CytomX Therapeutics, Inc. 10-Q

Item 4 Controls and Procedures 25 PART II – OTHER INFORMATION Item 1. Legal Proceedings 27 Item 1A. Risk Factors 27 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 68 Item 3. Defaults Upon Senior Securities 69 Item 4. Mine Safety Disclosures 69 Item 5. Other Information 69 Item 6. Exhibits 70 Signatures 71 2 Forward-Looking Statements This Quarterly Report on Form 10-Q contains certain forward-looking statements that involve risks and uncertainties. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would,” “annualized” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. A number of important factors could cause our actual results to differ materially from those indicated in these forward-looking statements, including those factors identified in “Risk Factors” or “Management’s Discussion and Analysis of Financial Condition and Results of Operations” or the following: • the extent to which the COVID-19 or any future 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 timing of the completion of our ongoing clinical trials and the timing and availability of clinical data from such clinical trials; • our ability to identify and develop additional product candidates; • our dependence on collaborators for developing, obtaining regulatory approval for and commercializing product candidates in the collaboration; • our or a collaborator’s ability to obtain and maintain regulatory approval of any of our product candidates; • our receipt and timing of any milestone payments or royalties under any research collaboration and license agreements or arrangements; • our expectations and beliefs regarding the evolution of the market for cancer therapies and development of the immuno-oncology industry; • the rate and degree of market acceptance of any approved product candidates; • the commercialization of any approved product candidates; • our ability to establish and maintain collaborations and retain commercial rights for our product candidates in such collaborations; • the implementation of our business model and strategic plans for our business, technologies and product candidates; • our estimates of our expenses, ongoing losses, future revenue and capital requirements, including our estimate of cash flow savings as a result of our recently announced restructuring plan; • our ability to obtain additional funds for our operations; • our or any collaborator’s ability to obtain and maintain intellectual property protection for our technologies and product candidates and our ability to operate our business without infringing the intellectual property rights of others; • our reliance on third parties to conduct our preclinical studies or any future clinical trials; • our reliance on third-party supply and manufacturing partners to supply the materials and components for, and manufacture, our research and development, preclinical and clinical trial product supplies; • our ability to attract and retain qualified key management and technical personnel; 3 • our ability to secure and maintain licenses of intellectual property to protect our technologies and product candidates; • our financial performance; and • developments relating to our competitors or our industry 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. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A. Risk Factors and discussed elsewhere in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business and the markets for certain drugs and therapeutic biologics, including data regarding the estimated size of those markets, their projected growth rates and the incidence of certain medical conditions. Information that is based on estimates, forecasts, projections or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained these industry, business, market and other data from reports, research surveys, studies and similar data prepared by third parties, industry, medical and general publications, government data and similar sources. In some cases, we do not expressly refer to the sources from which these data are derived. Except where the context otherwise requires, in this Quarterly Report on Form 10-Q, “we,” “us,” “our” and the “Company” refer to CytomX Therapeutics, Inc. Trademarks This Quarterly Report on Form 10-Q includes trademarks, service marks and trade names owned by us or other companies. All trademarks, service marks and trade names included in this Quarterly Report on Form 10-Q are the property of their respective owners. 4 PART I – FINANCIAL INFORMATION Item 1. Condensed Financi al Statements (Unaudited) CYTOMX THERAPEUTICS, INC. CONDENSED BAL ANCE SHEETS (in thousands, except share and per share data) June 30, December 31, 2022 2021 (Unaudited) (1) Assets Current assets: Cash and cash equivalents $ 129,290 $ 205,530 Short-term investments 98,875 99,696 Accounts receivable 1,014 790 Prepaid expenses and other current assets 3,591 4,285 Total current assets 232,770 310,301 Property and equipment, net 5,915 5,960 Intangible assets, net 948 1,021 Goodwill 949 949 Restricted cash 917 917 Operating lease right-of-use asset 17,692 19,362 Other assets 895 901 Total assets $ 260,086 $ 339,411 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 1,920 $ 2,818 Accrued liabilities 31,732 34,236 Deferred revenue, current portion 65,787 69,262 Total current liabilities 99,439 106,316 Deferred revenue, net of current portion 95,863 125,660 Operating lease liabilities - long term 16,076 18,056 Total liabilities 211,378 250,032 Commitments and contingencies (Note 8) Stockholders' equity: Convertible preferred stock, $ 0.00001 par value; 10,000,000 shares authorized and no shares issued and outstanding at June 30, 2022 and December 31, 2021. — — Common stock, $ 0.00001 par value; 150,000,000 shares authorized and 65,756,492 and 65,392,758 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively 1 1 Additional paid-in capital 631,662 623,344 Accumulated other comprehensive loss ( 1,162 ) ( 242 ) Accumulated deficit ( 581,793 ) ( 533,724 ) Total stockholders' equity 48,708 89,379 Total liabilities and stockholders' equity $ 260,086 $ 339,411 __________________ (1) The condensed balance sheet as of December 31, 2021 was derived from the audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021. See accompanying notes to condensed financial statements. 5 CYTOMX THERAPEUTICS, INC. CONDENSED STATEMENTS OF OPERA TIONS AND COMPREHENSIVE LOSS (in thousands, except share and per share data) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 Revenues $ 18,165 $ 16,288 $ 35,302 $ 32,259 Operating expenses: Research and development 31,159 26,100 61,718 48,472 General and administrative 11,748 9,393 22,292 18,619 Total operating expenses 42,907 35,493 84,010 67,091 Loss from operations ( 24,742 ) ( 19,205 ) ( 48,708 ) ( 34,832 ) Interest income 262 44 330 112 Other income (expense), net 296 ( 82 ) 309 ( 77 ) Net loss $ ( 24,184 ) $ ( 19,243 ) $ ( 48,069 ) $ ( 34,797 ) Other comprehensive loss: Unrealized gain (loss) on investments, net of tax ( 243 ) 58 ( 920 ) 62 Comprehensive loss $ ( 24,427 ) $ ( 19,185 ) $ ( 48,989 ) $ ( 34,735 ) Net loss per share: Basic and diluted net loss per share $ ( 0.37 ) $ ( 0.30 ) $ ( 0.73 ) $ ( 0.55 ) Shares used in computing basic and diluted net loss per share 65,542,762 65,055,998 65,468,638 63,023,349 See accompanying notes to condensed financial statements. 6 CYTOMX THERAPEUTICS, INC. CONDENSED STATEMENTS OF STOC KHOLDERS’ EQUITY (in thousands, except share data) (Unaudited) Accumulated Additional Other Total Common Stock Paid-in Comprehensive Accumulated Stockholders' Shares Amount Capital Loss Deficit Equity Balance at December 31, 2021 65,392,758 $ 1 $ 623,344 $ ( 242 ) $ ( 533,724 ) $ 89,379 Exercise of stock options 5,597 - 7 - - 7 Stock-based compensation - - 3,370 - - 3,370 Other comprehensive loss - - - ( 677 ) - ( 677 ) Net loss - - - - ( 23,885 ) ( 23,885 ) Balance at March 31, 2022 65,398,355 1 626,721 ( 919 ) ( 557,609 ) 68,194 Exercise of stock options 95,393 - 91 - - 91 Issuance of common stock under the ESPP 262,744 - 360 - - 360 Stock-based compensation - - 4,490 - - 4,490 Other comprehensive loss - - - ( 243 ) - ( 243 ) Net loss - - - - ( 24,184 ) ( 24,184 ) Balance at June 30, 2022 65,756,492 $ 1 $ 631,662 $ ( 1,162 ) $ ( 581,793 ) $ 48,708 Accumulated Additional Other Total Common Stock Paid-in Comprehensive Accumulated Stockholders' Shares Amount Capital Income/(Loss) Deficit Equity Balance at December 31, 2020 48,251,819 $ 1 $ 499,964 $ ( 47 ) $ ( 450,115 ) $ 49,803 Issuance of common stock in follow-on offering, net of issuance costs 16,428,571 - 107,712 - - 107,712 Exercise of stock options 322,507 - 1,023 - - 1,023 Stock-based compensation - - 3,034 - - 3,034 Other comprehensive income - - - 4 - 4 Net loss - - - - ( 15,554 ) ( 15,554 ) Balance at March 31, 2021 65,002,897 1 611,733 ( 43 ) ( 465,669 ) 146,022 Exercise of stock options 68,971 - 173 - - 173 Issuance of common stock under the ESPP 85,135 - 518 - - 518 Stock-based compensation - - 3,425 - - 3,425 Other comprehensive income - - - 58 - 58 Net loss - - - - ( 19,243 ) ( 19,243 ) Balance at June 30, 2021 65,157,003 $ 1 $ 615,849 $ 15 $ ( 484,912 ) $ 130,953 See accompanying notes to condensed financial statements. 