What changed in this filing

/stocks — the workspaceLOADING

Item 4. Controls and Procedures

2022-11-08 compared with 2022-08-04 · 189 added, 138 removed, 617 unchanged (35% of the section changed)

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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 estimates of our expenses, ongoing losses, future revenue and capital requirements, including our estimate of cash flow savings as a result of our restructuring plan announced in July 2022;

our ability to obtain additional funds for our operations;

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(in thousands, except share and per share data)

September 30,

Current assets:

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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.

10,000,000 shares authorized and no shares issued and outstanding at September 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

150,000,000 shares authorized and 65,950,242 and 65,392,758 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively

Additional paid-in capital

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Operating expenses:

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Balance at June 30, 2022

Release of PSUs

Stock-based compensation

Other comprehensive gain

Balance at September 30, 2022

Comprehensive

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Balance at June 30, 2021

Exercise of stock options

Stock-based compensation

Other comprehensive income

Balance at September 30, 2021

See accompanying notes to condensed financial statements.

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(in thousands)

Six Months Ended

Nine Months Ended

September 30,

Cash flows from operating activities:

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Maturities of investments

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities

Cash flows from financing activities:

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Net cash provided by financing activities

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

Net (decrease) increase 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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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 condensed results of operations for the three and nine months ended September 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.

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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.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent 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.

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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

September 30, 2022

December 31, 2021

June 30, 2021

September 30, 2021

December 31, 2020

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(“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.

As part of the Company’s collaboration agreement with AbbVie, the Company was 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.

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Options, RSUs and ESPP to purchase common stock

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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 short-term investments.

Treasury securities that are included in cash equivalent or 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

September 30, 2022

(in thousands)

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Restricted cash (money market funds)

Government bonds

Treasury securities

December 31, 2021

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Restricted cash (money market funds)

Government bonds

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.

Treasury securities

As of September 30, 2022, the unrealized losses on the Company’s investment in U.S.

Treasury securities 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.

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Accrued liabilities consisted of the following:

September 30,

(in thousands)

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Operating lease liabilities - short term

Restructuring expenses

Other accrued expenses

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

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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.

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.

Inclusive of payments received in 2017, 2018 and 2020, as of September 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.

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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

The Company is also eligible

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.

to receive up to $ 265.0 million for each target, in development, regulatory and commercial milestone payments and royalties at percentages in the high single to low teens from commercial sales of any resulting conditionally activated ADCs.

The second target was selected under the Discovery Agreement that allows AbbVie to select a target for developing a conditionally activated ADC or a Probody.

The 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.

Therefore, these payments continue to be fully constrained and are not included in the transaction price as of September 30, 2022.

As of September 30, 2022 and December 31, 2021, deferred revenue related to the CD71 Agreement performance obligation was $ 6.6 million and $ 16.1 million, respectively, and deferred revenue related to the Discovery Agreement performance obligation was $ 3.5 million and $ 5.2 million, respectively.

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

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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.

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

Food and Drug Administration (“FDA”).

Amgen also has the right to select a total of up to three targets, including the two additional targets discussed below.

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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.

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.

As of September 30, 2022 and December 31, 2021, deferred revenue related to the EGFR Products performance obligation was $ 19.4 million and $ 21.8 million, respectively.

As of September 30, 2022 and December 31, 2021, deferred revenue related to the Amgen Other Products performance obligation was $ 0.8 million and $ 1.4 million, respectively.

CYTOMX THERAPEUTICS, 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.

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.

As of September 30, 2022 and December 31, 2021, deferred revenue relating to the Astellas Agreement was $ 39.6 million and $ 51.6 million, respectively.

The amount due from Astellas under the Astellas Agreement was $ 1.7 million and $ 0.8 million as of September 30, 2022 and December 31, 2021, respectively.

Bristol Myers Squibb Company

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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.

As a result, these payments continued to be fully constrained and are not included in the transaction price as of September 30, 2022.

As of September 30, 2022 and December 31, 2021, deferred revenue relating to the BMS Agreement was $ 76.5 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:

The following table presents changes in the Company’s total contract liabilities during the nine months ended September 30, 2022:

(in thousands)

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Deferred revenue

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.

The Company expects that the $ 146.4 million of deferred revenue related to the following contracts as of September 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.

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Stock Options

Activities for the Company’s stock option plans for the six months ended June 30, 2022 were as follows:

Activities for the Company’s stock option plans for the nine months ended September 30, 2022 were as follows:

Options Outstanding

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Option forfeited/expired

Balances at June 30, 2022

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.

