lease incentives. The Company’s lease terms may include options to extend the lease when it is reasonably certain that such option will be exercised. Lease expenses are recognized on a straight-line basis over the lease term. The Company elected the short-term lease recognition exemption. The Company’s operating lease arrangement includes lease and non-lease components which are generally accounted for separately. Adopted Accounting Pronouncements In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles of ASC 740 in order to reduce cost and complexity of its application. The ASU removes the exception related to the incremental approach for intra-period tax allocation as well as two exceptions related to accounting for outside basis differences of equity method investments and foreign subsidiaries. The ASU also amends the scope of ASC 740 related to a franchise tax (or similar tax) that is partially based on income; clarifies when a step-up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction; specifies that an entity is not required to allocate income tax expense to a legal entity that is both not subject to tax and disregarded by the taxing authority; and clarifies that all tax effects, both deferred and current, should be accounted for in the interim period that includes the enactment date. The Company adopted this ASU on January 1, 2021 , and there was no material impact on the financial statements upon adoption of this ASU. 12 CYTOMX THERAPEUTICS, INC. Notes to Condensed Financial Statements (Unaudited)—(Continued) 3. Net Loss Per Share Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period. Diluted net loss per share is calculated using the weighted-average number of common shares outstanding, plus potential dilutive common stock during the period. Diluted net loss per share is the same as basic net loss per share since the effect of the potentially dilutive securities is anti-dilutive. The following weighted-average outstanding shares of potentially dilutive securities are excluded from the computation of diluted net loss per share for the periods presented, because including them would have been anti-dilutive: Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 Options and ESPP to purchase common stock 12,117,149 11,745,760 11,837,707 11,339,658 4. Fair Value Measurements and Investments In accordance with Accounting Standards Codification (“ASC”) 820-10, Fair Value Measurements and Disclosures, the Company determines the fair value of financial and non-financial assets and liabilities using the fair value hierarchy, which establishes three levels of inputs that may be used to measure fair value, as follows:  Level I: Inputs which include quoted prices in active markets for identical assets and liabilities.  Level II: Inputs other than Level I that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.  Level III: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The carrying amounts of the Company’s financial instruments, including restricted cash, accounts receivable, accounts payable and accrued liabilities approximate fair value due to their relatively short maturities. The Company’s financial instruments consist of Level I assets which consist primarily of highly liquid money market funds, some of which are included in restricted cash; and U.S. government bonds that are included in long-term and short-term investments. The following tables set forth the fair value of the Company’s investments subject to fair value measurements on a recurring basis and the level of inputs used in such measurements: June 30, 2021 Valuation Hierarchy Amortized Cost Allowance for Credit Losses Gross Unrealized Holding Gains Gross Unrealized Holding Losses Aggregate Fair Value (in thousands) Assets Money market funds Level I $ 235,581 $ — $ — $ — $ 235,581 Restricted cash (money market funds) Level I 917 — — — 917 U.S. Government bonds - short term Level I 10,030 — 1 — 10,031 U.S. Government bonds - long term Level I 99,900 — 14 — 99,914 Total $ 346,428 $ — $ 15 $ — $ 346,443 13 CYTOMX THERAPEUTICS, INC. Notes to Condensed Financial Statements (Unaudited)—(Continued) December 31, 2020 Valuation Hierarchy Amortized Cost Allowance for Credit Losses Gross Unrealized Holding Gains Gross Unrealized Holding Losses Aggregate Fair Value (in thousands) Assets Money market funds Level I $ 131,121 $ — $ — $ — $ 131,121 Restricted cash (money market funds) Level I 917 — — — 917 U.S. Government bonds - short term Level I 124,254 — 6 — 124,260 Total securities $ 256,292 $ — $ 6 $ — $ 256,298 All long term investments consist of U.S. government bonds with contractual maturities of eighteen months , and no other securities have contractual maturities of greater than twelve months. 5. Accrued Liabilities Accrued liabilities consisted of the following: June 30, December 31, 2021 2020 (in thousands) Research and clinical expenses $ 7,099 $ 10,092 Payroll and related expenses 5,797 8,362 Legal and professional expenses 2,029 815 Operating lease liabilities - short term 3,402 3,195 Other accrued expenses 926 595 Total $ 19,253 $ 23,059 6. Research and Collaboration Agreements The following table summarizes the revenue by collaboration partners: Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 (in thousands) (in thousands) AbbVie $ 2,078 $ 1,319 $ 3,306 $ 31,415 Amgen 1,874 3,678 4,456 5,373 Astellas 4,931 4,204 9,688 4,591 Bristol Myers Squibb 7,405 7,407 14,809 24,822 Total Revenue $ 16,288 $ 16,608 $ 32,259 $ 66,201 AbbVie Ireland Unlimited Company In April 2016, the Company and AbbVie entered into two agreements, a CD71 Co-Development and Licensing Agreement (the “CD71 Agreement”) and a Discovery Collaboration and Licensing Agreement (as amended and restated in June 2019, the “Discovery Agreement” and together with the CD71 Agreement the “AbbVie Agreements”). Under the terms of the CD71 Agreement, the Company and AbbVie will co-develop a conditionally activated antibody-drug conjugate (“ADC") against CD71, with the Company responsible for preclinical and early clinical development. AbbVie will be responsible for later development and commercialization, with global late-stage development costs shared between the two companies. The Company will assume 35 % of the net profits or net losses related to later development and commercialization unless it opts-out. If the Company opts-out from participation of co-development of the CD71 conditionally activated ADC, which includes CX-2029, AbbVie will have sole right and responsibility for the further development, manufacturing and commercialization of such CD71 conditionally activated ADC. Under the CD71 Agreement, the Company received an upfront payment of $ 20.0 million in April 2016, and was eligible to initially receive up to $ 470.0 million in development, regulatory and commercial milestone payments, a 35 % profit split on U.S. sales, and royalties on 14 CYTOMX THERAPEUTICS, INC. Notes to Condensed Financial Statements (Unaudited)—(Continued) ex-U.S. sales at percentages in the high teens to low twenties if the Company participates in the co-development of the CD71 conditionally activated ADC subject to a reversion to a royalty on U.S. sales, and reduction in royalties on ex-U.S. sales, if the Company opts-out from the co-development of the CD71 conditionally activated ADC. The Company’s share of later stage co-development costs for each CD71 conditionally activated ADC is capped, provided that AbbVie may offset the Company’s co-development cost above the capped amounts from future payments such as milestone payments and royalties. In July 2017, the Company received a milestone payment of $ 14.0 million (net of payment of an associated sublicense fee of $ 1.0 million to SGEN under the Seattle Genetics Agreement) from AbbVie for achieving certain milestones required to be met to begin GLP toxicology studies under the CD71 Agreement. In May 2018, the United States Food and Drug Administration (“FDA”) cleared the IND application for CX-2029. As a result, the Company achieved the IND success criteria under the CD71 Agreement and received a $ 21.0 million milestone payment (net of the payment of an associated sublicense fee of $ 4.0 million to SGEN). In March 2020, the Company earned a $ 40.0 million milestone payment for satisfying the CD71 dose escalation success criteria under the CD71 Agreement. Under the terms of the Discovery Agreement, AbbVie receives exclusive worldwide rights to develop and commercialize conditionally activated ADCs against up to two targets, one of which was selected in March 2017. The Company shall perform research services to discover the Probody therapeutics and create conditionally activated ADCs for the nominated collaboration targets. From that point, AbbVie shall have sole right and responsibility for development and commercialization of products comprising or containing such conditionally activated ADCs (“Discovery Licensed Products”). Under the Discovery Agreement, the Company received an upfront payment of $ 10.0 million in April 2016 and subsequently earned an additional $ 10.0 million milestone payment triggered by selection of the second target by AbbVie in June 2019. The Company is also eligible to receive up to $ 265.0 million for each target, in development, regulatory and commercial milestone payments and royalties at percentages in the high single to low teens from commercial