7 CYTOMX THERAPEUTICS, INC. CONDENSED STATEMEN TS OF CASH FLOWS (in thousands) (Unaudited) Six Months Ended June 30, 2022 2021 Cash flows from operating activities: Net loss $ ( 48,069 ) $ ( 34,797 ) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of intangible assets 73 73 Depreciation and amortization 1,139 1,278 Amortization of premium (accretion of discounts) on investments ( 33 ) 281 Stock-based compensation expense 7,860 6,459 Non-cash lease expense 1,670 1,534 Changes in operating assets and liabilities Accounts receivable ( 290 ) ( 133 ) Prepaid expenses and other current assets 694 3,199 Other assets 6 1,271 Accounts payable ( 844 ) ( 1,173 ) Accrued liabilities and other long-term liabilities ( 4,484 ) ( 5,559 ) Deferred revenue ( 33,272 ) ( 30,572 ) Net cash used in operating activities ( 75,550 ) ( 58,139 ) Cash flows from investing activities: Purchases of property and equipment ( 1,148 ) ( 1,096 ) Purchases of investments - ( 99,898 ) Maturities of investments - 113,994 Net cash provided by (used in) investing activities ( 1,148 ) 13,000 Cash flows from financing activities: Proceeds from issuance of common stock, net of issuance costs - 107,712 Proceeds from employee stock purchase plan and exercise of stock options 458 1,714 Net cash provided by financing activities 458 109,426 Net increase (decrease) in cash, cash equivalents and restricted cash ( 76,240 ) 64,287 Cash, cash equivalents and restricted cash, beginning of period 206,447 192,776 Cash, cash equivalents and restricted cash, end of period $ 130,207 $ 257,063 Supplemental disclosures of noncash investing items: Purchases of property and equipment in accounts payable and accrued liabilities $ 29 $ 54 See accompanying notes to condensed financial statements. 8 CytomX Therapeutics, Inc. Notes to Condensed Financi al Statements (Unaudited) 1. Description of the Business CytomX Therapeutics, Inc. (the “Company”) is a clinical-stage, oncology-focused biopharmaceutical company dedicated to destroying cancer differently. The Company aims to build a commercial enterprise to maximize its impact on the treatment of cancer. The Company is advancing potential first-in-class and best-in-class antibody-based therapeutics created using its Probody® therapeutic technology platform that could meaningfully improve outcomes for cancer patients. Its proprietary and unique Probody technology platform is designed to enable “conditional activation” of antibody-based drugs in the tumor microenvironment while minimizing drug activity in healthy tissues and in circulation. The Company is located in South San Francisco, California and was incorporated in the state of Delaware in September 2010. 2. Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation The accompanying interim condensed financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Unaudited Interim Financial Information The accompanying interim condensed financial statements and related disclosures are unaudited, have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the results of operations for the periods presented. The condensed results of operations for the three and six months ended June 30, 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. Use of Estimates The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Cash, cash equivalents and restricted cash The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed balance sheets that sum to the total of the amounts shown in the condensed statements of cash flows: June 30, 2022 December 31, 2021 June 30, 2021 December 31, 2020 (in thousands) Cash and cash equivalents $ 129,290 $ 205,530 $ 256,146 $ 191,859 Restricted cash - non-current assets 917 917 917 917 Total $ 130,207 $ 206,447 $ 257,063 $ 192,776 Restricted cash represents a standby letter of credit issued pursuant to an office lease. Revenue Recognition The Company’s revenues are primarily derived through its license, research, development and commercialization agreements. The terms of these types of agreements may include (i) licenses for the Company’s technology or programs, (ii) research and development services, and (iii) services or obligations in connection with participation in research or steering committees. Payments to the Company under these arrangements typically include one or more of the following: nonrefundable upfront and license fees, research funding, milestone and other contingent payments to the Company for the achievement of defined collaboration objectives and certain preclinical, clinical, regulatory and sales-based events, as well as royalties on sales of any commercialized products. 9 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. Judgment is required to determine whether the license to the Company’s intellectual property is distinct from the research and development services or participation on steering committees. The Company’s collaboration and license agreements may include contingent payments related to specified research, development and regulatory milestones. Such milestone payments are typically payable under the collaborations when the collaboration partner claims or selects a target, or initiates or advances a covered product candidate in preclinical or clinical development, upon submission for marketing approval of a covered product with regulatory authorities, or upon receipt of actual marketing approvals of a covered product or for additional indications. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. At each reporting date, the Company re-evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price by using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price in such period of determination. The Company’s collaboration and license agreements may also include contingent payments related to sales-based milestones. Sales-based milestones are typically payable when annual sales of a covered product reach specified levels. Sales-based milestones are recognized at the later of when the associated performance obligation has been satisfied or when the sales occur. Unlike other contingency payments, such as regulatory milestones, sales-based milestones are not included in the transaction price based on estimates at the inception of the contract; instead, they are included when the sales or usage occur. The transaction price in each arrangement is allocated to the identified performance obligations based on the relative standalone selling price (“SSP”) of each distinct performance obligation, which requires judgment. In instances where SSP is not directly observable, such as when a license or service is not sold separately, SSP is determined using information that may include market conditions and other observable inputs. Due to the early stage of the Company’s licensed technology, the license of such technology is typically combined with research and development services and steering committee participation as one performance obligation. In the event that the Company receives non-cash consideration such as consideration in the form of a research license and research support services from the counterparty, the transaction price of a non-monetary exchange that has commercial substance is estimated based on the fair value of the non-cash consideration received, which may be determined through a valuation analysis. In certain cases, the Company’s performance creates an asset that does not have an alternative use to the customer and the Company has an enforceable right to payment at all times for performance completed to date. In these cases, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. AbbVie Ireland Unlimited Company (“AbbVie”), one of the Company’s collaboration partners, entered into a license agreement with Seagen Inc., formerly Seattle Genetics, Inc. (“SGEN”) to license certain intellectual property rights. As part of the Company’s collaboration agreement with AbbVie, the Company is required to pay SGEN sublicense fees for certain milestone achievements and an annual maintenance fee. These sublicense fees are treated as reductions to the transaction price and combined with the performance obligation to which they relate. Contract Balances Customer payments are recorded as deferred revenue upon receipt or when due and may require deferral of revenue recognition to a future period until the Company satisfies its performance obligations under these arrangements. Amounts payable to the Company are recorded as accounts receivable when the Company’s right to consideration is unconditional. 