What changed in this filing

/stocks — the workspaceLOADING

Item 4. Controls and Procedures

2022-05-05 compared with 2021-11-04 · 210 added, 459 removed, 483 unchanged (58% of the section changed)

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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;

the extent to which the COVID-19 pandemic and related governmental regulations and restrictions may impact our business, including our research, clinical trials, which include 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 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;

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our financial performance;

developments relating to our competitors or our industry.

developments relating to our competitors or our industry or to international conflict and uncertainties.

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.

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(in thousands, except share and per share data)

September 30,

Current assets:

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Total current assets

Long-term investments

Property and equipment, net

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Convertible preferred stock, $ 0.00001 par value;

10,000,000 shares authorized and no shares issued and outstanding at September 30, 2021 and December 31, 2020.

10,000,000 shares authorized and no shares issued and outstanding at March 31, 2022 and December 31, 2021.

Common stock, $ 0.00001 par value;

150,000,000 shares authorized and 65,249,116 and 48,251,819 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively

150,000,000 shares authorized and 65,398,355 and 65,392,758 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

Additional paid-in capital

Accumulated other comprehensive income (loss)

Accumulated other comprehensive loss

Accumulated deficit

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Three Months Ended

Nine Months Ended

September 30,

Operating expenses:

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Interest income

Other income (expense), net

Loss before income taxes

Benefit from income taxes

Net loss per share, basic and diluted

Shares used to compute net loss per share, basic and diluted

Other income, net

Other comprehensive income (loss):

Unrealized gain (loss) on investments, net of tax

Unrealized gain (loss) on short-term investments, net of tax

Comprehensive loss

Net loss per share:

Basic and diluted net loss per share

Shares used in computing basic and diluted net loss per share

See accompanying notes to condensed financial statements.

CYTOMX THERAPEUTICS, INC.

STATEMENTS OF STOC KHOLDERS’

CONDENSED STATEMENTS OF STOC KHOLDERS’

(in thousands, except share data)

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Stockholders'

Income/(Loss)

Balance at December 31, 2021

Issuance of common stock in follow-on offering, net of issuance costs

Exercise of stock options

Stock-based compensation

Other comprehensive income

Other comprehensive loss

Balance at March 31, 2022

Exercise of stock options

Issuance of common stock under the ESPP

Stock-based compensation

Other comprehensive income

Balance at June 30, 2021

Exercise of stock options

Stock-based compensation

Other comprehensive income

Balance at September 30, 2021

Comprehensive

Stockholders'

Income/(Loss)

Balance at December 31, 2020

Issuance of common stock in follow-on offering, net of issuance costs

Exercise of stock options

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Balance at March 31, 2021

Exercise of stock options

Issuance of common stock under the ESPP

Stock-based compensation

Other comprehensive loss

Balance at June 30, 2020

Exercise of stock options

Stock-based compensation

Other comprehensive loss

Balance at September 30, 2020

See accompanying notes to condensed financial statements.

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(in thousands)

Nine Months Ended

September 30,

Three Months Ended

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Amortization of intangible assets

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Deferred revenue

Net cash (used in) provided by operating activities

Net cash used in operating activities

Cash flows from investing activities:

Purchases of property and equipment

Purchases of investments

Maturities of investments

Net cash provided by investing activities

Maturities of short-term investments

Net cash (used in) provided by investing activities

Cash flows from financing activities:

Proceeds from issuance of common stock, net of issuance costs

Proceeds from employee stock purchase plan and exercise of stock options

Proceeds from exercise of stock options

Net cash provided by financing activities

Net increase in cash, cash equivalents and restricted cash

Net increase (decrease) in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, beginning of period

Cash, cash equivalents and restricted cash, end of period

Supplemental disclosures of noncash investing items:

Purchases of property and equipment in accounts payable and accrued liabilities

See accompanying notes to condensed financial statements.

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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”) is a clinical-stage, oncology-focused biopharmaceutical company dedicated to destroying cancer differently.

The Company aims to build a commercial enterprise to maximize its impact on the treatment of cancer.

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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.

The condensed results of operations for the three and nine months ended September 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 condensed results of operations for the three months ended March 31, 2022 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, 2021 filed with the SEC.

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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.

Restricted cash represents a standby letter of credit issued pursuant to an office lease.

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:

September 30,

March 31, 2022

December 31, 2021

March 31, 2021

December 31, 2020

(in thousands)

1 unchanged sentence

Restricted cash - non-current assets

CYTOMX THERAPEUTICS, INC.

Notes to Condensed Financial Statements (Unaudited)—(Continued)

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

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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.

CYTOMX THERAPEUTICS, INC.

Notes to Condensed Financial Statements (Unaudited)—(Continued)

The Company assesses whether the promises in its arrangements with customers are distinct performance obligations that should be accounted for separately.

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instead, they are included when the sales or usage occur.

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.

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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).

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.

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.