Balances at September 30, 2022

The Company recorded $ 2.3 million and $ 3.0 million of stock-based compensation expense related to the stock options for the three months ended September 30, 2022 and 2021, respectively.

The Company recorded $ 8.0 million and $ 9.3 million of stock-based compensation expense related to the stock options for the nine months ended September 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:

Activities for the Company’s TRSUs for the nine months ended September 30, 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 June 30, 2022

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.

RSUs cancelled

Balance at September 30, 2022

The Company recorded $ 0.1 million and $ 0.8 million of stock-based compensation expense related to the TRSUs for the three and nine months ended September 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.

In October 2021, the Company granted 435,000 PSUs 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 ("2021-Tranche 1") and the remaining 50% will vest within two years of the grant date upon achievement of additional company objectives ("2021-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.

During the second quarter of 2022, the Company determined that the achievement of the milestones for 2021-Tranche 1 was probable and hence recorded $ 1.0 million of stock-based compensation expense.

In July 2022, the Company determined that the performance condition for 2021-Tranche 1 was met and recorded $ 32,000 and $ 1.0 million of stock-based compensation expense for the three and nine months ended September 30, 2022, respectively.

As the achievement of the milestones for Tranche 2 was not considered probable, no compensation cost was recorded for Tranche 2 of these awards for the three and nine months ended September 30, 2022.

In August 2022, the Company granted 250,000 PSUs to executive employees with an aggregated grant date fair value of approximately $ 0.4 million.

Vesting for 50% of the PSUs granted will occur upon attaining certain specific milestones by December 2023 (“2022-Tranche 1”), and the remaining 50% will vest upon attaining certain specific milestones by December 2024 (“2022-Tranche 2”).

As of September 30, 2022, the Company determined that it is probable that the performance conditions for 2022-Tranche 1 will be satisfied and hence recorded $ 20,000 compensation cost for those awards for the three and nine months ended September 30, 2022.

As of September 30, 2022, the

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:

Company determined that it is not probable that the performance conditions for 2022-Tranche 2 will be satisfied and hence recorded no compensation cost for those awards for the three and nine months ended September 30, 2022.

Activities for the Company’s PSUs for the nine months ended September 30, 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 June 30, 2022

PSUs cancelled

Balance at September 30, 2022

Stock-based Compensation

The total stock-based compensation expense for each of the three and nine months ended September 30, 2022 included $ 0.1 million in research and development expense, and $ 0.1 million in general and administrative expenses related to the modification of certain awards in connection with the restructuring in the third quarter of 2022.

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

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

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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.

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 .

In September 2022, the Company filed a motion to dismiss the case and the Court granted the parties’

stipulation to stay all pending case deadlines until that motion is finally resolved.

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, 2022.

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, 2022 and December 31, 2021 .

The Company files income taxes in the U.S.

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

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.

The restructuring plan resulted in a reduction to its workforce of approximately 40 %.

Restructuring costs of $ 2.0 million and $ 5.1 million were recorded in general and administrative expense and research and development expense, respectively, for the three- and nine-months ended September 30, 2022.

In connection with the restructuring, the Company has recorded a total of $ 0.2 million stock-based compensation related to the modification of awards, of which $ 0.1 million was recorded in general and administrative expense and $ 0.1 million in research and development expense.

The following is a summary of accrued restructuring costs as of September 30, 2022 (in thousands):

Severance and Benefits Costs

Contract Termination Cost

Stock Based Compensation

Non-cash charges

Balance at September 30, 2022

The total costs expected to be incurred in connection with the restructuring are estimated to be approximately $ 7.9 million.

The Company expects to incur an additional $ 0.8 million of restructuring costs related to severance and benefits in the three months ended December 31, 2022.

The restructuring is expected to be substantially complete by the fourth quarter of 2022.

Management’s Discuss ion and Analysis of Financial Condition and Results of Operations

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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.

We are employing our conditional activation platform technology to advance novel investigational medicines in some of the most needed areas of cancer research and development including antibody-drug conjugates (“ADCs”), T-cell engaging bispecific antibodies (“TCBs”), and immune modulators such as cytokines and checkpoint inhibitors (“CPIs”).

Our robust portfolio of differentiated, experimental treatments includes a broad range of wholly-owned and partnered molecules spanning pre-clinical to Phase 2 across multiple therapeutic modalities in which conditionally activated molecules could unlock significant therapeutic potential for the treatment of cancer.

CX-2029, partnered with Abbvie, is a conditionally activated ADC directed toward the previously undruggable target CD71.