3. Net Loss Per Share Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period. Diluted net loss per share is calculated using the weighted-average number of common shares outstanding, plus potential dilutive common stock during the period. Diluted net loss per share is the same as basic net loss per share since the effect of the potentially dilutive securities is anti-dilutive. 10 CYTOMX THERAPEUTICS, INC. Notes to Condensed Financial Statements (Unaudited)—(Continued) The following weighted-average outstanding shares of potentially dilutive securities are excluded from the computation of diluted net loss per share for the periods presented, because including them would have been anti-dilutive: Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 Options, RSUs and ESPP to purchase common stock 15,226,820 12,117,149 14,888,352 11,837,707 4. Fair Value Measurements and Investments In accordance with Accounting Standards Codification (“ASC”) 820-10, Fair Value Measurements and Disclosures, the Company determines the fair value of financial and non-financial assets and liabilities using the fair value hierarchy, which establishes three levels of inputs that may be used to measure fair value, as follows: • Level I: Inputs which include quoted prices in active markets for identical assets and liabilities. • Level II: Inputs other than Level I that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. • Level III: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The carrying amounts of the Company’s financial instruments, including restricted cash, accounts receivable, accounts payable and accrued liabilities approximate fair value due to their relatively short maturities. The Company’s financial instruments consist of Level I assets which consist primarily of highly liquid money market funds, some of which are included in restricted cash; and U.S. government bonds that are included in short-term investments. The following tables set forth the fair value of the Company’s investments subject to fair value measurements on a recurring basis and the level of inputs used in such measurements: June 30, 2022 Valuation Hierarchy Amortized Cost Unrealized Gains Unrealized Losses Aggregate Fair Value (in thousands) Assets Money market funds Level I $ 75,878 $ — $ — $ 75,878 Restricted cash (money market funds) Level I 917 — — 917 U.S. Government bonds Level I 100,037 — ( 1,162 ) 98,875 Total $ 176,832 $ — $ ( 1,162 ) $ 175,670 December 31, 2021 Valuation Hierarchy Amortized Cost Unrealized Gains Unrealized Losses Aggregate Fair Value (in thousands) Assets Money market funds Level I $ 165,736 $ — $ — $ 165,736 Restricted cash (money market funds) Level I 917 — — 917 U.S. Government bonds Level I 99,938 — ( 242 ) 99,696 Total $ 266,591 $ — $ ( 242 ) $ 266,349 No securities have contractual maturities of greater than twelve months . As of June 30, 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. 11 CYTOMX THERAPEUTICS, INC. Notes to Condensed Financial Statements (Unaudited)—(Continued) 5. Accrued Liabilities Accrued liabilities consisted of the following: June 30, December 31, 2022 2021 (in thousands) Research and clinical expenses $ 18,377 $ 18,861 Payroll and related expenses 7,109 9,576 Legal and professional expenses 2,259 1,468 Operating lease liabilities - short term 3,845 3,618 Other accrued expenses 142 713 Total $ 31,732 $ 34,236 6. Research and Collaboration Agreements The following table summarizes the revenue by collaboration partner: Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 (in thousands) (in thousands) AbbVie $ 5,377 $ 2,078 $ 7,804 $ 3,306 Amgen 369 1,874 2,657 4,456 Astellas 5,014 4,931 10,031 9,687 Bristol Myers Squibb 7,405 7,405 14,810 14,810 Total revenue $ 18,165 $ 16,288 $ 35,302 $ 32,259 AbbVie Ireland Unlimited Company In April 2016, the Company and AbbVie entered into two agreements, a CD71 Co-Development and Licensing Agreement (the “CD71 Agreement”) and a Discovery Collaboration and Licensing Agreement (as amended and restated in June 2019, the “Discovery Agreement” and together with the CD71 Agreement the “AbbVie Agreements”). Under the terms of the CD71 Agreement, the Company and AbbVie will co-develop a conditionally activated antibody-drug conjugate (“ADC”) against CD71, with the Company responsible for preclinical and early clinical development. AbbVie will be responsible for later development and commercialization, with global late-stage development costs shared between the two companies. The Company will assume 35 % of the net profits or net losses related to later development and commercialization unless it opts-out. If the Company opts-out from participation of co-development of the CD71 conditionally activated ADC, which includes CX-2029, AbbVie will have sole right and responsibility for the further development, manufacturing and commercialization of such CD71 conditionally activated ADC. Under the CD71 Agreement, the Company received an upfront payment of $ 20.0 million in April 2016, and was eligible to initially receive up to $ 470.0 million in development, regulatory and commercial milestone payments, a 35 % profit split on U.S. sales, and royalties on ex-U.S. sales at percentages in the high teens to low twenties if the Company participates in the co-development of the CD71 conditionally activated ADC subject to a reversion to a royalty on U.S. sales, and reduction in royalties on ex-U.S. sales, if the Company opts-out from the co-development of the CD71 conditionally activated ADC. The Company’s share of later stage co-development costs for each CD71 conditionally activated ADC is capped, provided that AbbVie may offset the Company’s co-development cost above the capped amounts from future payments such as milestone payments and royalties. Inclusive of payments received in 2017, 2018 and 2020, as of June 30, 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 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 12 CYTOMX THERAPEUTICS, INC. Notes to Condensed Financial Statements (Unaudited)—(Continued) 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 Company determined that the remaining potential milestone payments of both agreements, if recognized, are probable of significant revenue reversal as their achievement is highly dependent on factors outside the Company’s control. Therefore, these payments continue to be fully constrained and are not included in the transaction price as of June 30, 2022. As of June 30, 2022 and December 31, 2021, deferred revenue related to the CD71 Agreement performance obligation was $ 9.5 million and $ 16.1 million, respectively, and deferred revenue related to the Discovery Agreement performance obligation was $ 4.0 million and $ 5.2 million, respectively. Amgen, Inc. On September 29, 2017, the Company and Amgen, Inc. (“Amgen”) entered into a Collaboration and License Agreement (the “Amgen Agreement”). Pursuant to the Amgen Agreement, the Company received an upfront payment of $ 40.0 million in October 2017. Concurrent with the 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. Under the terms of the Amgen Agreement, as amended, the Company and Amgen will co-develop a conditionally activated T-cell engaging bispecific therapeutic targeting epidermal growth factor receptor (the “EGFR Products”). The Company is responsible for early-stage development of EGFR Products and Amgen will be responsible for late-stage development and commercialization of EGFR Products. Following early-stage development, the Company will have the right to elect to participate financially in the global co-development of EGFR Products with