sales of any resulting conditionally activated ADCs. The second target was selected under the Discovery Agreement that allows AbbVie to select a target for developing a conditionally activated ADC or a Probody. The $ 40.0 million milestone payment earned in March 2020 for satisfying the CD71 dose escalation success criteria under the CD71 Agreement was included as part of the transaction price as it was unconstrained during the first quarter of 2020 and $ 26.6 million was recognized as revenue related to this milestone reflecting the percentage completed to-date on the project as of March 2020. The remainder is being recognized as revenues over the remaining estimated research service period through March 2023. The Company determined that the remaining potential milestone payments of both agreements, if recognized, are probable of significant revenue reversal as their achievement is highly dependent on factors outside the Company’s control. Therefore, these payments continue to be fully constrained and are not included in the transaction price as of June 30, 2021. The Company recognized revenue of $ 2.1 million and $ 1.3 million for the three months ended June 30, 2021 and 2020, respectively, and $ 3.3 million and $ 31.4 million for the six months ended June 30, 2021 and 2020, respectively, related to the AbbVie Agreements. As of June 30, 2021 and December 31, 2020, deferred revenue related to the CD71 Agreement performance obligation was $ 23.3 million and $ 25.2 million, respectively, and deferred revenue related to the Discovery Agreement performance obligation was $ 6.6 million and $ 8.0 million, respectively. No amounts were due from AbbVie as of both June 30, 2021 and December 31, 2020. Amgen, Inc. On September 29, 2017, the Company and Amgen, Inc. (“Amgen”) entered into a Collaboration and License Agreement (the “Amgen Agreement”). Pursuant to the Amgen Agreement, the Company received an upfront payment of $ 40.0 million in October 2017. Concurrent with the entry into the Amgen Agreement, the Company and Amgen entered into a Share Purchase Agreement (the “Purchase Agreement”) pursuant to which Amgen purchased 1,156,069 shares of the Company’s common stock at a price of $ 17.30 per share (calculated based on a 20 -day volume-weighted average price), for total proceeds of $ 20.0 million, which the Company received on October 6, 2017, the closing date of the transaction. The Company estimated a premium on the stock sold to Amgen of $ 0.5 million, which takes into account a discount due to the lack of marketability resulting from the six-month lockup period. Under the terms of the Amgen Agreement, the Company and Amgen will co-develop a conditionally activated T-cell engaging bispecific therapeutic targeting epidermal growth factor receptor (the “EGFR Products”). The Company is responsible for early-stage development of EGFR Products and all related costs up to certain pre-set costs and certain limits based on clinical trial size. Amgen will be responsible for late-stage development, commercialization, and all related costs of EGFR Products. Following early-stage development, the Company will have the right to elect to participate financially in the global co-development of EGFR Products with Amgen, during which the Company would bear certain of the worldwide development costs for EGFR Products and Amgen would bear the rest of such costs (the “EGFR Co-Development Option”). If the Company exercises its EGFR Co-Development Option, the Company will share in somewhat less than 50 % of the profit and losses from sales of such EGFR Products in the U.S., subject to certain caps, offsets, and deferrals. If the Company chooses not to exercise its EGFR Co-Development Option, the Company will not bear any costs of later stage development. The Company is eligible to 15 CYTOMX THERAPEUTICS, INC. Notes to Condensed Financial Statements (Unaudited)—(Continued) receive up to $ 455.0 million in development, regulatory, and commercial milestone payments for EGFR Products, and royalties in the low-double-digit to mid-teen percentage of worldwide commercial sales, provided that if the Company exercises its EGFR Co-Development option, it shall receive a profit and loss split of sales in the United States and royalties in the low-double-digit to mid-teen percentage of commercial sales outside of the United States. Amgen also has the right to select a total of up to three targets, including the two additional targets discussed below. The Company and Amgen collaborate in the research and development of conditionally activated T-cell engaging bispecifics products directed against such targets. Amgen has selected one such target (the “Amgen Other Product”). If Amgen exercises its option within a specified period of time, it can select two such additional targets (the “Amgen Option Products” and, together with the Amgen Other Product, the “Amgen Products”). Except with respect to preclinical activities to be conducted by CytomX, Amgen will be responsible, at its expense, for the development, manufacture, and commercialization of all Amgen Products. If Amgen exercises all of its options and advances all three of the Amgen Products, CytomX was initially eligible to receive up to $ 950.0 million in upfront, development, regulatory, and commercial milestones and tiered high single-digit to low-teen percentage royalties. The Company concluded that, at the inception of the agreement, Amgen’s option to select the two additional targets is not a material right and does not represent a performance obligation of the agreement. At the initiation of the collaboration, CytomX had the option to select, from programs specified in the Amgen Agreement, an existing preclinical stage T-cell engaging bispecific product from the Amgen preclinical pipeline. In March 2018, CytomX selected the program. CytomX is responsible, at its expense, for converting this program to a conditionally activated T-cell engaging bispecific product, and thereafter, will be responsible for development, manufacturing, and commercialization of the product (“CytomX Product”). Amgen is eligible to receive up to $ 203.0 million in development, regulatory, and commercial milestone payments for the CytomX Product, and tiered mid-single digit to low double-digit percentage royalties. The Company recognized revenue of $ 1.9 million and $ 3.7 million for the three months ended June 30, 2021 and 2020, respectively, and $ 4.5 million and $ 5.4 million for the six months ended June 30, 2021 and 2020, respectively, related to the Amgen Agreement. As of June 30, 2021 and December 31, 2020, deferred revenue related to the EGFR Products performance obligation was $ 25.7 million and $ 29.8 million, respectively. As of June 30, 2021 and December 31, 2020, deferred revenue related to the Amgen Other Products performance obligation was $ 1.8 million and $ 2.2 million, respectively. No amounts were due from Amgen as of both June 30, 2021 and December 31, 2020. Astellas Pharma Inc. The Company and Astellas Pharma, Inc. (“Astellas”) entered into a Collaboration and License Agreement (the “Astellas Agreement”) on March 23, 2020, the effective date, to collaborate on preclinical research activities to discover and develop certain antibody compounds for the treatment of cancer using the Company’s Probody therapeutic technology. Under the terms of the Astellas Agreement, the Company granted Astellas an exclusive worldwide right to develop and commercialize Probody therapeutics for up to four collaboration targets, including one initial target and three additional targets (“Additional Targets”). In addition, Astellas has the right to expand the number of Additional Targets from three up to five (the “Expansion Option”) before the third anniversary of the effective date. Furthermore, for a specified number of targets, at a pre-specified time prior to the initiation of the first pivotal study of a product against such target, the Company may elect to participate in certain development costs and share in the profits generated in the United States with respect to such product (“Cost Share Option”). The Cost Share Option, if exercised, will also provide the option for the Company to co-commercialize such product in the United States. The Company does not consider the Cost Share Option as a performance obligation at the inception of the agreement as the participation is at the Company’s discretion. Pursuant to the Astellas Agreement, the consideration from Astellas is comprised of an upfront fee of $ 80.0 million and contingent payments for development, regulatory and sales milestones of up to an aggregate of approximately $ 1.6 billion. If Astellas exercises its Expansion Option for the two Additional Targets, the Company would be eligible to receive additional upfront and milestone payments aggregating to approximately $ 0.9 billion. The Company is also entitled to tiered royalties from high-single digit to mid-teen percentage royalties from potential future sales. Astellas is responsible for all preclinical research costs incurred by either party as set forth in the preclinical research plan and the Company will receive research and development service fees based on a prescribed FTE rate. The Company recognized revenue of $ 4.9 million and $ 4.2 million for the three months ended June 30, 2021 and 2020, respectively; and $ 9.7 million and $ 4.6 million for the six months ended June 30, 2021 and 2020, respectively. Those revenues also included the research and development service revenue of $ 0.9 million and $ 0.2 million for the three months ended June 30, 2021 and 2020, respectively, and $ 1.7 million and $ 0.2 million for the six months ended June 30, 2021 and 2020, respectively. As of June 30, 2021 and December 31, 2020, deferred revenue relating to the Astellas Agreement was $ 59.6 million and $ 67.6 million, respectively. The amount due from Astellas under the Astellas Agreement was $ 0.9 million and $ 0.8 million as of June 30, 2021 and December 31, 2020, respectively. 