IDEAYA Biosciences, Inc. 10-Q

Item 2. Management’s Discussion and Analysis o f Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described, in or implied, by these forward-looking statements. Please also see the section of this Quarterly Report on Form 10-Q titled “Forward-Looking Statements.” Overview We are an oncology-focused precision medicine company committed to the discovery and development of targeted therapeutics for patient populations selected using molecular diagnostics. Our approach integrates small molecule drug discovery with extensive capabilities in identifying and validating translational biomarkers to develop targeted therapies for select patient populations most likely to benefit. Our small molecule drug discovery expertise includes discovery and development of small molecule inhibitors and protein degrader modalities. We are applying these capabilities to develop a robust pipeline in precision medicine oncology, with a research focus in synthetic lethality – which represents an emerging class of precision medicine targets. IDE397 – MAT2A Inhibitor Development Candidate Our lead synthetic lethality research program targets methionine adenosyltransferase 2a, or MAT2A, for solid tumors with MTAP deletions, a patient population estimated to represent approximately 15% of solid tumors. Our MAT2A inhibitor development candidate is designated as IDE397. Our preclinical activities continue to support IDE397 as a development candidate and a potential clinical candidate. We are evaluating the efficacy of monotherapy IDE397 in over forty solid tumor patient derived xenograft, or PDX, models with homozygous MTAP deletions. Preliminary results show in vivo efficacy in multiple MTAP-null xenograft models demonstrating tumor growth inhibition when MAT2A is pharmacologically inhibited with IDE397 as monotherapy, including in non-small cell lung cancer. We have completed the in-life phase of our ongoing good laboratory practice, or GLP, compliant toxicology studies with IDE397 in multiple species. Subject to satisfactory completion of GLP toxicology studies and completion of chemistry, manufacturing and control, or CMC, certification requirements, we are targeting to submit an investigational new drug application, or IND, to the FDA for IDE397 in December 2020. Subject to effectiveness of the IND, we anticipate initiating a Phase 1 clinical trial for clinical evaluation of IDE397 as monotherapy in the first half of 2021. Preclinical combination tolerability and efficacy studies are ongoing with IDE397 and GSK3368715, GSK’s Phase 1 Type 1 PRMT inhibitor, including in multiple MTAP-null in vivo efficacy models. We plan to lead research and development of IDE397 through early clinical development, in collaboration with GlaxoSmithKline pursuant to the Collaboration, Option and License Agreement, or the GSK Collaboration Agreement, with an affiliate of GlaxoSmithKline, GLAXOSMITHKLINE INTELLECTUAL PROPERTY (NO. 4), Limited, or GSK. PARG We are advancing our preclinical research for an inhibitor of poly (ADP-ribose) glycohydrolase, or PARG, for patients having tumors with BRCA2 mutations and potentially other genetic and/or molecular signatures. 27 One of our PARG inhibitor compounds, designated as IDB-PARG, has demonstrated dose-dependent in vivo efficacy as monotherapy with tumor regression or stasis in multiple PDX models. We are continuing to evaluate the efficacy of IDB-PARG as monotherapy across a panel of additional solid tumor PDX models with specific genetic alterations. We entered into a strategic collaboration with the Broad Institute of MIT and Harvard focused on synthetic lethality target and biomarker discovery. Among other objectives, our collaboration with the Broad Institute will evaluate paralog CRISPR knockdown in selected cell lines in conjunction with pharmacological inhibition of PARG to inform patient selection and combination strategies in ovarian and breast cancer. Subject to further preclinical studies, we are targeting to identify a PARG inhibitor development candidate in 2021. Werner Helicase We are also continuing to advance our preclinical research in collaboration with GSK for an inhibitor targeting Werner Helicase, or WRN, for patients having tumors with high microsatellite instability, or MSI. We have observed dose-dependent cellular viability effect and a dose-dependent cellular pharmacodynamic, or PD, response in multiple endogenous MSI high cell lines. For this program, we plan to continue further development in collaboration with GSK pursuant to the GSK Collaboration Agreement. Pol