Amgen, during which the Company would bear certain of the worldwide development costs for EGFR Products and Amgen would bear the rest of such costs (the “EGFR Co-Development Option”). If the Company exercises its EGFR Co-Development Option, the Company will share in somewhat less than 50 % of the profit and losses from sales of such EGFR Products in the U.S., subject to certain caps, offsets, and deferrals. If the Company chooses not to exercise its EGFR Co-Development Option, the Company will not bear any costs of later stage development. The Company is also eligible to receive up to $ 460.0 million in development, regulatory, and commercial milestone payments for EGFR Products, and royalties in the low-double-digit to mid-teen percentage of worldwide commercial sales, provided that if the Company exercises its EGFR Co-Development option, it shall receive a profit and loss split of sales in the United States and royalties in the low-double-digit to mid-teen percentage of commercial sales outside of the United States. Amgen also has the right to select a total of up to three targets, including the two additional targets discussed below. The Company and Amgen collaborate in the research and development of conditionally activated T-cell engaging bispecifics products directed against such targets. Amgen has selected one such target (the “Amgen Other Product”). If Amgen exercises its option within a specified period of time, it can select two such additional targets (the “Amgen Option Products” and, together with the Amgen Other Product, the “Amgen Products”). Except with respect to preclinical activities to be conducted by CytomX, Amgen will be responsible, at its expense, for the development, manufacture, and commercialization of all Amgen Products. If Amgen exercises all of its options and advances all three of the Amgen Products, CytomX was initially eligible to receive up to $ 950.0 million in upfront, development, regulatory, and commercial milestones and tiered high single-digit to low-teen percentage royalties. The Company concluded that, at the inception of the agreement, Amgen’s option to select the two additional targets is not a material right and does not represent a performance obligation of the agreement. At the initiation of the collaboration, CytomX had the option to select, from programs specified in the Amgen Agreement, an existing preclinical stage T-cell engaging bispecific product from the Amgen preclinical pipeline. In March 2018, CytomX selected the program. CytomX is responsible, at its expense, for converting this program to a conditionally activated T-cell engaging bispecific product, and thereafter, will be responsible for development, manufacturing, and commercialization of the product (“CytomX Product”). Amgen is eligible to receive up to $ 203.0 million in development, regulatory, and commercial milestone payments for the CytomX Product, and tiered mid-single digit to low double-digit percentage royalties. 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 June 30, 2022 and December 31, 2021, deferred revenue related to the EGFR Products performance obligation was $ 19.6 million and $ 21.8 million, respectively. As of June 30, 2022 and December 31, 2021, deferred revenue related to the Amgen Other Products performance obligation was $ 1.0 million and $ 1.4 million, respectively. 13 CYTOMX THERAPEUTICS, INC. Notes to Condensed Financial Statements (Unaudited)—(Continued) Astellas Pharma Inc. The Company and Astellas Pharma, Inc. (“Astellas”) entered into a Collaboration and License Agreement (the “Astellas Agreement”) on March 23, 2020, the effective date, to collaborate on preclinical research activities to discover and develop certain antibody compounds for the treatment of cancer using the Company’s Probody therapeutic technology. Under the terms of the Astellas Agreement, the Company granted Astellas an exclusive, worldwide right to develop and commercialize Probody therapeutics for up to four collaboration targets including one initial target and three additional targets (“Additional Targets”). In addition, Astellas has the right to expand the number of Additional Targets from three up to five (the “Expansion Option”) before the third anniversary of the effective date. Furthermore, for a specified number of targets, at a pre-specified time prior to the initiation of the first pivotal study of a product against such target, the Company may elect to participate in certain development costs and share in the profits generated in the United States with respect to such product (“Cost Share Option”). The Cost Share Option, if exercised, will also provide the option for the Company to co-commercialize such product in the United States. The Company does not consider the Cost Share Option as a performance obligation at the inception of the agreement as the participation is at the Company’s discretion. Pursuant to the Astellas Agreement, the consideration from Astellas is comprised of an upfront fee of $ 80.0 million and contingent payments for development, regulatory and sales milestones of up to an aggregate of approximately $ 1.6 billion. If Astellas exercises its Expansion Option for the two Additional Targets, the Company would be eligible to receive additional upfront and milestone payments aggregating to approximately $ 0.9 billion. The Company is also entitled to tiered royalties from high-single digit to mid-teen percentage royalties from potential future sales. Astellas is responsible for all preclinical research costs incurred by either party as set forth in the preclinical research plan and the Company will receive research and development service fees based on a prescribed full time employee ("FTE") rate. As of June 30, 2022 and December 31, 2021, deferred revenue relating to the Astellas Agreement was $ 43.7 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 June 30, 2022 and December 31, 2021, respectively. Bristol Myers Squibb Company On May 23, 2014, the Company and Bristol Myers Squibb Company (“Bristol Myers Squibb”) entered into a Collaboration and License Agreement (the “BMS Agreement”) to discover and develop compounds for use in human therapeutics aimed at multiple immuno-oncology targets using the Company’s Probody therapeutic technology. The effective date of the BMS Agreement was July 7, 2014. Under the terms of the BMS Agreement, the Company granted Bristol Myers Squibb exclusive worldwide rights to develop and commercialize Probody therapeutics for up to four oncology targets. Bristol Myers Squibb had additional rights to substitute up to two collaboration targets within three years of the effective date of the BMS Agreement. These rights expired in May 2017. Each collaboration target had a two-year research term and the two additional targets had to be nominated by Bristol Myers Squibb within five years of the effective date of the BMS Agreement. The research term for each collaboration target could be extended in one year increments up to three times. Pursuant to the BMS Agreement, the financial consideration from Bristol Myers Squibb was comprised of an upfront payment of $ 50.0 million, and the Company was initially entitled to receive contingent payments of up to $ 25.0 million for additional targets and up to an aggregate of $ 1,192.0 million for development, regulatory and sales milestones. In addition, the Company was entitled to royalty payments in the mid-single digits to low double-digit percentages from potential future sales. The Company also received research and development service fees based on a prescribed FTE rate that was capped. On March 17, 2017, the Company and Bristol Myers Squibb entered into Amendment Number 1 to Extend Collaboration and License Agreement (“Amendment 1”). Amendment 1 granted Bristol Myers Squibb exclusive worldwide rights to develop and commercialize Probody therapeutics for up to eight additional targets. The effective date of Amendment 1 was April 25, 2017 (“Amendment Effective Date”). Under the terms of Amendment 1, the Company continued to have obligations to Bristol Myers Squibb to discover and conduct preclinical development of Probody therapeutics against any targets they chose to select during the research period under the terms of Amendment 1. Pursuant to Amendment 1, the financial consideration from Bristol Myers Squibb was comprised of an upfront payment of $ 200.0 million and the Company was initially eligible to receive contingent