16 CYTOMX THERAPEUTICS, INC. Notes to Condensed Financial Statements (Unaudited)—(Continued) Bristol Myers Squibb Company On May 23, 2014, the Company and Bristol Myers Squibb Company (“Bristol Myers Squibb”) entered into a Collaboration and License Agreement (the “BMS Agreement”) to discover and develop compounds for use in human therapeutics aimed at multiple immuno-oncology targets using the Company’s Probody therapeutic technology. The effective date of the BMS Agreement was July 7, 2014. Under the terms of the BMS Agreement, the Company granted Bristol Myers Squibb exclusive worldwide rights to develop and commercialize Probody therapeutics for up to four oncology targets. Bristol Myers Squibb had additional rights to substitute up to two collaboration targets within three years of the effective date of the BMS Agreement. These rights expired in May 2017. Each collaboration target had a two-year research term and the two additional targets had to be nominated by Bristol Myers Squibb within five years of the effective date of the BMS Agreement. The research term for each collaboration target could be extended in one year increments up to three times. Pursuant to the BMS Agreement, the financial consideration from Bristol Myers Squibb was comprised of an upfront payment of $ 50.0 million, and the Company was initially entitled to receive contingent payments of up to $ 25.0 million for additional targets and up to an aggregate of $ 1,192.0 million for development, regulatory and sales milestones. In addition, the Company was entitled to royalty payments in the mid-single digits to low double-digit percentages from potential future sales. The Company also received research and development service fees based on a prescribed FTE rate that was capped. On March 17, 2017, the Company and Bristol Myers Squibb entered into Amendment Number 1 to Extend Collaboration and License Agreement (“Amendment 1”). Amendment 1 granted Bristol Myers Squibb exclusive worldwide rights to develop and commercialize Probody therapeutics for up to eight additional targets. The effective date of Amendment 1 was April 25, 2017 (“Amendment Effective Date”). Under the terms of Amendment 1, the Company continued to have obligations to Bristol Myers Squibb to discover and conduct preclinical development of Probody therapeutics against any targets they chose to select during the research period under the terms of Amendment 1. Pursuant to Amendment 1, the financial consideration from Bristol Myers Squibb was comprised of an upfront payment of $ 200.0 million and the Company was initially eligible to receive contingent payments for development, regulatory and sales milestones of up to an aggregate of $ 3,586.0 million for the eight targets. The Company was also entitled to tiered mid-single to low double-digit percentage royalties from potential future sales. Amendment 1 did not change the term of the Bristol Myers Squibb’s royalty obligation under the BMS Agreement. Bristol Myers Squibb’s royalty obligation continues on a licensed-product by licensed-product basis until the later of (i) the expiration of the last claim of the licensed patents covering the licensed products in the country, (ii) the twelfth anniversary of the first commercial sale of a licensed product in a country, or (iii) the expiration of any applicable regulatory, pediatric, orphan drug or data exclusivity with respect to such product. The initial transaction price for the BMS Agreement and Amendment 1, collectively, was $ 272.8 million consisting of the upfront fees of $ 250.0 million, research and development service fees of $ 10.8 million and milestone payments received to date of $ 12.0 million. The Company determined that the remaining potential milestone payments were probable of significant revenue reversal as their achievement was highly dependent on factors outside the Company’s control. Therefore, these payments were fully constrained and were not included in the transaction price upon the adoption of ASC 606 on January 1, 2018. The BMS Agreement represents an obligation to continuously make the Probody therapeutic technology platform available to Bristol Myers Squibb. Therefore, the initial transaction price is recognized over the estimated research service period, which ends on April 25, 2025 . In February 2020, Bristol Myers Squibb dosed the first patient in the Part 2 cohort expansion portion of its ongoing BMS-986249 clinical study for the CTLA-4 program, which triggered a $ 10.0 million milestone payment to the Company pursuant to the terms of the BMS Agreement. The $ 10.0 million milestone payment was recognized as revenue in the first quarter of 2020. In February 2021, the Company and Bristol Myers Squibb entered into Amendment Number 2 to amend the Collaboration and License Agreement (“Amendment 2”), as amended by Amendment 1. Subsequent to Amendment 2, Bristol Myers Squibb has the exclusive worldwide rights to develop and commercialize Probody therapeutics for up to five oncology targets. Under the terms of Amendment 2, the period for target selection has been extended and the Company will continue to collaborate with Bristol Myers Squibb to discover and conduct preclinical development of Probody therapeutics against targets selected by Bristol Myers Squibb over the estimated research period, which ends in April 2025. Pursuant to Amendment 2, the Company is eligible to receive contingent payments for development, regulatory and sales milestones of up to an aggregate of $ 1,779.0 million. It is also entitled to tiered mid-single to low double-digit percentage of royalties from potential future sales. In addition, the Company will no longer be entitled to receive the research and development service fee as part of the arrangement. 17 CYTOMX THERAPEUTICS, INC. Notes to Condensed Financial Statements (Unaudited)—(Continued) The Company reevaluated the remaining potential milestone payments and determined that, if recognized, significant revenue reversal was still probable as the achievement of such milestones was highly dependent on factors outside the Company’s control. As a result, these payments were fully constrained and were not included in the transaction price on June 30, 2021. The Company recognized revenue of $ 7.4 million and $ 7.4 million for the three months ended June 30, 2021 and 2020, respectively and $ 14.8 million and $ 24.8 million for the six months ended June 30, 2021 and 2020, respectively. As of June 30, 2021 and December 31, 2020, deferred revenue relating to the BMS Agreement was $ 113.6 million and $ 128.3 million, respectively. No amounts were due from Bristol Myers Squibb as of June 30, 2021 and December 31, 2020. ImmunoGen, Inc. In January 2014, the Company and ImmunoGen, Inc. (“ImmunoGen”) entered into the Research Collaboration Agreement (the “ImmunoGen Research Agreement”). The ImmunoGen Research Agreement provided the Company with the right to use ImmunoGen’s Antibody Drug Conjugate (“ADC”) technology in combination with the Company’s Probody therapeutic technology to create a conditionally activated ADC directed at one specified target under a research license, and to subsequently obtain an exclusive, worldwide development and commercialization license to use ImmunoGen’s ADC technology to develop and commercialize such conditionally activated ADCs. The Company made no upfront cash payment in connection with the execution of the agreement. Instead, the Company provided ImmunoGen with the rights to CytomX’s Probody therapeutic technology to create conditionally activated ADCs directed at two targets under the ImmunoGen Research Agreement and to subsequently obtain exclusive, worldwide development and commercialization licenses to develop and commercialize such conditionally activated ADCs. In February 2016, the Company exercised its option to obtain a development and commercialization license for praluzatamab ravtansine (CX-2009) pursuant to the terms of the ImmunoGen Research Agreement (the “CX-2009 License”). In December 2019, the parties entered into a license agreement (the “ImmunoGen 2019 License”) pursuant to which the ImmunoGen Research Agreement (the ”ImmunoGen 2017 License”) for a target in December 2017, was terminated and ImmunoGen granted a license for all of ImmunoGen’s rights under the ImmunoGen 2017 License to the Company. In February 2020, the Company dosed the first patient in the praluzatamab ravtansine Phase 2 clinical trial and triggered a $ 3.0 million milestone payment to ImmunoGen pursuant to the CX-2009 License which continued to remain in effect following the termination of the ImmunoGen 2017 License in December 2019. The Company recorded a $ 3.0 million charge to research and development expense for the first quarter of 2020, in connection with this milestone payment to ImmunoGen. Contract Liabilities The following table presents changes in the Company’s total contract liabilities during the six months ended June 30, 2021: Balance at Beginning of Period Additions Deductions Balance at End of Period (in thousands) Contract liabilities: Deferred revenue $ 261,130 $ — $ ( 30,572 ) $ 230,558 The Company expects that the $ 230.6 million of deferred revenue related to the following contracts as of June 30, 2021 will be recognized as revenue as set forth below. However, the timing of revenue recognition could differ from the estimates depending on facts and circumstances impacting the various contracts, including progress of research and development, resources assigned to the contracts by the Company or its collaboration partners, or other factors outside of the Company’s control.  