Theta We are progressing our program targeting DNA Polymerase Theta, or Pol Theta or POLQ, in collaboration with GSK for patients having solid tumors with BRCA or other homologous recombination deficiency, or HRD, mutations. We have shown combination activity with multiple PARP inhibitors, including niraparib. We have demonstrated synergistic in vivo efficacy of a Pol-theta inhibitor with niraparib: the combination of our Pol Theta inhibitor with niraparib enhanced the activity of niraparib in the DLD1 BRCA2-/- xenograft model. Tumor regressions were observed for all animals in the study which were administered the combination. We plan to continue further development of our POLQ program, including both protein degraders and small molecule inhibitors in collaboration with GSK pursuant to the GSK Collaboration Agreement, and are targeting selecting a development candidate for a Pol Theta small molecule inhibitor in 2021. DNA Damage Target We have initiated early preclinical research programs to identify small molecule inhibitors for multiple distinct DNA Damage Targets, or DDTs, for patients with solid tumors characterized by a proprietary biomarker or a gene signature. Synthetic Lethality Target and Biomarker Discovery Platform Synthetic lethality continues to be our core research focus. We have invested significantly and continue to invest in capabilities for identification and validation of new synthetic lethality targets. For targets of interest, we advance our research to discover therapeutic drugs and relevant biomarkers. Our synthetic lethality research platform integrates a broad set of computational and functional capabilities. These capabilities collectively reflect the convergence of advancements in biology, molecular biology, chemistry and information technologies. For example, molecular biology approaches such as gene knockdown using siRNA, gene editing using CRISPR, quantitative DNA/RNA analysis, protein expression profiling and genomic sequencing can be applied across broad cell lines to create substantial data sets. Data analytics and computational approaches are used to mine such data sets to identify novel targets and biomarker hypotheses. These hypotheses are experimentally validated by developing and applying relevant biological assays. 28 We have established a comprehensive platform to computationally and empirically identify high value synthetic lethal pairs in defined patient populations. This platform integrates across parallel data sets, each including orthogonal content based on particular screening efforts. These screens include evaluation of curated, genetically define d and preselected model cell sets indicative of targeted patient populations. Our platform includes a proprietary library and data set resulting from our DECIPHER™ Dual CRISPR Synthetic Lethality library constructed in collaboration with University of Cal ifornia, San Diego. The platform will also include data from our recently announced proprietary PAGEO™ , or Paralogous Gene Evaluation in Ovarian cancer, library being developed in collaboration with the Broad Institute utilizing the Sellers laboratory CRI SPR paralog screening platform to evaluate functionally redundant paralogous genes across ovarian cancer subtypes. Additionally, we are members of the DepMap (Cancer Dependency Map) consortium led by the Broad Institute, through which we have access to a comprehensive data set of genome-wide cell-based screens, including isogenic screens, conducted by the Broad Institute and other contributing institutes, including pre-publication access to new data releases. As a further component of our synthetic lethali ty platform, we are conducting computational data mining and analysis of relevant public databases, such as The Cancer Genome Atlas, or TCGA, cBioPortal, and Cancer Cell Line Encyclopedia, or CCLE, among others. Such computational approaches include our p roprietary algorithms which enable us to determine synthetic lethality targets and biomarkers enabling patient stratification. We have established internal bioinformatics capabilities, which are supplemented by external resources. We are applying these capabilities and resources to integrate using proprietary algorithms and unsupervised machine learning across each of the orthogonal data sets in our platform. These integrated, comprehensive analysis efforts allow us to determine synthetic lethality target / biomarker pairs with the strongest signals across the data sets. Potential therapeutic targets are ranked based on several factors, including the strength