payments for development, regulatory and sales milestones of up to an aggregate of $ 3,586.0 million for the eight targets. The Company was also entitled to tiered mid-single to low double-digit percentage royalties from potential future sales. Amendment 1 did not change the term of the Bristol Myers Squibb’s royalty obligation under the BMS Agreement. Bristol Myers Squibb’s royalty obligation continues on a licensed-product by licensed-product basis until the later of (i) the expiration of the last claim of the licensed patents covering the licensed products in the country, (ii) the twelfth anniversary of the first commercial sale of a 14 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 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 of $ 12.0 million upon the adoption of ASC 606 on January 1, 2018. The Company determined that the remaining potential milestone payments were probable of significant revenue reversal as their achievement was highly dependent on factors outside the Company’s control. Therefore, these payments were fully constrained and were not included in the transaction price upon the adoption of ASC 606 on January 1, 2018. The BMS Agreement represents an obligation to continuously make the Probody therapeutic technology platform available to Bristol Myers Squibb. Therefore, the initial transaction price is recognized over the estimated research service period, which ends on April 25, 2025 . In February 2021, the Company and Bristol Myers Squibb entered into Amendment Number 2 to amend the Collaboration and License Agreement (“Amendment 2”), as amended by Amendment 1. Subsequent to Amendment 2, Bristol Myers Squibb has the exclusive worldwide rights to develop and commercialize Probody therapeutics for up to five oncology targets. Under the terms of Amendment 2, the period for target selection has been extended and the Company will continue to collaborate with Bristol Myers Squibb to discover and conduct preclinical development of Probody therapeutics against targets selected by Bristol Myers Squibb over the estimated research period, which ends in April 2025. Pursuant to Amendment 2, the Company is eligible to receive contingent payments for development, regulatory and sales milestones of up to an aggregate of $ 1,779.0 million. It is also entitled to tiered mid-single to low double-digit percentage of royalties from potential future sales. In addition, the Company will no longer be entitled to receive the research and development service fee as part of the arrangement. 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 June 30, 2022. As of June 30, 2022 and December 31, 2021, deferred revenue relating to the BMS Agreement was $ 83.9 million and $ 98.8 million, respectively. Contract Liabilities The following table presents changes in the Company’s total contract liabilities during the six months ended June 30, 2022: Balance at 12/31/2021 Additions Deductions Balance at 6/30/2022 (in thousands) Contract liabilities: Deferred revenue $ 194,922 $ — $ ( 33,272 ) $ 161,650 The Company expects that the $ 161.7 million of deferred revenue related to the following contracts as of June 30, 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 $ 9.5 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 $ 4.0 million of deferred revenue related to the second target under the Discovery Agreement with AbbVie is expected to be recognized ratably until 2024 . • The $ 19.6 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 $ 1.0 million of deferred revenue related to the Amgen Other Products is expected to be recognized ratably until 2023 . • The $ 43.7 million of deferred revenue related to the Astellas Agreement is expected to be recognized ratably until 2025 . • The $ 83.9 million of deferred revenue related to the BMS Agreement is expected to be recognized ratably until 2025 . 15 CYTOMX THERAPEUTICS, INC. Notes to Condensed Financial Statements (Unaudited)—(Continued) 7. Stock-Based Compensation Stock Options Activities for the Company’s stock option plans for the six months ended June 30, 2022 were as follows: Options Outstanding Number of Options Weighted- Average Exercise Price Per Share Balances at December 31, 2021 12,192,216 $ 9.42 Options granted 3,416,918 3.55 Options exercised ( 100,990 ) 0.98 Option forfeited/expired ( 1,077,318 ) 8.93 Balances at June 30, 2022 14,430,826 $ 8.13 The Company recorded $ 2.8 million and $ 3.3 million of stock-based compensation expense related to the stock options for the three months ended June 30, 2022 and 2021, respectively. The Company recorded $ 5.7 million and $ 6.3 million of stock-based compensation expense related to the stock options for the six months ended June 30, 2022 and 2021, respectively. Time-based RSUs ("TRSU") Activities for the Company’s TRSUs for the six months ended June 30, 2022 were as follows: Number of Shares Weighted Average Grant Date Fair Value Per Share Balance at December 31, 2021 433,250 $ 5.34 RSU's awarded 655,410 3.89 RSU's vested — — RSU's cancelled ( 97,044 ) 4.75 Balance at June 30, 2022 991,616 $ 4.44 The Company recorded $ 0.4 million and $ 0.7 million of stock-based compensation expense related to the TRSUs for the three and six months ended June 30, 2022, respectively. The Company began granting TRSUs in the fourth quarter of 2021. 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 ("Tranche 1") and the remaining 50% will vest within two years of the grant date upon achievement of additional company objectives ("Tranche 2"). The Company determined that it is not probable that the performance conditions will be satisfied for each of these Tranches and hence no compensation cost was recorded for these awards for the year ended December 31, 2021. As of June 30, 2022, the Company determined that the achievement of the milestones for Tranche 1 was probable and hence recorded $ 1.0 million of stock-based compensation expense for the three and six months ended June 30, 2022. As the achievement of the milestones for Tranche 2 was not considered probable, no compensation cost was recorded for these awards as of and for the three and six months ended June 30, 2022. 16 CYTOMX THERAPEUTICS, INC. Notes to Condensed Financial Statements (Unaudited)—(Continued) Activities for the Company’s PSUs for the six months ended June 30, 2022 were as follows: Number of Shares Weighted Average Grant Date Fair Value Per Share Balance at December 31, 2021 435,000 $ 5.34 PSU's awarded — — PSU's vested — — PSU's cancelled ( 47,500 ) 5.34 Balance at June 30, 2022 387,500 $ 5.34 Stock-based Compensation Total stock-based compensation recorded related to options, TRSUs, PSUs and the ESPP was as follows: Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 (in thousands) Stock-based compensation expense: Research and development $ 2,091 $ 1,548 $ 3,696 $ 2,885 General and administrative 2,399 1,877 4,164 3,574 Total stock-based compensation expense $ 4,490 $ 3,425 $ 7,860 $ 6,459 8. Commitments and Contingencies Legal Proceedings On March 4, 2020 , Vytacera Bio, LLC filed a patent infringement lawsuit against the Company in the U.S. District Court for the District of Delaware. The lawsuit alleges that the Company's use, offers to sell, and/or sales of the Probody® technology platform for basic research applications constitutes infringement. The complaint seeks unspecified monetary damages. The Company filed an Answer, Affirmative Defenses, and Counterclaims on May 26, 2020 . Vytacera Bio, LLC filed its Answer to CytomX Therapeutics Inc.’s Counterclaims on June 5, 2020 . On October 13, 2021, the Court granted the parties’ stipulation to stay all pending case deadlines except for certain matters, pending resolution of claim construction. On May 9, 2022, the Court entered a claim construction ruling. Also on May 9, 2022, the case was assigned to the District of Delaware’s Vacant Judgeship. No new case deadlines have been set. The Company believes that the lawsuit is without merit and intends to vigorously defend itself, and has no t recorded any amount for claims associated with this lawsuit as of June 30, 2022. 9. Income Taxes The Company maintains a full valuation allowance against its net deferred tax assets due to the Company’s history of losses as of June 30, 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. states. 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. 