Net Loss Per Share

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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

Nine Months Ended

September 30,

Options and ESPP to purchase common stock

CYTOMX THERAPEUTICS, INC.

Notes to Condensed Financial Statements (Unaudited)—(Continued)

Three Months Ended

Options, RSUs and ESPP to purchase common stock

Fair Value Measurements and Investments

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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;

government bonds that are included in long-term and short-term investments.

government bonds that are included in 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:

September 30, 2021

March 31, 2022

(in thousands)

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Restricted cash (money market funds)

Government bonds - short term

Government bonds - long term

Government bonds

Total securities

December 31, 2021

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Restricted cash (money market funds)

Government bonds - short term

Government bonds

Total securities

All long term investments consist of U.S.

government bonds purchased in the second quarter of 2021 with contractual maturities of eighteen months , and no other securities have contractual maturities of greater than twelve months.

No securities have contractual maturities of greater than twelve months .

As of March 31, 2022, the unrealized losses on the Company’s investment in US Government bonds were caused by interest rate changes and were not attributable to credit losses.

The remaining contractual terms of those investments are less than a year.

The Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases.

CYTOMX THERAPEUTICS, INC.

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Accrued liabilities consisted of the following:

September 30,

(in thousands)

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Research and Collaboration Agreements

The following table summarizes the revenue by collaboration partners:

The following table summarizes the revenue by collaboration partner:

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Bristol Myers Squibb

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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.

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.

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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.

Inclusive of payments received in 2017, 2018 and 2020, as of March 31, 2022, the Company has received $ 100.0 million in milestone payments 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

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

CYTOMX THERAPEUTICS, INC.

Notes to Condensed Financial Statements (Unaudited)—(Continued)

shall have sole right and responsibility for development and commercialization of products comprising or containing such conditionally activated ADCs (“Discovery Licensed Products”).

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.

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 September 30, 2021.

The Company recognized revenue of $ 2.9 million and $ 4.2 million for the three months ended September 30, 2021 and 2020, respectively, and $ 6.2 million and $ 35.6 million for the nine months ended September 30, 2021 and 2020, respectively, related to the AbbVie Agreements.

As of September 30, 2021 and December 31, 2020, deferred revenue related to the CD71 Agreement performance obligation was $ 21.1 million and $ 25.2 million, respectively, and deferred revenue related to the Discovery Agreement performance obligation was $ 5.9 million and $ 8.0 million, respectively.

No amounts were due from AbbVie as of both September 30, 2021 and December 31, 2020.

Therefore, these payments continue to be fully constrained and are not included in the transaction price as of March 31, 2022.

As of March 31, 2022 and December 31, 2021, deferred revenue related to the CD71 Agreement performance obligation was $ 14.3 million and $ 16.1 million, respectively, and deferred revenue related to the Discovery Agreement performance obligation was $ 4.6 million and $ 5.2 million, respectively.

On September 29, 2017, the Company and Amgen, Inc.

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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.

Concurrent with the Amgen Agreement, the Company and Amgen entered into a Share 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 for total proceeds of $ 20.0 million.

In October 2021, CytomX and Amgen executed an amendment to the Amgen Agreement primarily to (1) extend the target selection date for Amgen to select its additional targets for research and development, and (2) reduce the total number of milestone events and increase the total amount of milestone payments for EGFR Products.

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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

CYTOMX THERAPEUTICS, INC.

Notes to Condensed Financial Statements (Unaudited)—(Continued)

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.

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.

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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 $ 2.4 million and $ 1.6 million for the three months ended September 30, 2021 and 2020, respectively, and $ 6.9 million and $ 7.0 million for the nine months ended September 30, 2021 and 2020, respectively, related to the Amgen Agreement.

As of September 30, 2021 and December 31, 2020, deferred revenue related to the EGFR Products performance obligation was $ 23.5 million and $ 29.8 million, respectively.

As of September 30, 2021 and December 31, 2020, deferred revenue related to the Amgen Other Products performance obligation was $ 1.6 million and $ 2.2 million, respectively.

No amounts were due from Amgen as of both September 30, 2021 and December 31, 2020.

In January 2022, the IND for the EGFR product (CX-904) was allowed to proceed by the U.S.

Food and Drug Administration (“FDA”).

As of March 31, 2022 and December 31, 2021, deferred revenue related to the EGFR Products performance obligation was $ 19.8 million and $ 21.8 million, respectively.

As of March 31, 2022 and December 31, 2021, deferred revenue related to the Amgen Other Products performance obligation was $ 1.2 million and $ 1.4 million, respectively.

CYTOMX THERAPEUTICS, INC.

Notes to Condensed Financial Statements (Unaudited)—(Continued)

Astellas Pharma Inc.

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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 full time employee ("FTE") rate.

The Company recognized revenue of $ 4.9 million and $ 4.5 million for the three months ended September 30, 2021 and 2020, respectively;

and $ 14.6 million and $ 9.1 million for the nine months ended September 30, 2021 and 2020, respectively.