Having demonstrated favorable tolerability and encouraging anti-tumor activity in Phase 1 studies, CX-2029 entered into a four-cohort Phase 2 expansion study initially 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”).

The DLBCL cohort was later deprioritized due to strategic and competitive reasons and did not enroll any patients.

Patient enrollment into the sqNSCLC, HNSCC and E/GEJ cancer cohorts and the overall study is now complete.

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.

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.

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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.

In July 2022, Phase 2 topline results were disclosed for Arms A and B as of the data cut-off date of 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.

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.

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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 did not pass the protocol-defined futility boundary in patients with advanced TNBC and enrollment into Arms B and C was 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

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:

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.

In the 6 mg/kg cohort in Arm 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 is seeking a partnership to further develop praluzatamab ravtansine in patients with advanced breast cancer.

The additional data from the Phase 2 study are expected to be presented by the end of 2022.

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.

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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.

Reinforcing our leadership in the field of conditional activation, we recently advanced our first T-cell engaging bispecific antibody (TCB) into the clinic.

CX-904 is a conditionally activated TCB against EGFR and CD3.

Our investigational new drug application (“IND”) for CX-904 was allowed to proceed by the FDA in January 2022 and 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.

Patient enrollment in the Phase1 dose escalation portion of the study continues to progress.

Our pipeline also includes CX-801, a wholly-owned interferon ("IFN") alpha-2b Probody.

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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.

Another wholly-owned emerging product candidate is CX-2051, a conditionally activated ADC paired with a next-generation camptothecin payload and directed toward the epithelial cellular adhesion molecule (EpCAM).

CX-2051 has been tailored to optimize the therapeutic index for the systemic treatment of EpCAM-expressing epithelial cancers where previous industry efforts targeting EpCAM have not been successful due to dose-limiting toxicities.

We plan to submit an IND for this program in the second half of 2023.

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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.

Our net loss was $23.3 million and $71.4 million for the three and nine months ended September 30, 2022, respectively.

As of September 30, 2022 and December 31, 2021, we had an accumulated deficit of $605.1 million and $533.7 million, respectively.

We expect to continue to incur significant losses for the foreseeable future.

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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.

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.

On July 13, 2022, we announced a restructuring plan to prioritize our resources on our emerging pre-clinical and early clinical pipeline as well as our existing collaboration partnerships.

The restructuring plan resulted in a reduction to our workforce of approximately 40%.

During the three months ended September 30, 2022, we recorded aggregate restructuring charges of approximately $7.1 million, primarily related to severance and benefits.

The aggregate restructuring charges under this restructuring plan are expected to be approximately $7.9 million.

We expect to incur an additional $0.8 million of restructuring costs related to severance and benefits in the three-months ended December 31, 2022.

We expect the restructuring to be substantially complete by the fourth quarter 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 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 CX-2029, CX-904, and praluzatamab ravtansine, 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.

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.

Except as noted below, there have been no material changes to our critical accounting policies and estimates for the nine months ended September 30, 2022.

Uncertain Tax Position

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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.

Research and Development Expenses

We record accrued liabilities for estimated costs of research, preclinical and clinical studies and contract manufacturing activities, which are a significant component of research and development expenses.

A substantial portion of our ongoing research and development activities is conducted by third-party service providers, including CROs.

Our contracts with CROs generally include pass-through costs, such as regulatory expenses, investigator fees, travel costs and other miscellaneous costs.

The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payments that do not match the periods over which materials or services are provided to us under such contracts.

We accrue the costs incurred under agreements with these third parties based on actual work completed in accordance with the respective agreements.

In the event we make advance payments, they are recorded as prepaid expenses and recognized as the services are performed.

We determine the estimated costs through discussions with internal personnel and external service providers as to the progress of stage of completion of the services and the agreed-upon fees to be paid for such services.

We make significant judgments and estimates in determining the accrual balance in each reporting period.

As actual costs become known, we adjust our accruals.

Although we do not expect our estimates to be materially different than the actual amounts incurred, such estimates for the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low in any one period.

Our accrual is dependent, in part, upon the receipt of timely and accurate reporting from CROs and other third-party vendors.

Variations in the assumptions used to estimate accruals including, but not limited to, the number of patients enrolled, the rate of patient enrollment and the actual services performed, may vary from our estimates, resulting in adjustments to clinical trial expenses in future periods.

Changes in these estimates that result in material changes to our accruals could materially affect our financial condition and results of operations.

Components of Results of Operations

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(“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.

As part of our collaboration agreement with AbbVie, we received a sublicense to these intellectual property rights and therefore paid SGEN sublicense fees.

These sublicense fees were 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.