17 CYTOMX THERAPEUTICS, INC. Notes to Condensed Financial Statements (Unaudited)—(Continued) 10. Subsequent event Restructuring On July 6, 2022 the Company announced Phase 2 topline results for praluzatamab ravtansine in breast cancer and its decision to not advance this program ("praluzatamab ravtansine") alone given the data and financial market conditions. The Company will seek a collaboration partnership to further develop praluzatamab ravtansine in patients with advanced breast cancer. On July 13, 2022, the Company announced a restructuring plan to prioritize its resources on its emerging pre-clinical and early clinical pipeline as well as its existing collaboration partnerships. The restructuring plan will result in a reduction to its workforce by approximately 40 %, and is expected to be completed by the fourth quarter of 2022. The Company estimates that it will incur aggregate restructuring charges of approximately $ 10.0 million, primarily related to one-time severance payments and other employee-related costs, in the third and fourth quarters of 2022. 18 Item 2. Management’s Discuss ion and Analysis of Financial Condition and Results of Operations You should read the following management’s discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and notes thereto for the year ended December 31, 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. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this report titled “Risk Factors.” Except as may be required by law, we assume no obligation to update these forward-looking statements or the reasons that results could differ from these forward-looking statements. Overview We are a clinical-stage, oncology-focused biopharmaceutical company 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: 1. Allowing the pursuit of high potential targets that were previously considered “undruggable” due to their ubiquitous expression on healthy tissues; 2. Enhancing an experimental treatment’s “therapeutic window,” the balance between tolerability and anti-tumor activity; and 3. 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 and CX-2029 are currently in Phase 2 clinical studies. Praluzatamab ravtansine is our conditionally activated ADC directed toward CD166 and is 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 examined praluzatamab ravtansine monotherapy in patients with hormone receptor-positive/HER2-non-amplified breast cancer and triple-negative breast cancer (“TNBC”), respectively. Arm C studied praluzatamab ravtansine in combination with pacmilimab (CX-072), our wholly-owned PD-L1 inhibitor, in patients with TNBC. In July 2022, Phase 2 topline results were disclosed for Arms A and B as of data cut-off date May 2022. Arm A met the primary endpoint of confirmed objective response rate greater than 10% by central radiology review. The safety profile in Arm A was generally consistent with Phase 1 observations and the DM4 payload, with high-grade toxicities or toxicities resulting in dose modification predominantly ocular or neuropathic in nature. Specifically, 30% of patients in Arm A discontinued treatment for an adverse event. Grade 3 or greater ocular and neuropathic toxicities were 15% and 10%, respectively. All patients in Arm A were treated at the initial starting dose of 7 mg/kg administered every three weeks. Arm B did not pass the protocol-defined futility boundary in patients with advanced TNBC and enrollment into Arms B and C will be discontinued. Arm B evaluated patients at starting doses of 7 mg/kg or 6 mg/kg. The toxicity profile of the 7 mg/kg starting dose in Arm B was consistent with the 7 mg/kg starting dose in Arm A. In the 6 mg/kg cohort in Arm 19 B, no patients discontinued treatment for an adverse event as of the data cut-off date and Grade 3 or greater ocular or neuropathic related events were 3% and 0%, respectively. Based on these results, the Company was encouraged by the emerging safety profile of 6 mg/kg and will seek a partnership to further develop praluzatamab ravtansine in patients with advanced breast cancer. CX-2029 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 (“E/GEJ”) cancers, and diffuse large B-cell lymphoma (“DLBCL”). Patient enrollment into the study is now complete in all three solid cancer indications, including the E/GEJ cancer cohort. The DLBCL cohort was deprioritized due to strategic and competitive reasons and did not enroll any patients. A data update for the fully enrolled sqNSCLC cohort is expected in the fourth quarter of 2022. Data from the E/GEJ cancer cohort continues to mature. Our partner, Bristol Myers Squibb, is conducting a randomized Phase 2 study evaluating BMS-986249, a Probody version of ipilimumab, the anti-CTLA-4 antibody, in combination with nivolumab, the anti-PD-1 antibody, in patients with metastatic melanoma. In addition, BMS-986249 is being studied in combination with nivolumab in three additional indications: advanced hepatocellular carcinoma, metastatic castration-resistant prostate cancer and advanced TNBC. Bristol Myers Squibb also continues to evaluate BMS-986288, a Probody version of non-fucosylated ipilimumab, as monotherapy or in combination with nivolumab in a Phase 1 clinical 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 have advanced CX-904, a conditionally activated TCB candidate against EGFR and CD3. Our investigational new drug application (“IND”) for CX-904 was allowed to proceed by the FDA in January 2022. In May 2022, the first patient was dosed in a Phase 1 study evaluating CX-904 as a treatment for patients with advanced solid tumors. Our pipeline also includes CX-801, a wholly-owned interferon ("IFN") alpha-2b Probody. Preclinically, CX-801 demonstrated a wide therapeutic index with an enhanced tolerability profile versus unmasked IFN, without compromising its potent antitumor effects. CX-801 has broad potential applicability in traditionally immuno-oncology sensitive as well as insensitive (cold) tumors. An IND submission for CX-801 is planned in the second half of 2023. Another wholly-owned emerging product candidate is CX-2051, a conditionally activated ADC paired with a next-generation payload and directed toward EpCAM with potential applicability across multiple EpCAM-expressing epithelial cancers. We plan to submit an IND for this program in the second half of 2023. 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 ADCs, Cytokines and 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 $24.2 million and $48.1 million for the three and six months ended June 30, 2022, respectively. As of June 30, 2022 and December 31, 2021, we had an accumulated deficit of $581.8 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. We are unable to provide the nature, timing, and estimated costs of the efforts necessary to complete the development of our product candidates because, among other reasons, of regulatory uncertainty, manufacturing limitations, and the pace of enrollment of our clinical trials, which is a function of many factors, including the availability and proximity of patients with the relevant condition. We currently have no manufacturing capabilities and do not intend to establish any such capabilities in the near term. As such, we are dependent on third parties to supply our product candidates according to our specifications, in sufficient quantities, on time, in compliance with appropriate regulatory standards and at competitive prices. Restructuring On July 6, 2022, we announced Phase 2 topline results for praluzatamab ravtansine in breast cancer and our decision to not advance this program ("praluzatamab ravtansine") alone given the data and financial market conditions. We will seek a collaboration partnership to further develop praluzatamab ravtansine in patients with advanced breast cancer. On July 13, 2022, we announced a restructuring plan to prioritize its resources on our emerging pre-clinical and early clinical pipeline as well as our existing collaboration partnerships. The restructuring plan will result in a reduction to our workforce by approximately 40%, and is expected to be completed by the fourth quarter of 2022. We estimate 20 that we will incur aggregate restructuring charges of approximately $10.0 million, primarily related to one-time severance payments and other employee-related costs, in the third and fourth quarters of 2022. 