Those revenues also included the research and development service revenue of $ 0.9 million and $ 0.5 million for the three months ended September 30, 2021 and 2020, respectively, and $ 2.6 million and $ 0.7 million for the nine months ended September 30, 2021 and 2020, respectively.

As of September 30, 2021 and December 31, 2020, deferred revenue relating to the Astellas Agreement was $ 55.6 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 September 30, 2021 and December 31, 2020, respectively.

As of March 31, 2022 and December 31, 2021, deferred revenue relating to the Astellas Agreement was $ 47.6 million and $ 51.6 million, respectively.

The amount due from Astellas under the Astellas Agreement was $ 1.0 million and $ 0.8 million as of March 31, 2022 and 2021, respectively.

Bristol Myers Squibb Company

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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

CYTOMX THERAPEUTICS, INC.

Notes to Condensed Financial Statements (Unaudited)—(Continued)

collaboration targets within three years of the effective date of the BMS Agreement.

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.

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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.

CYTOMX THERAPEUTICS, INC.

Notes to Condensed Financial Statements (Unaudited)—(Continued)

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 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.

2 unchanged sentences

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.

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In addition, the Company will no longer be entitled to receive the research and development service fee as part of the arrangement.

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 September 30, 2021.

The Company recognized revenue of $ 7.4 million and $ 7.4 million for the three months ended September 30, 2021 and 2020, respectively and $ 22.2 million and $ 32.2 million for the nine months ended September 30, 2021 and 2020, respectively.

As of September 30, 2021 and December 31, 2020, deferred revenue relating to the BMS Agreement was $ 106.2 million and $ 128.3 million, respectively.

No amounts were due from Bristol Myers Squibb as of September 30, 2021 and December 31, 2020.

CYTOMX THERAPEUTICS, INC.

Notes to Condensed Financial Statements (Unaudited)—(Continued)

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.

The Company reevaluated the remaining potential milestone payments and determined that 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 continued to be fully constrained and are not included in the transaction price as of March 31, 2022.

As of March 31, 2022 and December 31, 2021, deferred revenue relating to the BMS Agreement was $ 91.3 million and $ 98.8 million, respectively.

Contract Liabilities

The following table presents changes in the Company’s total contract liabilities during the nine months ended September 30, 2021:

The following table presents changes in the Company’s total contract liabilities during the three months ended March 31, 2022:

(in thousands)

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Deferred revenue

The Company expects that the $ 213.9 million of deferred revenue related to the following contracts as of September 30, 2021 will be recognized as revenue as set forth below.

The Company expects that the $ 178.8 million of deferred revenue related to the following contracts as of March 31, 2022 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 $ 21.1 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 $ 0.4 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 $ 5.5 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 $ 23.5 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 .

The $ 1.6 million of deferred revenue related to the Amgen Other Products is expected to be recognized ratably until approximately September 2023 .

The $ 55.6 million of deferred revenue related to the Astellas Agreement is expected to be recognized ratably until approximately March 2025 .

The $ 106.2 million of deferred revenue related to the BMS Agreement is expected to be recognized ratably until approximately April 2025 .

The $ 14.3 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 2023 .

The $ 0.1 million of deferred revenue related to the first target under the Discovery Agreement with AbbVie is expected to be recognized ratably until the second quarter of 2022 .

The $ 4.5 million of deferred revenue related to the second target under the Discovery Agreement with AbbVie is expected to be recognized ratably until 2024 .

The $ 19.8 million of deferred revenue related to the Amgen EGFR Products is expected to be recognized based on actual FTE effort and program progress until 2024 .

The $ 1.2 million of deferred revenue related to the Amgen Other Products is expected to be recognized ratably until 2023 .

The $ 47.6 million of deferred revenue related to the Astellas Agreement is expected to be recognized ratably until 2025 .

The $ 91.3 million of deferred revenue related to the BMS Agreement is expected to be recognized ratably until 2025 .

CYTOMX THERAPEUTICS, INC.

Notes to Condensed Financial Statements (Unaudited)—(Continued)

License Agreements

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 September 30, 2021 and 2020, and $ 0.9 million and $ 9.1 million for the nine months ended September 30, 2021 and 2020, respectively, under the provisions of the UCSB Agreement.

As of September 30, 2021 and December 31, 2020, there was no outstanding sublicense fee payable to UCSB.

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.

Stock-Based Compensation

Stock Options

Activities under the Company’s stock option plans for the nine months ended September 30, 2021 were as follows:

Activities for the Company’s stock option plans for the three months ended March 31, 2022 were as follows:

Options Outstanding

Exercise Price

Balances at December 31, 2020

Balance at December 31, 2021

Options granted

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Option forfeited/expired

Balances at September 30, 2021

Options exercisable at September 30, 2021

Balance at March 31, 2022

The Company recorded $ 2.9 million of stock-based compensation expense related to the stock option plans for both the three months end March 31, 2022 and 2021.