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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

Results of Operations for the Three and Nine Months Ended September 30, 2022 and 2021

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

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands)

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Total revenue

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:

The decrease in revenue of $0.7 million and increase of $2.4 million for the three and nine months ended September 30, 2022, respectively, compared to the corresponding periods of 2021 was primarily due to:

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.

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 an increase in projected hours-to-completion.

Operating Costs and Expenses

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

External costs incurred by product candidate (target):

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Total research and development expenses

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.

Research and development expenses increased by $1.2 million for the three months ended September 30, 2022, compared to the corresponding periods of 2021 primarily driven by restructuring expenses of $5.1 million, offset by a decrease in personnel related expense and clinical trial expenses due to the workforce reduction and pipeline reprioritization announced in July 2022.

During the three months ended September 30, 2022, a refund of $0.7 million was recorded related to prepaid clinical trial expenses for the CX-072 program.

Research and development expenses increased by $14.5 million for the nine months ended September 30, 2022, compared to the corresponding periods of 2021 primarily driven by restructuring expenses of $5.1 million and an increase in lab contract services and personnel related expenses supporting our clinical and pre-clinical stage pipeline.

General and Administrative Expenses

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

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General and administrative expenses

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.

General and administrative expenses decreased by $0.6 million for the three months ended September 30, 2022, compared to the corresponding period of 2021 primarily driven by a decrease in personnel related expenses due to the workforce reduction announced in July 2022 and a decrease in outside consulting, legal and intellectual property services, offset by an increase of $2.0 million for restructuring expenses.

General and administrative expenses increased by $3.1 million for the nine months ended September 30, 2022, compared to the corresponding period of 2021 primarily driven by $2.0 million of restructuring expenses and an increase in personnel related expenses.

Restructuring

During the three- and nine-months ended September 30, 2022, we recognized aggregate restructuring charges of approximately $7.1 million, primarily related to severance and benefits.

Restructuring costs of $2.0 million and $5.1 million were recorded in general and administrative expense and research and development expense, respectively, for the three- and nine-months ended September 30, 2022.

The total restructuring cost is expected to be approximately $7.9 million.

We expect to incur an additional $0.8 million of restructuring costs related to severance and benefits in the three months ended December 31, 2022.

We expect the restructuring to be substantially complete by the fourth quarter of 2022.

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.

As of September 30, 2022, we had cash, cash equivalents and short-term investments of $194.3 million and an accumulated deficit of $605.1 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.

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.

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.

The restructuring plan resulted in a reduction to our workforce by approximately 40%, and is expected to be substantially completed by the fourth quarter of 2022.

We estimate that we will incur aggregate restructuring charges of approximately $7.9 million, primarily related to one-time severance payments and other employee-related costs.

Of the $7.9 million, $7.1 million was incurred in the third quarter of 2022 and the remaining $0.8 million is expected to be incurred in the fourth quarters of 2022.

Based upon our current operating plan, we expect our existing capital resources will be sufficient to fund operations into 2025.

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

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

Net cash used in operating activities

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

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.

During the nine months ended September 30, 2022, cash used in operating activities was $109.4 million, which consisted of a net loss of $71.4 million and a net decrease of $52.9 million relating to the change of our net operating assets and liabilities, offset by non-cash charges of $14.9 million.

The non-cash charges primarily consisted of $10.6 million in stock-based compensation, $2.5 million in non-cash lease expense and $1.8 million in depreciation and amortization.

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a decrease of $3.5 million in accounts payable, accrued and other long-term liabilities primarily due to timing of payment;

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

a decrease of $1.0 million in cash flows from increase in accounts receivable caused by increase in service revenue.

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.

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a net decrease of $47.3 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;

an increase of $4.4 million in cash flows from other assets, prepaid and other current assets.

a decrease of $1.9 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.

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.

During the nine months ended September 30, 2022, cash used in investing activities was $1.6 million of capital expenditures used to purchase property and equipment.

During the nine months ended September 30, 2021, cash provided by investing activities was $22.7 million, which consisted of $124.0 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 $1.4 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.

During the nine months ended September 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 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.

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.

During the nine months ended September 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.

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 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.

We had cash, cash equivalents and short-term investments of $194.3 million and $305.2 million as of September 30, 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 June 30, 2022, 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 September 30, 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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Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the

cost-benefit relationship of possible controls and procedures.

Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their control objectives.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2022, the end of the period covered by this Quarterly Report on Form 10-Q.

Our management, with the participation of our Chief Executive Officer and Principal Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of September 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.

Based upon such evaluation, our Chief Executive Officer and Principal 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.

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 September 30, 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