The $ 23.3 million of deferred revenue related to the CD71 Agreement with AbbVie is expected to be recognized based on actual FTE effort and program progress until approximately March 2023 .  The $ 0.6 million of deferred revenue related to the first target under the Discovery Agreement with AbbVie is expected to be recognized ratably until approximately April 2022 .  The $ 6.0 million of deferred revenue related to the second target under the Discovery Agreement with AbbVie is expected to be recognized ratably until approximately June 2024 .  The $ 25.7 million of deferred revenue related to the Amgen EGFR Products is expected to be recognized based on actual FTE effort and program progress until approximately September 2024 . 18 CYTOMX THERAPEUTICS, INC. Notes to Condensed Financial Statements (Unaudited)—(Continued)  The $ 1.8 million of deferred revenue related to the Amgen Other Products is expected to be recognized ratably until approximately September 2023 .  The $ 59.6 million of deferred revenue related to the Astellas Agreement is expected to be recognized ratably until approximately March 2025 .  The $ 113.6 million of deferred revenue related to the BMS Agreement is expected to be recognized ratably until approximately April 2025 . 7. License Agreements UCSB The Company has an exclusive, worldwide license agreement with UCSB (the “UCSB Agreement”), relating to the use of certain patents and technology relating to its core technology, including its therapeutic antibodies, and to certain patent rights the Company co-owns with UCSB covering Probody antibodies and other pro-proteins. In February 2020, the Company recorded $ 0.8 million of sublicense fees triggered by the $ 10.0 million milestone payment from Bristol Myers Squibb’s dosing of the first patient in the Part 2 cohort expansion portion of its ongoing BMS-986249 clinical study for the CTLA-4 program. In March 2020, the Company incurred additional sublicense fees of $ 6.0 million related to the $ 80.0 million upfront fee received pursuant to the Astellas Agreement entered into in March 2020, and $ 1.4 million related to the $ 40.0 million milestone payment from AbbVie for satisfying the CD71 dose escalation success criteria under the CD71 Agreement in March 2020. The Company incurred no sublicense expenses for the three months ended June 30, 2021 and 2020, and $ 0.9 million and $ 9.1 million for the six months ended June 30, 2021 and 2020, respectively, under the provisions of the UCSB Agreement. As of June 30, 2021 and December 31, 2020, there was no outstanding sublicense fee payable to UCSB. 8. Common Stock In January 2021, the Company completed an underwritten public offering of 14,285,714 shares of common stock at a price of $ 7.00 per share. The aggregate net proceeds received by the Company from the offering were approximately $ 93.6 million, after deducting underwriting discounts and commissions and offering expenses of $ 6.4 million. The Company also granted the underwriters the option for 30 days to purchase up to 2,142,857 additional shares of common stock at the public offering price, less the underwriting discounts and commissions. In February 2021, the underwriters exercised the option in full which resulted in additional net proceeds of $ 14.1 million to the Company, after deducting the underwriting discounts and commissions of $ 0.9 million. 9. Stock-Based Compensation Stock Options Activities under the Company’s stock option plans for the six months ended June 30, 2021 were as follows: Options Outstanding Number of Options Weighted- Average Exercise Price Per Share Balances at December 31, 2020 10,929,530 $ 10.77 Options granted 3,633,597 7.80 Options exercised ( 391,478 ) 3.06 Option forfeited/expired ( 2,155,707 ) 11.20 Balances at June 30, 2021 12,015,942 $ 10.05 Options exercisable at June 30, 2021 5,735,023 $ 11.92 19 CYTOMX THERAPEUTICS, INC. Notes to Condensed Financial Statements (Unaudited)—(Continued) Stock-based Compensation Total stock-based compensation recorded related to options granted to employees and non-employees and employee stock purchase plan was as follows: Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 (in thousands) Stock-based compensation expense: Research and development $ 1,548 $ 1,663 $ 2,885 $ 3,582 General and administrative 1,877 1,850 3,574 3,944 Total stock-based compensation expense $ 3,425 $ 3,513 $ 6,459 $ 7,526 10. Leases Operating Lease On December 10, 2015, the Company entered into a lease (the “2016 Lease”) with HCP Oyster Point III LLC (the “Landlord”) to lease approximately 76,000 rentable square feet of office and laboratory space located in South San Francisco, California for the Company’s new corporate headquarters. The term of the Lease commenced on October 1, 2016. The 2016 Lease has an initial term of ten years from the commencement date, and the Company has an option to extend the initial term for an additional five years at the then fair rental value as determined pursuant to the 2016 Lease. The Lease provided for annual base rent of approximately $ 3.1 million in the first year of the lease term. The annual base rent for the second twelve months was approximately $ 4.3 million, which increases on an annual basis beginning from the 25 th month to approximately $ 5.5 million for the tenth year of the lease. The Company utilized the full amount of the one-time improvement allowance of $ 12.6 million, of which $ 2.3 million is recoverable by the landlord through increased rent which continues through the expiration of the initial lease term. In addition, the Company obtained a standby letter of credit (the “Letter of Credit”) in an amount of approximately $ 0.9 million, which may be drawn by the Landlord to be applied for certain purposes upon the Company’s breach of any provisions under the 2016 Lease. The Company has recorded the $ 0.9 million Letter of Credit as non-current restricted cash on its balance sheet as of June 30, 2021 and December 31, 2020, respectively. Rent expense is recognized on a straight-line basis over the term of the lease and accordingly the Company records the difference between cash rent payments and the recognition of rent expense against the operating lease ROU asset. Rent expense for each of the three months ended June 30, 2021 and 2020 was $ 1.3 million. Rent expense for each of the six months ended June 30, 2021 and 2020 was $ 2.5 million. Supplemental information related to leases are as follows: Three Months Ended Six Months Ended June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020 (in thousands) (in thousands) Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 1,273 $ 1,239 $ 2,547 $ 2,478 20 CYTOMX THERAPEUTICS, INC. Notes to Condensed Financial Statements (Unaudited)—(Continued) June 30, 2021 December 31, 2020 (in thousands) Supplemental balance sheet information related to leases: Operating lease right-of-use assets $ 20,961 $ 22,495 Current operating lease liabilities 3,402 3,195 Non-current operating lease liabilities 19,921 21,675 Total operating lease liabilities $ 23,323 $ 24,870 Weighted-average remaining lease term (in years) Operating lease 5.25 5.75 Weighted-average discount rate Operating lease 8.25 % 8.25 % June 30, 2021 (in thousands) Maturity of operating lease liabilities 2021 $ 2,582 2022 5,273 2023 5,420 2024 5,572 2025 and beyond 10,117 Total lease payments 28,964 Less imputed interest ( 5,641 ) Present value of lease liabilities $ 23,323 11. Commitments and Contingencies Legal Proceedings On March 4, 2020 , Vytacera Bio, LLC filed a patent infringement lawsuit against the Company in the U.S. District Court for the District of Delaware. The lawsuit alleges that the Company’s use, offers to sell, and/or sales of the Probody® technology platform for basic research applications constitutes infringement. The complaint seeks unspecified monetary damages. The Company filed an Answer, Affirmative Defenses, and Counterclaims on May 26, 2020 . Vytacera Bio, LLC filed its Answer to CytomX Therapeutics Inc.’s Counterclaims on June 5, 2020 . The parties have agreed to a case schedule. Discovery is ongoing. The Company believes that the lawsuit is without merit and intends to vigorously defend itself and has no t recorded any amount for claims associated with this lawsuit as of June 30, 2021. 12. Income Taxes The Company records the effect of an enacted change in a tax law in the period that includes the enactment date in accordance with ASC 740. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The tax relief measures under the CARES Act for businesses include a five-year net operating loss carryback, suspension of annual deduction limitation of 80 % of taxable income from net operating losses generated in a tax year beginning after December 31, 2017, changes in the deductibility of interest, acceleration of alternative minimum tax credit refunds, payroll tax relief, and a technical correction to allow accelerated deductions for qualified improvement property. The income tax benefit for the six months ended June 30, 2020 was generated as a result of the recognition of net operating loss carryback under the CARES Act which generated a refund of income taxes paid for 2018. The Company maintains a full valuation allowance against its net deferred tax assets due to the Company’s history of losses as of June 30, 2021 and December 31, 2020 . 21 Item 2. Management’s Discuss ion and Analysis of Financial Condition and Results of Operations You should read the following management’s discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and notes thereto for the year ended December 31, 2020, included in our Annual Report on Forms 10-K as filed with the U.S. Securities and Exchange Commission (“SEC”) on February 24, 2021. This discussion and other parts of this report contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this report titled “Risk Factors.” Except as may be required by law, we assume no obligation to update these forward-looking statements or the reasons that results could differ from these forward-looking statements. Overview We are a clinical-stage, oncology-focused biopharmaceutical company with a vision of transforming lives with safer, more effective therapies. We are advancing a robust pipeline of novel, potential first-in-class antibody-based therapeutics created using our Probody® technology platform. Probody therapeutics are designed to be conditionally activated in the tumor microenvironment, effectively enabling the targeting of cancer tissues more specifically, while minimizing deleterious activity in healthy tissues and in circulation. We achieve this “conditional activation” by modifying our Probody therapeutics with a mask that is designed to block binding to target until the mask is removed by proteases. Proteases are enzymes that are more abundant in the tumor microenvironment than in normal tissue, potentially leading to an enrichment of therapeutic activity in the tumor. We believe this innovative approach, that we have pioneered, has the promise to improve cancer treatments in three ways by: (1) enhancing a product candidate’s therapeutic window, the balance between tolerability and activity; (2) allowing the pursuit of targets that were previously considered “undruggable,” due to their presence on normal tissues; and (3) improving combination therapies that are, otherwise, poorly tolerated. We have successfully applied our Probody technology to a variety of biologic modalities including antibodies, antibody drug conjugates (“ADCs”), T-cell bispecifics and cytokines; all of which are in various stages spanning discovery through clinical development. Our lead product candidates, praluzatamab ravtansine (CX-2009) and CX-2029, are two conditionally activated ADCs against the previously undruggable targets CD166 and CD71, respectively. These cancer targets were considered inaccessible to conventional ADCs due to their ubiquitous expression in many healthy tissues, but we believe they are potentially addressable with our Probody technology. Having demonstrated favorable tolerability and encouraging anti-tumor activity in separate dose-escalation Phase 1 studies, praluzatamab ravtansine, our wholly-owned conditionally activated ADC, and CX-2029, a conditionally activated ADC partnered with AbbVie, are currently in Phase 2 clinical studies. We are currently enrolling patients into a three-arm study of praluzatamab ravtansine in patients with human epidermal growth factor receptor 2 (“HER2”)-non-amplified breast cancer. Arms A and B will evaluate praluzatamab ravtansine monotherapy at 7 mg/kg administered every three weeks in patients with hormone receptor-positive (“HR+”)/HER2-non-amplified breast cancer and triple-negative breast cancer (“TNBC”), respectively. Arm C will evaluate praluzatamab ravtansine in combination with pacmilimab (CX-072), our wholly-owned PD-L1 inhibitor, in patients with TNBC. Approximately 40 evaluable patients will be enrolled into each arm of the study. Due primarily to impacts from COVID-19, including slower clinical-trial site activation and patient enrollment, we expect initial data from the praluzatamab ravtansine study in 2022. Additionally, CX-2029, the CD71-directed ADC, is being evaluated in four cohorts as a treatment for patients with squamous non-small cell lung cancer, head and neck squamous cell carcinoma, esophageal and gastro-esophageal junction cancers, and diffuse large B-cell lymphoma. Twenty-five evaluable patients are targeted for each cohort. We expect initial data from the CX-2029 study to be available in the fourth quarter of 2021. Our clinical-stage pipeline also includes cancer immunotherapeutic candidates against validated targets such as CTLA-4. Our partner, Bristol Myers Squibb, is conducting a randomized Phase 2 study evaluating BMS-986249, a Probody version of the CTLA-4-targeting antibody, ipilimumab, in combination with the anti PD-1 antibody, nivolumab, in patients with metastatic melanoma. In addition, BMS-986249 is being studied in combination with nivolumab in three additional indications: advanced hepatocellular carcinoma, metastatic castration-resistant prostate cancer and advanced TNBC. Bristol Myers Squibb also continues to evaluate BMS-986288, a Probody version of non-fucosylated ipilimumab, as monotherapy or in combination with nivolumab in a Phase 1 clinical trial. We have two preclinical agents in investigational new drug application (“IND”)-enabling studies, including CX-2043, our third conditionally activated ADC targeting the epithelial cell adhesion molecule (“EpCAM”), a widely expressed tumor antigen. CX-2043 has demonstrated potent anti-tumor activity across multiple cancer types and superior tolerability in animal models compared to the corresponding unmasked ADC. We, in partnership with Amgen, also have CX-904, a conditionally activated T-cell-engaging bispecific antibody candidate against the epidermal growth factor receptor (“EGFR”) on tumor cells and CD3 on T cells, in IND-enabling studies. We submitted a pre-IND meeting request to the U.S. Food and Drug Administration (“FDA”) and we expect written responses to our questions from the FDA in the third quarter of 2021. We will continue to discuss the program with Amgen and are working toward the filing of an IND for CX-904 in late 2021 . We are also engaged in broad drug discovery efforts towards the generation of new clinical candidates for the treatment of cancer, 22 including the application of our conditional activation platform to the engineering of novel, locally active cytokines, including interferon-alpha-2b. On January 25, 2021, we completed an underwritten public offering of 14,285,714 shares of common stock at a price of $7.00 per share. The aggregate net proceeds received by us from the offering were $93.6 million, after deducting underwriting discounts and commissions and offering expenses of $6.4 million. We also granted the underwriters the option, for 30 days, to purchase up to 2,142,857 additional shares of common stock at the public offering price, less the underwriting discounts and commissions. In February 2021, the underwriters exercised the option in full which resulted in additional net proceeds of $14.1 million to us, after deducting the underwriting discounts and commissions of $0.9 million. We do not have any products approved for sale, and we continue to incur significant research and development and general administrative expenses related to our operations. We are not profitable and have incurred losses in each year since our founding in 2008. Our net loss was $19.2 million and $34.8 million and for the three and six months ended June 30, 2021, respectively. As of June 30, 2021 and December 31, 2020, we had an accumulated deficit of $484.9 million and $450.1 million, respectively. We expect to continue to incur significant losses for the foreseeable future. Global health authorities, including the FDA, regulate many aspects of a product candidate’s life cycle, including research and development and preclinical and clinical testing. We will need to commit significant time, resources, and funding to develop our wholly-owned and partnered product candidates in clinical trials, including praluzatamab ravtansine, CX-2029, and pacmilimab, as well as any additional product candidates for which we initiate clinical studies in the future. We are unable to provide the nature, timing, and estimated costs of the efforts necessary to complete the development of our product candidates because, among other reasons, of regulatory uncertainty, manufacturing limitations, and the pace of enrollment of our clinical trials, which is a function of many factors, including the availability and proximity of patients with the relevant condition. We currently have no manufacturing capabilities and do not intend to establish any such capabilities in the near term. As such, we are dependent on third parties