Time-based RSUs ("TRSU")

Activities for the Company’s TRSUs for the three months ended March 31, 2022 were as follows:

Weighted Average Grant Date Fair Value Per Share

Balance at December 31, 2021

RSU's awarded

RSU's cancelled

Balance at March 31, 2022

The Company recorded $ 0.3 million and $ 0 of stock-based compensation expense related to the TRSUs for the three months end March 31, 2022 and 2021, respectively.

Performance-based RSUs ("PSUs")

In October 2021, the Company granted 435,000 PSUs as recognition awards to executive employees with an aggregated grant date fair value of $ 2.3 million.

50% of the PSUs granted will vest within one year of the grant date upon achievement of certain specific milestones and the remaining 50% will vest within two years of the grant date upon achievement of additional company objectives.

Activities for the Company’s PSUs for the three months ended March 31, 2022 were as follows:

Weighted Average Grant Date Fair Value Per Share

Balance at December 31, 2021

PSU's awarded

PSU's cancelled

Balance at March 31, 2022

As of March 31, 2022, the Company determined that it is not probable that the performance conditions will be satisfied and hence recorded no compensation cost for these awards as of and for the three months ended March 31, 2022.

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:

Total stock-based compensation recorded related to options, time-based RSUs and the ESPP was as follows:

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

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Total stock-based compensation expense

CYTOMX THERAPEUTICS, INC.

Notes to Condensed Financial Statements (Unaudited)—(Continued)

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 September 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 September 30, 2021 and 2020 was $ 1.3 million.

Rent expense for each of the nine months ended September 30, 2021 and 2020 was $ 3.8 million.

Supplemental information related to leases are as follows:

Three Months Ended

Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

(in thousands)

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from operating leases

September 30, 2021

December 31, 2020

(in thousands)

Supplemental balance sheet information related to leases:

Operating lease right-of-use assets

Current operating lease liabilities

Non-current operating lease liabilities

Total operating lease liabilities

Weighted-average remaining lease term (in years)

Operating lease

Weighted-average discount rate

Operating lease

CYTOMX THERAPEUTICS, INC.

Notes to Condensed Financial Statements (Unaudited)—(Continued)

September 30, 2021

(in thousands)

Maturity of operating lease liabilities

2025 and beyond

Total lease payments

Less imputed interest

Present value of lease liabilities

Commitments and Contingencies

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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 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.

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stipulation to stay all pending case deadlines except for certain matters.

Thus, fact and expert discovery are presently stayed.

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 September 30, 2021.

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 nine months ended September 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 September 30, 2021 and December 31, 2020 .

All case deadlines are stayed until the Court resolves the parties’

claim construction disputes.

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 March 31, 2022.

The Company maintains a full valuation allowance against its net deferred tax assets due to the Company’s history of losses as of March 31, 2022 and December 31, 2021 .

The Company files income taxes in the U.S.

federal jurisdiction, the state of California and various other U.S.

The Company is currently under examination by the state of California for the years 2017 and 2018.

The examination contests the Company’s tax position on revenue apportionment for upfront and milestone payments resulting from the Company’s collaboration and licensing agreements.

As of the date of this filing, the state of California has not proposed adjustments to the tax returns.

Due to the ongoing nature of the examination and discussions with the state of California, the Company is unable to estimate a date by which this matter will be resolved or reasonably estimate the potential impact should the tax position be revised.

Based on the Company's current expectations and understanding of the reasonably possible outcomes, the Company does not anticipate that the resolution of this matter would result in a material impact on its financial position or results of operations.

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.

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, 2021, included in our Annual Report on Form 10-K as filed with the U.S.

Securities and Exchange Commission (“SEC”) on March 1, 2022.

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.

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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.

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 and best-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 therapeutic product candidates with a mask that is designed to block binding to target until the mask is removed by proteases.

Proteases are enzymes that are more active 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.

We are a clinical-stage, oncology-focused biopharmaceutical company dedicated to destroying cancer differently.

We aim to build a commercial enterprise to maximize our impact on the treatment of cancer.

By pioneering a novel class of conditionally activated biologic candidates, powered by our Probody® therapeutic technology platform, we lead the field of conditionally activated oncology therapeutics and have established conditional activation as a strategic area of biologics research and development.

Our goal is to transcend the limits of current cancer treatments by successfully leveraging therapeutic targets and strategies that were once thought to be inaccessible.

Our proprietary, unique and versatile Probody technology platform is designed to enable conditional activation of biologic therapeutic candidates within the tumor microenvironment, while minimizing drug activity in healthy tissues and circulation.

Our industry-leading platform is built on a strong foundation of tumor biology expertise, including deep knowledge of tumor-associated enzymes known as proteases.

Proteases are tightly controlled in normal tissues but often poorly regulated and active in tumor microenvironments where they play important roles in cancer cell migration, invasion and metastasis.

Leveraging our deep scientific knowledge, we conceived of and constructed our Probody therapeutic platform which allows us to genetically engineer biologic therapeutic candidates to contain protease-cleavable masks.