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 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 ongoing 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. The extent to which the COVID-19 pandemic continues to impact our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions necessary to contain the virus or treat its impact, among others. Currently, it is not possible to predict how long the pandemic will last or the extent or degree of its ongoing impact on economic activity, and our business. We do not know the full extent of any impact or delay on our business or our operations, including clinical trial activity, however, we will continue to monitor the COVID-19 situation closely and operate in accordance with all relevant health and safety guidelines as they evolve in response to changing public health conditions. Critical Accounting Policies and Estimates The preparation of our Condensed Financial Statements requires us to make estimates and judgments that affect the reported amounts in the financial statements and related disclosures. On an ongoing basis, management evaluates its significant accounting policies and estimates. We base our estimates on historical experience and on various market-specific and other relevant assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ significantly from these estimates. Estimates are assessed each period and updated to reflect current information. A summary of our critical accounting policies and estimates is presented in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021. Except as noted below, there have been no material changes to our critical accounting policies and estimates for the six months ended June 30, 2022. Uncertain Tax Position We file income taxes in the U.S. federal jurisdiction, the state of California and various other U.S. states. 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 Revenue Our revenue to date has been primarily derived from non-refundable license payments, milestone payments and reimbursements for research and development expenses under our research, collaboration, and license agreements. We recognize revenue from upfront payments over the term of our estimated period of performance under the agreement using a cost-based input method or a common measure of progress for the entire performance obligation. In addition to receiving upfront payments, we may also be entitled to milestone and other contingent payments upon achieving predefined objectives. Revenue from milestones and other contingent payments, when it is probable that there will not be a significant revenue reversal, is also recognized over the performance period based on a similar method. Reimbursements from Astellas and Bristol Myers Squibb for research and development costs when incurred under our research, collaboration and license agreements with them are classified as revenue. For the foreseeable future, we do not expect to generate any revenue from the sale of products unless and until such time as our product candidates have advanced through clinical development and obtained regulatory approval. We expect that any revenue we generate in the foreseeable future will fluctuate from year to year as a result of the timing and amount of milestones and other payments from our collaboration agreements with AbbVie, Amgen, Astellas, Bristol Myers Squibb and any other collaboration partners, and as a result of the fluctuations in the research and development expenses we incur in the performance of assigned activities under these agreements. 21 AbbVie, one of our collaboration partners, entered into a license agreement with Seagen Inc. (“SGEN”) to license certain intellectual property rights. As part of our collaboration agreement with AbbVie, we received a sublicense to these intellectual property rights and therefore pay SGEN sublicense fees. These sublicense fees are treated as reductions to the transaction price and combined with the performance obligation to which they relate. Milestone payments, when considered probable of being reached and when a significant revenue reversal would not be probable of occurring, are also recorded net of the associated sublicense fees and included in the transaction price. Research and Development Expenses Our research and development expenses consist primarily of costs incurred to conduct research, such as the discovery and development of our product candidates, clinical development, including activities with third parties, such as contract research organizations (“CRO”) and contract development and manufacturing organizations (“CMO”), 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. We expense research and development costs as incurred. We expect our research and development expenses could vary substantially in the future as we prioritize our pipeline opportunities, advance our product candidates through clinical trials, initiate additional clinical trials, and pursue regulatory approval of our product candidates. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming. The actual probability of success for our product candidates may be affected by a variety of factors including: the safety and efficacy of our product candidates, early clinical data, investment in our clinical program, the ability of collaborators to successfully develop our licensed product candidates, competition, manufacturing capability and commercial viability. We may never succeed in achieving regulatory approval for any of our product candidates. As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of our product candidates. General and Administrative Expenses General and administrative expenses include personnel costs, expenses for outside professional services and other allocated expenses. Personnel costs consist of salaries, bonuses, benefits and stock-based compensation. Outside professional services consist of accounting and audit services, legal and other consulting fees. Allocated expenses primarily consist of rent expense related to our office and information technology related costs. Interest Income Interest income primarily consists of interest income from our cash equivalents and investments, and accretion of discounts or amortization of premiums on our investments. Other income (expense), net Other income (expense), net consists primarily of gains and losses resulting from changes to currency exchange rates. Results of Operations For the Three and Six Months Ended June 30, 2022 and 2021 Revenue The following table summarizes our revenue by collaboration partner during the respective periods: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 Change 2022 2021 Change (in thousands) (in thousands) AbbVie $ 5,377 $ 2,078 $ 3,299 $ 7,804 $ 3,306 $ 4,498 Amgen 369 1,874 (1,505 ) 2,657 4,456 (1,799 ) Astellas 5,014 4,931 83 10,031 9,687 344 Bristol Myers Squibb 7,405 7,405 - 14,810 14,810 - Total revenue $ 18,165 $ 16,288 $ 1,877 $ 35,302 $ 32,259 $ 3,043 The increase in revenue of $1.9 million and $3.0 million for the three and six months ended June 30, 2022, respectively, compared to the corresponding periods of 2021 was primarily due to: 22 • An increase in revenue from AbbVie under the CD71 Co-Development and Licensing Agreement driven by a higher percentage of project completion in current periods; • Offset by a decrease in revenue from Amgen under the Amgen Agreement driven by lower percentage of completion of the CX-904 project in the current periods due to the increase in projected hours-to-completion within the same projected research period. Operating Costs and Expenses Research and Development Expenses The following table summarizes our research and development expenses by program incurred during the respective periods presented: Three Months Ended Six Months Ended June 30, June 30, 2022 2021 Change 2022 2021 Change External costs incurred by product candidate (target): (in thousands) (in thousands) Praluzatamab ravtansine, CX-2009 (CD166) $ 3,746 $ 2,793 $ 953 $ 8,619 $ 5,845 $ 2,774 CX-2029 (CD71) 3,001 3,349 (348 ) 5,079 4,836 243 Pacmilimab, CX-072 (PD-L1) 1,037 1,715 (678 ) 1,036 1,514 (478 ) CX-904 845 1,171 (326 ) 1,512 1,652 (140 ) Other wholly owned and partnered programs 4,566 2,229 2,337 8,029 3,558 4,471 General research and development expenses 3,471 3,363 108 7,723 7,160 563 16,666 14,620 2,046 31,998 24,565 7,433 Internal Costs 14,493 11,480 3,013 29,720 23,907 5,813 Total research and development expenses $ 31,159 $ 26,100 $ 5,059 $ 61,718 $ 48,472 $ 13,246 The $5.1 million and $13.2 million increase in research and development expenses for the three and six months ended June 30, 