to supply our product candidates according to our specifications, in sufficient quantities, on time, in compliance with appropriate regulatory standards and at competitive prices. Impact of COVID-19 In December 2019, a strain of novel coronavirus-caused disease (now commonly known as COVID-19) was reported to have surfaced in Wuhan, China. COVID-19 has since spread rapidly throughout many countries and has been declared to be a pandemic. In an effort to contain and mitigate the spread of COVID-19, many countries, including the United States, Canada and countries in Europe and Asia, have imposed unprecedented restrictions on travel, business operations and public gatherings, and there have been business closures and limitations on business operations, which have resulted in a substantial reduction in economic activity. In March 2020, we announced the temporary pause in new patient enrollment and new site activation in our Phase 2 clinical trial of praluzatamab ravtansine as a result of the COVID-19 pandemic, primarily due to delays in patient enrollment and clinical site initiations, and the termination of the Phase 2 clinical trial of pacmilimab (CX-072) after a re-evaluation of the evolving clinical, competitive and commercial landscapes in immuno-oncology, taken together with impact of the COVID-19 pandemic. Since then, we have revised our strategy for developing praluzatamab ravtansine, and have initiated our Phase 2 clinical trial for praluzatamab ravtansine. The COVID-19 outbreak and any preventative or protective actions that we, our collaboration partners or others may take in respect of the virus may result in further disruption for our clinical trials, including clinical trials for praluzatamab ravtansine and CX-2029, manufacturing, research, financial reporting capabilities and operations generally and could potentially impact our patients, partners, employees and third parties. For example, we continue to be impacted by COVID-19 in our clinical trials, particularly in site initiation and patient enrollment for our ongoing Phase 2 clinical trial for praluzatamab ravtansine. As a result, we now believe initial data from that clinical trial will be available in 2022. Any resulting financial impact cannot be reasonably estimated at this time but may materially affect the business and our financial condition and results of operations. The extent to which the COVID-19 pandemic continues to impact our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions necessary to contain the virus or treat its impact, among others. Currently, it is not possible to predict how long the pandemic will last or the time that it will take for economic activity to return to its prior levels. We do not yet know the full extent of any impact or delay on our business or our operations, including clinical trial activity, however, we will continue to monitor the COVID-19 situation closely and operate in accordance with all relevant health and safety guidelines as they evolve. Critical Accounting Policies and Estimates The preparation of our Condensed Financial Statements requires us to make estimates and judgments that affect the reported amounts in the financial statements and related disclosures. On an ongoing basis, management evaluates its significant accounting policies and estimates. We base our estimates on historical experience and on various market-specific and other relevant assumptions that we believe to be reasonable 23 under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ significantly from these estimates. Estimates are assessed each period and updated to reflect current information. A summary of our critical accounting policies and estimates is presented in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020. There have been no material changes to our critical accounting policies and estimates during the three and six months ended June 30, 2021. Components of Results of Operations Revenue Our revenue to date has been primarily derived from non-refundable license payments, milestone payments and reimbursements for research and development expenses under our research, collaboration, and license agreements. We recognize revenue from upfront payments over the term of our estimated period of performance under the agreement using a cost-based input method or a common measure of progress for the entire performance obligation. In addition to receiving upfront payments, we may also be entitled to milestone and other contingent payments upon achieving predefined objectives. Revenue from milestones and other contingent payments, when it is probable that there will not be a significant revenue reversal, is also recognized over the performance period based on a similar method. Reimbursements from Astellas and Bristol Myers Squibb for research and development costs when incurred under our research, collaboration and license agreements with them are classified as revenue. For the foreseeable future, we do not expect to generate any revenue from the sale of products unless and until such time as our product candidates have advanced through clinical development and obtained regulatory approval. We expect that any revenue we generate in the foreseeable future will fluctuate from year to year as a result of the timing and amount of milestones and other payments from our collaboration agreements with AbbVie, Amgen, Astellas, Bristol Myers Squibb and any other collaboration partners, and as a result of the fluctuations in the research and development expenses we incur in the performance of assigned activities under these agreements. AbbVie, one of our collaboration partners, entered into a license agreement with Seagen Inc. (“SGEN”) to license certain intellectual property rights. As part of our collaboration agreement with AbbVie, we received a sublicense to these intellectual property rights and therefore pay SGEN sublicense fees. These sublicense fees are treated as reductions to the transaction price and combined with the performance obligation to which they relate. Milestone payments, when considered probable of being reached and when a significant revenue reversal would not be probable of occurring, are also recorded net of the associated sublicense fees and included in the transaction price. Research and Development Expenses Our research and development expenses consist primarily of costs incurred to conduct research, such as the discovery and development of our product candidates, clinical development including activities with third parties, such as contract research organizations (“CRO”) and contract development and manufacturing organizations (“CMO”), the manufacture of drug products used in clinical trials, as well as the development of product candidates pursuant to our research, collaboration and license agreements. Research and development expenses include personnel costs, including stock-based compensation expense, contractor services, laboratory materials and supplies, depreciation and maintenance of research equipment, and an allocation of related facilities costs. We expense research and development costs as incurred. We expect our research and development expenses to increase substantially in absolute dollars in the future as we advance our product candidates through clinical trials, initiate additional clinical trials, and pursue regulatory approval of our product candidates. Examples include our Phase 2 clinical trials for praluzatamab ravtansine (CX-2009) and CX-2029 and potential future clinical trials for CX-2029 and for praluzatamab ravtansine in combination with pacmilimab (CX-072). The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming. The actual probability of success for our product candidates may be affected by a variety of factors including: the safety and efficacy of our product candidates, early clinical data, investment in our clinical program, the ability of collaborators to successfully develop our licensed product candidates, competition, manufacturing capability and commercial viability. We may never succeed in achieving regulatory approval for any of our product candidates. As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of our product candidates. General and Administrative Expenses General and administrative expenses include personnel costs, expenses for outside professional services and other allocated expenses. Personnel costs consist of salaries, bonuses, benefits and stock-based compensation. Outside professional services consist of accounting and audit services, legal and other consulting fees. Allocated expenses primarily consist of rent expense related to our office and information technology related costs. 