Our masking strategy is designed to reduce binding of biologic therapeutics to their targets until the mask is removed by proteases in the tumor microenvironment, providing more selective targeting of the tumor.

We believe this innovative approach has the potential to improve cancer treatment in three ways:

Allowing the pursuit of high potential targets that were previously considered “undruggable”

due to their ubiquitous expression on healthy tissues;

Enhancing an experimental treatment’s “therapeutic window,”

the balance between tolerability and anti-tumor activity;

Enabling the development of new combination therapies, including immunotherapies, by improving tolerability.

We are employing our conditional activation platform technology to address some of the biggest challenges in cancer therapy development today.

These include the validation of potential new targets for antibody-drug conjugates (“ADCs”), opening solid tumor opportunities for T-cell engaging bispecific antibodies (“TCBs”), and increasing the therapeutic window for immune modulators such as cytokines and checkpoint inhibitors (“CPIs”).

Our robust portfolio of differentiated, experimental treatments includes the wholly-owned, praluzatamab ravtansine (CX-2009) and the AbbVie-partnered CX-2029, two conditionally activated ADCs directed toward 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.

While in August 2021, we announced that the COVID-19 pandemic had negatively impacted clinical trial site activation and patient enrollment, our continuing efforts to overcome this challenge, including opening additional sites in U.S., Europe, and Asia, as well as partnering with patient advocacy groups to encourage enrollment from underrepresented populations, have allowed us to maintain our current outlook for 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.

Initial data from the CX-2029 study remains on track for the fourth quarter of 2021.

Our clinical-stage pipeline also includes cancer immunotherapeutic candidates against validated targets such as CTLA-4.

Having demonstrated favorable tolerability and encouraging anti-tumor activity in separate dose-escalation Phase 1 studies, praluzatamab ravtansine and CX-2029 are currently in Phase 2 clinical studies.

Praluzatamab ravtansine is currently being evaluated in a three-arm study in patients with advanced human epidermal growth factor receptor 2 (“HER2”)-non-amplified breast cancer.

Arms A and B are examining praluzatamab ravtansine monotherapy in patients with hormone receptor-positive (“HR+”)/HER2-non-amplified breast cancer and triple-negative breast cancer (“TNBC”), respectively.

Arm C is studying praluzatamab ravtansine in combination with pacmilimab (CX-072), our wholly-owned PD-L1 inhibitor, in patients with TNBC.

We expect to enroll approximately 40 efficacy-evaluable patients in each arm of the study.

Patient enrollment has been completed in Arm A while Arms B and C of the study are ongoing.

Initial data for Arms A and B are expected in the second half of 2022.

For CX-2029, our CD71-directed ADC is being evaluated as monotherapy in a four-cohort Phase 2 expansion study designed to enroll twenty-five efficacy evaluable patients per cohort in the following malignancies:

squamous non-small cell lung cancer (“sqNSCLC”), head and neck squamous cell carcinoma (“HNSCC”), esophageal and gastro-esophageal junction cancers, and diffuse large B-cell lymphoma.

Preliminary data from the sqNSCLC and HNSCC cohorts were disclosed in December 2021 and showed encouraging activity in patients with sqNSCLC.

Patient enrollment has been completed in the squamous non-small cell lung cancer cohort.

The study remains open for enrollment

in the esophageal and gastro-esophageal junction cancers cohort, and the diffuse large B-cell lymphoma cohort.

Data updates for the squamous non-small cell lung cancer cohort are expected in the second half of 2022.

Our strong clinical 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.

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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.

In partnership with Amgen, we are developing 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.

We expect to file an IND for CX-904 in late 2021.

CX-2043 is a lead candidate within our conditionally activated ADC program 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 are also engaged in broad drug discovery efforts towards the generation of new clinical candidates for the treatment of cancer, 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.

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 study.

Underscoring our commitment to destroying cancer differently, we have recently introduced a third treatment modality into the clinic from our Probody platform, reinforcing our leadership in the field of conditional activation of biologic therapeutics.

As part of our partnership with Amgen, we are advancing CX-904, a conditionally activated TCB candidate against the epidermal growth factor receptor (“EGFR”) on tumor cells and CD3 on T cells.

Our investigational new drug application (“IND”) for CX-904 was allowed to proceed by the FDA in January 2022 and we initiated the Phase 1 study start-up activities to evaluate CX-904 as a treatment for patients with advanced solid tumors.

In preclinical studies, we are advancing a conditionally activated cytokine program that includes a locally activatable form of interferon-alpha-2b, and a conditionally activated ADC program directed toward the epithelial cell adhesion molecule (“EpCAM”), a w idely expressed tumor antigen.

We are also continuously engaged in drug discovery efforts towards the generation of new clinical candidates across multiple modalities for the treatment of cancer, including additional TCBs, reflecting the versatility of our Probody platform.

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 $22.6 million and $57.4 million and for the three and nine months ended September 30, 2021, respectively.