2022, respectively, compared to the corresponding periods of 2021 was primarily due to an increase in personnel related expenses and laboratory contract services supporting our pre-clinical and clinical stage pipeline. The development expenses are expected to decrease over time due to the restructuring plans announced in July 2022, resulting in a pipeline reprioritization and a reduction to our workforce. General and Administrative Expenses Three Months Ended Six Months Ended June 30, June 30, 2022 2021 Change 2022 2021 Change (in thousands) (in thousands) General and administrative expenses $ 11,748 $ 9,393 $ 2,355 $ 22,292 $ 18,619 $ 3,673 General and administrative expenses increased by $2.4 million for the three months ended June 30, 2022, compared to the corresponding period of 2021 primarily due to an increase in personnel related expenses as well as professional expenses driven by outside consulting services. General and administrative expenses increased by $3.7 million for the six months ended June 30, 2022, compared to the corresponding period of 2021 primarily due to an increase in personnel related expenses as well as outside consulting, legal and intellectual property services. General and administrative expenses are expected to decrease over time due to the restructuring plan announced in July 2022, resulting in a reduction to our workforce. 23 Liquidity and Capital Expenditures Sources of Liquidity As of June 30, 2022, we had cash, cash equivalents and short-term investments of $228.2 million and an accumulated deficit of $581.8 million, compared to cash, cash equivalents and short-term 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. On July 13, 2022, we announced a restructuring plan to prioritize resources on our emerging pre-clinical and early clinical pipeline as well as our existing collaboration partnerships. The restructuring plan will result in a reduction to our workforce by approximately 40%, and is expected to be completed by the fourth quarter of 2022. We estimate that we will incur aggregate restructuring charges of approximately $10.0 million, primarily related to one-time severance payments and other employee-related costs, in the third and fourth quarters of 2022. Based upon our current operating plan, we expect our existing capital resources will be sufficient to fund operations into 2025. However, if the anticipated operating results and future financing are not achieved in future periods, our planned expenditures may need to be reduced in order to extend the time period over which the then-available resources would be able to fund the operations. The amounts and timing of our actual expenditures depend on numerous factors, including the progress of our preclinical and clinical development efforts, the results of any clinical trials and other studies, our operating costs and expenditures and other factors described under the caption “Risk Factors” in this Quarterly Report on Form 10-Q. The cost and timing of developing our 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. We will need to raise additional funds in the future. There can be no assurance, however, that such efforts will be successful; or if they are successful, that the terms and conditions of such financing will be favorable to us. Summary Statement of Cash Flows The following table summarizes our cash flows for the periods indicated: Six Months Ended June 30, 2022 2021 (in thousands) Net cash used in operating activities $ (75,550 ) $ (58,139 ) Net cash provided by (used in) investing activities (1,148 ) 13,000 Net cash provided by financing activities 458 109,426 Net increase (decrease) in cash and cash equivalents $ (76,240 ) $ 64,287 Cash Flows from Operating Activities During the six months ended June 30, 2022, cash used in operating activities was $75.6 million, which consisted of a net loss of $48.1 million, adjusted by non-cash charges of $10.7 million and a net decrease of $38.2 million relating to the change of our net operating assets and liabilities. The non-cash charges primarily consisted of $7.9 million in stock-based compensation, $1.6 million in non-cash lease expense and $1.2 million in depreciation and amortization. The change in our net operating assets and liabilities was primarily due to: • a net decrease of $33.3 million in deferred revenue resulting from the continued recognition of deferred revenue from existing customers; • a decrease of $5.3 million in accounts payable, accrued and other long-term liabilities primarily due to timing of payment; and • an increase of $0.4 million in cash flows from accounts receivable and prepaid and other current assets primarily due to decreased advance payments to our third party manufacturing vendors and timing of payments. During the six months ended June 30, 2021, cash used in operating activities was $58.1 million, which consisted of a net loss of $34.8 million and a net decrease of $33.0 million relating to the change of our net operating assets and liabilities, offset by non-cash charges of $9.7 24 million. The non-cash charges primarily consisted of $6.5 million in stock-based compensation, $1.5 million in non-cash lease expense, $1.4 million in depreciation and amortization and $0.3 million in amortization of premium on investments. The change in our net operating assets and liabilities was primarily due to: • a net decrease of $30.6 million in deferred revenue resulting from the continued recognition of deferred revenue from existing customers; • a decrease of $6.7 million in accounts payable, accrued and other long-term liabilities primarily due to timing of payment and a reduction in research and clinical expenses; and • an increase of $4.4 million in cash flows from other assets, prepaid and other current assets. Cash Flows from Investing Activities During the six months ended June 30, 2022, cash used in investing activities was $1.1 million of capital expenditures used to purchase property and equipment. During the six months ended June 30, 2021, cash provided by investing activities was $13.0 million, which consisted of $114.0 million in proceeds received upon the maturity of short-term marketable securities, partially offset by $99.9 million used in the purchase of long-term investments and $1.1 million of capital expenditures used to purchase property and equipment. Cash Flows from Financing Activities During the six months ended June 30, 2022, cash provided by financing activities consisted of $0.5 million of proceeds from the exercise of stock options and employee stock purchases under the employee stock purchase plan. During the six months ended June 30, 2021, cash provided by financing activities consisted of $107.7 million of net proceeds from the follow-on public offering and $1.7 million of proceeds from the exercise of stock options and employee stock purchases under the employee stock purchase plan. Contractual Obligations During the six months ended June 30, 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. Item 3. Quantitative and Qualitat ive Disclosure About Market Risk We are exposed to market risks in the ordinary course of our business. These risks primarily relate to interest rate risks. We had cash, cash equivalents and short-term investments of $228.2 million and $305.2 million as of June 30, 2022 and December 31, 2021, respectively, which consists of bank deposits, money market funds and U.S. government bonds. Such interest-bearing instruments carry a degree of interest rate risk; however, historical fluctuations of interest income have not been significant. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate exposure. We have not historically been exposed to material risks due to changes in interest rates. Based on our investment positions as of June 30, 2022, a hypothetical 100 basis point change in interest rates would not have material effect in the fair value of the portfolio. Item 4. Controls and Proc edures Evaluation of Disclosure Controls and Procedures The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934, as amended (the “Exchange Act”) refers to controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the 25 cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their control objectives. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of June 30, 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 our fiscal quarter ended June 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 26 PART II – OTHER INFORMATION