24 Interest Income Interest income primarily consists of interest income from our cash equivalents and investments, and accretion of discounts or amortization of premiums on our investments. Other Income, Net Other income, net consists primarily of gains and losses resulting from changes to currency exchange rates. Income Taxes Income taxes are recorded in accordance with ASC 740 , Accounting for Income Taxes, or ASC 740 , which provides for deferred taxes using an asset and liability approach. We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our financial statements or tax returns. We determine our deferred tax assets and liabilities based on differences between the financial reporting and tax bases of assets and liabilities, which are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are provided, if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. We also account for uncertain tax positions in accordance with the provisions of ASC 740 . When uncertain tax positions exist, we recognize the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The tax relief measures under the CARES Act for businesses include a five-year net operating loss carryback, suspension of annual deduction limitation of 80% of taxable income from net operating losses generated in a tax year beginning after December 31, 2017, changes in the deductibility of interest, acceleration of alternative minimum tax credit refunds, payroll tax relief, and a technical correction to allow accelerated deductions for qualified improvement property. We record the effect of an enacted change in a tax law in the period that includes the enactment date in accordance with ASC 740. Results of Operations For the Three and Six Months Ended June 30, 2021 and 2020. Revenues Three Months Ended Six Months Ended June 30, June 30, 2021 2020 Change 2021 2020 Change (in thousands) (in thousands) Total revenues $ 16,288 $ 16,608 $ (320 ) $ 32,259 $ 66,201 $ (33,942 ) The following table summarizes our revenue by collaboration partner during the respective periods: Three Months Ended June 30, Six Months Ended June 30, 2021 2020 Change 2021 2020 Change (in thousands) (in thousands) AbbVie $ 2,078 $ 1,319 $ 759 $ 3,306 $ 31,415 $ (28,109 ) Amgen 1,874 3,678 (1,804 ) 4,456 5,373 (917 ) Astellas 4,931 4,204 727 9,688 4,591 5,097 Bristol Myers Squibb 7,405 7,407 (2 ) 14,809 24,822 (10,013 ) Total Revenue $ 16,288 $ 16,608 $ (320 ) $ 32,259 $ 66,201 $ (33,942 ) The decrease in revenue of $0.3 million for the three months ended June 30, 2021 compared to the corresponding period of 2020 was primarily due to:  a decrease in revenue from Amgen of $1.8 million driven by additional revenue recognized through June 30, 2020 given the completion of CX-904 clinical candidate characterization phase and its progress into the IND-enabling phase earlier than planned under the Collaboration and License Agreement with Amgen (the “Amgen Agreement”); 25  an increase in revenue from AbbVie of $0.8 million primarily due to a higher percentage of completion in the current quarter resulting from incremental FTE hours incurred for the CD71 program;  an increase in revenue from Astellas of $0.7 million primarily due to the increased research services during the current quarter under the Collaboration and License Agreement with Astellas (the “Astellas Agreement”) entered into in March 2020. The decrease in revenue of $33.9 million for the six months ended June 30, 2021 compared to the corresponding period of 2020 was primarily due to:  a decrease in revenue of $28.1 million from AbbVie primarily due to the $40.0 million milestone payment earned in the first quarter of 2020 for satisfying the CD71 dose escalation success criteria milestone under the CD71 Co-Development and Licensing Agreement (the “CD71 Agreement”), of which $26.6 million was recognized reflecting the project percentage completion to date in the first quarter of 2020;  a decrease in revenue from Bristol Myers Squibb of $10.0 million due to the recognition in full of the $10.0 million milestone payment earned for achieving the dosing of first patient in the Part 2 cohort expansion of the ongoing CTLA-4 program by Bristol Myers Squibb in February 2020;  a decrease in revenue from Amgen of $0.9 million primarily due to a decrease in the projected FTE hours-to-completion and higher percentage of completion resulting from the completion of the clinical candidate characterization phase during the six months ended June 30, 2020 and moving to the IND-enabling phase earlier than planned;  an increase in revenue from Astellas of $5.1 million due to a full six-month recognition of the $80.0 million upfront payment over the estimated research service period of five years under the Astellas Agreement entered into in March 2020, as well as the increased research services during the current period. Operating Costs and Expenses Research and Development Expenses Three Months Ended Six Months Ended June 30, June 30, 2021 2020 Change 2021 2020 Change (in thousands) (in thousands) Research and development expenses $ 26,100 $ 24,066 $ 2,034 $ 48,472 $ 66,880 $ (18,408 ) Research and development expenses increased $2.0 million during the three months ended June 30, 2021 compared to the corresponding period in 2020. The change was driven mainly by increases in laboratory contracts and services and laboratory supplies and equipment expenses due to timing of manufacturing and tissue sampling activities. Research and development expenses decreased $18.4 million during the six months ended June 30, 2021 compared to the corresponding period in 2020. The decrease was attributable to the following:  a decrease of $11.2 million in licensing expenses, of which $8.2 million related to UCSB sublicense fees incurred on payments to us from various collaboration partners upon the achievements of certain milestones as well as the upfront payment from Astellas pursuant to the Astellas Agreement; and $3.0 million to ImmunoGen pursuant to the CX-2009 License as we initiated the first dosing of a patient in the praluzatamab ravtansine (CX-2009) Phase 2 clinical trial in February 2020;  a decrease of $7.5 million in laboratory contracts and services due to timing of manufacturing activities as well as clinical trial related expenses. 26 The following table summarizes our research and development expenses by program incurred during the respective periods presented: Three Months Ended Six Months Ended June 30, June 30, 2021 2020 Change 2021 2020 Change External costs incurred by product candidate (target): (in thousands) (in thousands) CX-072 (PD-L1) $ 1,715 $ 2,386 $ (671 ) $ 1,514 $ 9,948 $ (8,434 ) CX-2009 (CD166) 2,793 3,553 (760 ) 5,845 9,892 (4,047 ) CX-2029 (CD71) 3,349 1,137 2,212 4,836 4,203 633 Other wholly owned and partnered programs 3,400 2,110 1,290 5,210 11,158 (5,948 ) General research and development expenses 3,363 2,768 595 7,160 6,439 721 14,620 11,954 2,666 24,565 41,640 (17,075 ) Internal Costs 11,480 12,112 (632 ) 23,907 25,240 (1,333 ) Total research and development expenses $ 26,100 $ 24,066 $ 2,034 $ 48,472 $ 66,880 $ (18,408 ) The increase in research and development expenses for the three months ended June 30, 2021 compared to the corresponding period of 2020 was attributable to the following changes by project:  The increase in CX-2029 expenses was primarily due to increases in clinical trial expenses and laboratory contract services resulting from the timing of manufacturing and other research activities.  The increase in “Other wholly owned and partnered programs” was primarily due to increases in clinical trial expenses and laboratory contract services resulting from the timing of manufacturing as wells as other research activities in the EpCAM study. The decrease in research and development expenses for the six months ended June 30, 2021 compared to the corresponding period of 2020 was attributable to the following changes by project:  The decrease in CX-072 expenses was primarily due to a $5.2 million decrease in clinical trial related expenses and $2.7 million decrease in laboratory contract services as a result of the timing of manufacturing and other research activities in the CX-072 study and the termination of the CX-072-002 study to evaluate the anti-PD-L1 Probody CX-072 in combination with ipilimumab in melanoma.  The decrease in CX-2009 expenses was primarily due to a $3.0 million licensing payment to ImmunoGen incurred in the first quarter of 2020, a $1.8 million decrease in laboratory contract services in current period resulting from the timing of manufacturing and other research activities, partially offset by $0.5 million increase in clinical trial expenses.  The decrease in “Other wholly owned and partnered programs” was primarily due to a $6.0 million sublicense fee payment to UCSB related to the $80.0 million upfront payment under the Astellas Agreement during the first quarter of 2020. General and Administrative Expenses Three Months Ended Six Months Ended June 30, June 30, 2021 2020 Change 2021 2020 Change (in thousands) (in thousands) General and administrative expenses $ 9,393 $ 8,680 $ 713 $ 18,619 $ 18,252 $ 367 General and administrative expenses were essentially flat during the three and six months ended June 30, 2021 compared to the corresponding periods in 2020. Interest Income and Other Income (Expense) Three Months Ended Six Months Ended June 30, June 30, 2021 2020 Change 2021 2020 Change (in thousands) (in thousands) Interest income $ 44 $ 454 $ (410 ) $ 112 $ 1,530 $ (1,418 ) Other income (expense), net (82 ) 5 (87 ) (77 ) 16 (93 ) Total interest and other income $ (38 ) $ 459 $ (497 ) $ 35 $ 1,546 $ (1,511 ) 27 Interest Income Interest income decreased by $0.4 million and $1.4 million, respectively, during the three and six months ended June 30, 2021 compared to the corresponding periods in 2020, primarily driven by lower interest rates in 2021. Benefit From Income Taxes There was no income tax expense for the three months ended June 30, 2021 and 2020, respectively, as we were in a taxable loss position and we had minimal changes in our unrealized