As of September 30, 2021 and December 31, 2020, we had an accumulated deficit of $507.5 million and $450.1 million, respectively.

Our net loss was $23.9 million for the three months ended March 31, 2022.

As of March 31, 2022 and December 31, 2021, we had an accumulated deficit of $557.6 million and $533.7 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 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, pacmilimab, and CX-904 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.

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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 have taken, or 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.

In December 2019, a strain of novel coronavirus-caused disease (now commonly known as COVID-19) was reported to have surfaced in Wuhan, China and in March 2020 the World Health Organization declared the outbreak a pandemic.

There continues to be uncertainty as to the extent and duration of the COVID-19 pandemic including the emergence and impact of new variants.

The COVID-19 pandemic continues to impact our ongoing operations, including clinical trials.

Any preventative or protective actions that we, our collaboration partners or others have taken, or may take, in respect of the virus may result in further disruption for our clinical trials, including clinical trials for praluzatamab ravtansine, CX-2029 and CX-904, manufacturing, research, financial reporting capabilities and operations generally and could potentially impact our patients, partners, employees and third parties.

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.

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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, 2021.

There have been no material changes to our critical accounting policies and estimates during the three and nine months ended September 30, 2021.

Except as noted below, there have been no material changes to our critical accounting policies and estimates during the three months ended March 31, 2022.

Uncertain Tax Position

We file income taxes in the U.S.

federal jurisdiction, the state of California and various other U.S.

We are currently under examination by the state of California for the years 2017 and 2018.

The examination contests our tax position on revenue apportionment for upfront and milestone payments resulting from our collaboration and licensing agreements.

As of the date of this filing, the state of California has not proposed adjustments to the tax returns.

Due to the ongoing nature of the examination and discussions with the state of California, we are unable to estimate a date by which this matter will be resolved or reasonably estimate the potential impact should the tax position be revised.

Based on our current expectations and understanding of the reasonably possible outcomes, we do not anticipate that the resolution of this matter would result in a material impact on our financial position or results of operations.

Components of Results of Operations

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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.

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”), and 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.

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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).

Examples include our Phase 2 clinical trials for praluzatamab ravtansine (CX-2009) and CX-2029, potential future clinical trials for CX-2029 and for praluzatamab ravtansine in combination with pacmilimab (CX-072) and our Phase 1 clinical trial for CX-904 which is in the process of being initiated.

The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming.

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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.

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

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Other income (expense), net consists primarily of gains and losses resulting from changes to currency exchange rates.

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 Nine Months Ended September 30, 2021 and 2020.

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Total revenues

The following table summarizes our revenue by collaboration partner during the respective periods:

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Bristol Myers Squibb

Total revenue

Revenue for the three months ended September 30, 2021 was relatively flat as compared to the corresponding period of 2020 with the following notable variances:

revenue from AbbVie was lower by $1.3 million due to lower percentage of completion in the current quarter for the CD71 program given additional projected hours-to-completion and increase in the research period driven by the COVID-19 pandemic.

an increase in revenue from Amgen of $0.8 million driven by higher percentage of completion of the CX-904 project in the current quarter compared to the same period in the prior year under the Collaboration and License Agreement with Amgen (the “Amgen Agreement”);

The decrease in revenue of $34.1 million for the nine months ended September 30, 2021 compared to the corresponding period of 2020 was primarily due to:

a decrease in revenue of $29.5 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;

partially offset by

an increase in revenue from Astellas of $5.4 million due to a full nine-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.

The increase in revenue of $1.2 million for the three months ended March 31, 2022 compared to the corresponding period of 2021 was primarily due to the CD71 Co-Development and Licensing Agreement with AbbVie based on a higher percentage of project completion in the first quarter of 2022.

Operating Costs and Expenses

Research and Development Expenses

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Research and development expenses

Research and development expenses increased $5.1 million during the three months ended September 30, 2021 compared to the corresponding period in 2020.

The change was driven mainly by an increase of $3.4 million in personnel related expenses, clinical trial expenses and consulting and contract services primarily related to of CX-2009 and CX-2029;

and increase of $1.2 million 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 $13.3 million during the nine months ended September 30, 2021 compared to the corresponding period in 2020.

The decrease was mainly 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 $3.2 million in laboratory contracts and services due to timing of manufacturing activities, as well as $2.5 million decrease of clinical trial related expenses;

partially offset by

an increase of $2.6 million in laboratory supplies and equipment expenses related to tissue sampling activities as well as consulting and contract services related to CX-2009 and CX-2029.

The following table summarizes our research and development expenses by program incurred during the respective periods presented:

Three Months Ended

Nine Months Ended

September 30,

External costs incurred by product candidate (target):

(in thousands)

CX-072 (PD-L1)

CX-2009 (CD166)

External costs incurred by product candidate (target):

Praluzatamab ravtansine, CX-2009 (CD166)

CX-2029 (CD71)

Pacmilimab, CX-072 (PD-L1)

Other wholly owned and partnered programs

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Total research and development expenses

The increase in research and development expenses for the three months ended September 30, 2021 compared to the corresponding period of 2020 was attributable to the following changes by project:

The increase in CX-2009 expenses was primarily due to increases in clinical trial expenses of $1.0 million, resulting from increase in patient enrollment activities and laboratory contract services of $3.2 million, resulting from the timing of manufacturing and other research activities.

The increase in CX-2029 expenses was primarily due to increases in clinical trial expenses of $1.0 million resulting from increase in patient enrollment activities.

The decrease in “Other wholly owned and partnered programs”

was primarily due to a decrease of $2.7 million in laboratory contract and services related to the CX-904 project as it moved into IND application preparation phase.

The decrease in research and development expenses for the nine months ended September 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 $6.2 million decrease in clinical trial related expenses and $1.4 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 “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;

a $4.2 million decrease in laboratory contract and services related to the CX-904 program as it moved into IND application preparation phase;

partially offset by an increase of $1.1 million in laboratory contracts and services expenses related to the EpCAM program due to increase in pre-clinical activities.

The increase in CX-2029 expenses was primarily driven by a $2.5 million increase in clinical trial expenses and laboratory contract and services due to increase in patient enrollment activities.

The increase in CX-2009 expenses was primarily driven by approximately $4.0 million increase in total expenses, of which $3.0 million was related to clinical trial studies and laboratory contract services due to increase in research activities;

partially offset by a $3.0 million licensing payment to ImmunoGen incurred in the first quarter of 2020.

The increase in research and development expenses for the three months ended March 31, 2022 compared to the corresponding period of 2021 was primarily attributable to the increase in laboratory contract services driven by an increase in manufacturing and development activities.

General and Administrative Expenses

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

General and administrative expenses

General and administrative expenses increased by $2.5 million during the three months ended September 30, 2021 compared to the corresponding period in 2020.

The increase was attributable to an increase of $1.3 million in personnel related and recruiting expenses as well as an increase of $1.2 million in in professional services.

General and administrative expenses increased by $2.8 million during the nine months ended September 30, 2021 compared to the corresponding period in 2020.

The increase was attributable to an increase of $2.2 million in personnel related and recruiting expenses as well as an increase of $0.6 million in in professional services.

Interest Income and Other Income (Expense)

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Interest income

Other income (expense), net

Total interest and other income

Interest Income

Interest income decreased by $0.1 million and $1.5 million, respectively, during the three and nine months ended September 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 September 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 nine months ended September 30, 2021, compared to the corresponding period in 2020.

The income tax benefit of $13.9 million for the nine months ended September 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.

General and administrative expenses increased by $1.3 million for the three months ended March 31, 2022 compared to the corresponding period of 2021 primarily due to an increase in personnel related expenses as well as professional expenses driven by patent related legal expenses and other outside consulting services.

Liquidity and Capital Expenditures

Sources of Liquidity

As of September 30, 2021, we had cash, cash equivalents and investments of $336.3 million and an accumulated deficit of $507.5 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.

As of March 31, 2022, we had cash, cash equivalents and investments of $262.5 million and an accumulated deficit of $557.6 million, compared to cash, cash equivalents and investments of $305.2 million and an accumulated deficit of $533.7 million as of December 31, 2021.

In January and February 2021, in an underwritten public offering of our common stock, we raised an aggregate net proceeds of approximately $107.7 million.

To date, we have financed our operations primarily through sales of our common stock in conjunction with the IPO, 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 issuance date of the financial statements included in this report.

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in this Quarterly Report on Form 10-Q.

The cost and timing of developing our product candidates, including praluzatamab ravtansine (CX-2009), and CX-2029, and pacmilimab (CX-072) are highly uncertain, are subject to substantial risks and many changes.

The cost and timing of developing our product candidates is highly uncertain and subject to substantial risks and 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.

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The following table summarizes our cash flows for the periods indicated:

Nine Months Ended

September 30,

Three Months Ended

(in thousands)

Net cash (used in) provided by operating activities

Net cash provided by investing activities

Net cash used in operating activities

Net cash (used in) provided by investing activities

Net cash provided by financing activities

Net increase in cash and cash equivalents

Net increase (decrease) in cash, cash equivalents and restricted cash

Cash Flows from Operating Activities

During the nine months ended September 30, 2021, cash used in operating activities was $87.8 million, which consisted of a net loss of $57.4 million and a net decrease of $44.7 million relating to the change of our net operating assets and liabilities, offset by non-cash charges of $14.3 million.

The non-cash charges primarily consisted of $9.6 million in stock-based compensation, $2.3 million in non-cash lease expense, $2.1 million in depreciation and amortization and $0.3 million in amortization of premium on investments.

During the three months ended March 31, 2022, cash used in operating activities was $41.3 million, which consisted of a net loss of $23.9 million, adjusted by non-cash charges of $4.8 million and a net decrease of $22.2 million relating to the change of our net operating assets and liabilities.