gain on available for sale debt securities. Income tax benefit decreased by $13.9 million during the six months ended June 30, 2021, compared to the corresponding period in 2020. The income tax benefit of $13.9 million for the six months ended June 30, 2020 was generated due to the recognition of net operating loss carrybacks under the CARES Act, which generated a refund of taxes paid for 2018. Liquidity and Capital Expenditures Sources of Liquidity As of June 30, 2021, we had cash, cash equivalents and investments of $366.1 million and an accumulated deficit of $484.9 million, compared to cash, cash equivalents and investments of $316.1 million and an accumulated deficit of $450.1 million as of December 31, 2020. To date, we have financed our operations primarily through sales of our common stock in conjunction with the IPO and subsequent stock offerings and through our at-the-market offering, sales of our convertible preferred securities prior to our IPO and payments received under our collaboration agreements. Based upon our current operating plan, we expect our existing capital resources will be sufficient to fund operations for a period of at least twelve months from the date the financial statements included in this report are issued. However, if the anticipated operating results and future financing are not achieved in future periods, our planned expenditures may need to be reduced in order to extend the time period over which the then-available resources would be able to fund the operations. The amounts and timing of our actual expenditures depend on numerous factors, including the progress of our preclinical and clinical development efforts, the results of any clinical trials and other studies, our operating costs and expenditures and other factors described under the caption “Risk Factors” in this Quarterly Report on Form 10-Q. The cost and timing of developing our products, including praluzatamab ravtansine (CX-2009), and CX-2029, and pacmilimab (CX-072) are highly uncertain, are subject to substantial risks and many changes. As such, we may alter our expenditures as a result of contingencies such as the failure of one or all of our product candidates currently in clinical development, the acceleration of one or all of our product candidates in clinical development, the initiating of clinical trials for additional product candidates, the identification of more promising product candidates in our research efforts or unexpected operating costs and expenditures. We will need to raise additional funds in the future. There can be no assurance, however, that such efforts will be successful or that, in the event that they are successful, the terms and conditions of such financing will be favorable to us. Summary Statement of Cash Flows The following table summarizes our cash flows for the periods indicated: Six Months Ended June 30, 2021 2020 (in thousands) Net cash (used in) provided by operating activities $ (58,139 ) $ 47,364 Net cash provided by investing activities 13,000 51,894 Net cash provided by financing activities 109,426 3,705 Net increase in cash and cash equivalents $ 64,287 $ 102,963 Cash Flows from Operating Activities During the six months ended June 30, 2021, cash used in operating activities was $58.1 million, which consisted of a net loss of $34.8 million and a net decrease of $33.0 million relating to the change of our net operating assets and liabilities, offset by non-cash charges of $9.7 million. The non-cash charges primarily consisted of $6.5 million in stock-based compensation, $1.5 million in non-cash lease expense, $1.4 million in depreciation and amortization and $0.3 million in amortization of premium on investments. The change in our net operating assets and liabilities was primarily due to: 28  a net decrease of $30.6 million in deferred revenue resulting from the continued recognition of deferred revenue from existing customers;  a decrease of $6.7 million in accounts payable, accrued and other long-term liabilities primarily due to timing of payment and a reduction in research and clinical expenses; and  an increase of $4.4 million in cash flows from other assets, prepaid and other current assets. During the six months ended June 30, 2020, cash provided by operating activities was $47.4 million, which consisted of a net loss of $3.5 million adjusted by non-cash charges of $9.9 million and a net increase of $41.0 million relating to the change of our net operating assets and liabilities. The non-cash charges primarily consisted of $7.5 million in stock-based compensation, $1.4 million in non-cash lease expense and $1.3 million in depreciation and amortization, which amounts were partially offset by $0.3 million in accretion of discounts on our investments. The change in our net operating assets and liabilities was primarily due to:  a net increase of $64.0 million in deferred revenue resulting primarily from the $80.0 million upfront payment due from Astellas as well as the $40.0 million milestone payment due from AbbVie, partially offset by the continued recognition of deferred revenue from existing and new customers, including the $26.6 million revenue recognized from the $40.0 million milestone payment earned in the first quarter of 2020, which reflected the percentage completed to-date on the project;  an increase of $1.2 million in cash flows from other assets and accounts payable;  a decrease of $12.8 million in cash flows from prepaid expenses and other current assets which included a $13.1 million income tax receivable resulting from a carryback of net operating loss incurred in 2019 to the preceding years as permitted by the CARES Act;  a decrease of $11.3 million in accrued liabilities primarily due to payment of $7.5 million for the ImmunoGen 2019 License; and  a decrease in cash flow of $0.2 million from accounts receivable primarily related to research and development service fees due from Astellas pursuant to the Astellas Agreement. Cash Flows from Investing Activities During the six months ended June 30, 2021, cash provided by investing activities was $13.0 million, which consisted of $114.0 million in proceeds received upon the maturity of short-term marketable securities, partially offset by $99.9 million used in the purchase of long-term investments and $1.1 million of capital expenditures used to purchase property and equipment. During the six months ended June 30, 2020, cash provided by investing activities was $51.9 million, which consisted of $97.7 million in proceeds received upon the maturity of marketable securities, partially offset by $44.7 million used in the purchase of short-term investments and $1.1 million of capital expenditures used to purchase property and equipment. Cash Flows from Financing Activities During the six months ended June 30, 2021, cash provided by financing activities consisted of $107.7 million of net proceeds from the follow-on public offering and $1.7 million of proceeds from the exercise of stock options and employee stock purchases under the employee stock purchase plan. During the six months ended June 30, 2020, cash provided by financing activities primarily consisted of proceeds from the exercise of stock options and employee stock purchases under the employee stock purchase plan. Contractual Obligations During the three and six months ended June 30, 2021, there were no material changes in contractual obligations from the amounts disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020. Segment Information We have one primary business activity and operate as one reportable segment. Off-Balance Sheet Arrangements We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities. 29 Item 3. Quantitative and Qualitat ive Disclosure About Market Risk We are exposed to market risks in the ordinary course of our business. These risks primarily relate to interest rate risks. We had cash, cash equivalents and investments of $366.1 million as of June 30, 2021 and cash, cash equivalents and investments of $316.1 million as of December 31, 2020, which consists of bank deposits, money market funds and U.S. government bonds. Such interest-bearing instruments carry a degree of interest rate risk; however, historical fluctuations of interest income have not been significant. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate exposure. We have not historically been exposed to material risks due to changes in interest rates. Based on our investment positions as of June 30, 2021, a hypothetical 100 basis point change in interest rates would not have material effect in the fair value of the portfolio. Item 4. Controls and Proc edures Evaluation of Disclosure Controls and Procedures The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934, as amended (the “Exchange Act”) refers to controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their control objectives. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2021, the end of the period covered by this Quarterly Report on Form 10-Q. Management’s assessment of internal control over financial reporting was conducted using the criteria defined in the Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of such date. Changes in Internal Controls Over Financial Reporting There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended June 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 30 PART II – OTHER INFORMATION