The non-cash charges primarily consisted of $3.4 million in stock-based compensation, $0.8 million in non-cash lease expense and $0.6 million in depreciation and amortization.

The change in our net operating assets and liabilities was primarily due to:

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a decrease of $5.2 million in accounts payable, accrued and other long-term liabilities primarily due to timing of payments and an increase in research and clinical expenses;

an increase of $4.5 million in cash flows from other assets, prepaid and other current assets primarily due to reduced advance payments to our third party manufacturing vendors and timing of payments.

During the nine months ended September 30, 2020, cash provided by operating activities was $22.7 million, which consisted of a net loss of $18.2 million, adjusted by non-cash charges of $15.1 million and a net increase of $25.8 million relating to the change of our net operating assets and liabilities.

The non-cash charges primarily consisted of $11.4 million in stock-based compensation, $2.1 million in non-cash lease expense and $1.9 million in depreciation and amortization, which amounts were partially offset by $0.3 million in accretion of discounts on our short-term investments.

a decrease of $0.9 million in cash flows from accounts receivable and prepaid and other current assets primarily due to increased advance payments to our third party manufacturing vendors and timing of payments.

During the three months ended March 31, 2021, cash used in operating activities was $29.9 million, which consisted of a net loss of $15.6 million, adjusted by non-cash charges of $4.6 million and a net decrease of $18.9 million relating to the change of our net operating assets and liabilities.

The non-cash charges primarily consisted of $3.0 million in stock-based compensation, $0.8 million in non-cash lease expense and $0.7 million in depreciation and amortization.

The change in our net operating assets and liabilities was primarily due to:

a net increase of $46.8 million in deferred revenue resulting primarily from the $80.0 million upfront payment from Astellas as well as the $40.0 million milestone payment from AbbVie, partially offset by the continued recognition of deferred revenue from existing and new customers, including the $26.6 million revenue recognized in the first quarter of 2020, which reflected the percentage completed to-date on the project under the CD71 Agreement when the $40.0 million milestone was earned in the first quarter of 2020;

a decrease of $11.5 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 $9.3 million in accrued liabilities primarily due to payment of $7.5 million for the ImmunoGen 2019 License;

a net decrease of $15.2 million in deferred revenue resulting from the continued recognition of deferred revenue from existing and new customers;

a decrease of $5.4 million in accounts payable, accrued and other long-term liabilities;

an increase of $1.7 million in cash flows from accounts receivable, prepaid and other current assets.

Cash Flows from Investing Activities

During the nine months ended September 30, 2021, cash provided by investing activities was $22.7 million, which consisted of $124 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 $1.4 million of capital expenditures used to purchase property and equipment.

During the nine months ended September 30, 2020, cash used in investing activities was $38.2 million, which consisted of $189.0 million used in the purchase of short-term investments and $1.9 million of capital expenditures used to purchase property and equipment, partially offset by $152.7 million in proceeds received upon the maturity of marketable securities.

During the three months ended March 31, 2022, cash used in investing activities was $0.7 million of capital expenditures used to purchase property and equipment.

During the three months ended March 31, 2021, cash provided by investing activities was $59.0 million, which consisted of $60.0 million in proceeds received upon the maturity of marketable securities, partially offset by $1.0 million of capital expenditures used to purchase property and equipment.

Cash Flows from Financing Activities

During the nine months ended September 30, 2021, cash provided by financing activities consisted of $107.7 million of net proceeds from the follow-on public offering and $1.8 million of proceeds from the exercise of stock options and employee stock purchases under the employee stock purchase plan.

During the nine months ended September 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.

During the three months ended March 31, 2022, cash provided by financing activities consisted of $7,000 of proceeds from the exercise of stock options.

During the three months ended March 31, 2021, cash provided by financing activities consisted of $107.7 million of net proceeds from the follow-on public offering during the quarter and $1.0 million of proceeds from the exercise of stock options.

Contractual Obligations

During the three and nine months ended September 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.

During the three months ended March 31, 2022, 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, 2021.

Quantitative and Qualitat ive Disclosure About Market Risk

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These risks primarily relate to interest rate risks.

We had cash, cash equivalents and investments of $336.3 million as of September 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.

We had cash, cash equivalents and short-term investments of $262.5 million and $305.2 million as of March 31, 2022 and December 31, 2021, respectively, which consists of bank deposits, money market funds and U.S.

government bonds.

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We have not historically been exposed to material risks due to changes in interest rates.

Based on our investment positions as of September 30, 2021, a hypothetical 100 basis point change in interest rates would not have material effect in the fair value of the portfolio.

Based on our investment positions as of March 31, 2022, a hypothetical 100 basis point change in interest rates would not have material effect in the fair value of the portfolio.

Controls and Proc edures

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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 September 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”).

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 March 31, 2022, 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 framework) 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 September 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control 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 our fiscal quarter ended March 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II –

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

What changed 10-Q

Item 4. Controls and Procedures