of the synthetic lethal interaction, potential drugability, potential clinical development path, and potential market opportunity. The most promising therapeutic targets are validated empirically. DECIPHER™ Dual CRISPER Synthetic Lethality Library – UCSD We have constructed our DECIPHER Dual CRISPR library for synthetic lethality target and biomarker discovery in collaboration with the University of California, San Diego, and bioinformatics analysis and validation are ongoing. The DECIPHER 1.0 library is focused on DNA Damage Repair targets across various tumor suppressor genes and oncogenes of interest that were selected based on their known prevalence and role in solid tumors, enabling evaluation of approximately 50,000 independent gene knockout combinations of DDR pathway related drug targets across known tumor suppressor genes. PAGEO™ Paralogous Gene Evaluation in Ovarian Cancer and Dep Map Consortium – Broad Institute On October 21, 2020, we entered into a strategic collaboration with the Broad Institute of MIT and Harvard focused on synthetic lethality target and biomarker discovery. This collaboration will use the large-scale CRISPR paralog screening platform developed at the laboratory of William R. Sellers, M.D., Core Institute Member, Broad Institute, to evaluate functionally redundant paralogous genes across ovarian cancer subtypes and to generate novel target and biomarker hypotheses. Dr. Sellers, who also serves on our Scientific Advisory Board, is the principal investigator for the strategic collaboration. We have also become a member of the Broad DepMap (Cancer Dependency Map) consortium led by the Broad Institute to further enhance our efforts in bioinformatics and cell-based screening for synthetic lethality target and biomarker discovery and validation. We are also continuing to invest in our capabilities to advance our research on newly identified synthetic lethality targets of interest, including to enable discovery of therapeutic drugs and relevant biomarkers. These investments include both additional research personnel and capital investments, which will enhance our capabilities broadly, including in target validation, biological assay development, protein synthesis, structural biology, computational chemistry, and analytical chemistry, among other core functional areas. Collaboration, Option and License Agreement with GSK for Synthetic Lethality Programs On June 15, 2020, we entered into the GSK Collaboration Agreement, with GSK, pursuant to which we and GSK have entered into a strategic partnership and collaboration for our synthetic lethality programs targeting MAT2A, Pol Theta and Werner Helicase. 29 On July 27, 2020, or the Effective Date, the GSK Collaboration Agreement became effective upon t he parties’ receipt of Hart-Scott-Rodino Antitrust Improvements Act clearance, or HSR Clearance. We received from GSK an up-front payment of $100.0 million in cash following the Effective Date. GSK Collaboration – MAT2A Program For the MAT2A program, we will continue to lead research and development through early clinical development. GSK has an exclusive option to obtain an exclusive license to continue development of and commercialize MAT2A products arising out of the MAT2A program, or the Option, exercisable within a specified time period after we deliver to GSK a data package resulting from our conduct of a MAT2A Phase 1 monotherapy clinical trial. GSK’s exercise of the Option may be subject to HSR Clearance therefor at such time of exercise, and following exercise and HSR Clearance, GSK has agreed to pay us an option exercise payment of $50.0 million. GSK may initiate, or request that we initiate, a Phase 1 combination clinical trial for a MAT2A product and GSK’s Type I PRMT inhibitor (GSK3368715) product, or the MAT2A Combination Trial, prior to GSK’s exercise of the Option. We will be responsible for the costs of research and early clinical development activities that we conduct for the MAT2A program prior to GSK’s exercise of the Option (including during any interim waiting period for HSR Clearance for such Option exercise, if applicable), excluding the costs of conducting the MAT2A Combination Trial. GSK will be solely responsible for costs of the conduct of the MAT2A Combination Trial, except for supply of the MAT2A product therefor, to be provided by us at our own cost. Subject to GSK’s exercise of the Option (and HSR Clearance thereof, if applicable), GSK will lead later stage global clinical development for the MAT2A program, with IDEAYA responsible for 20% and GSK responsible for 80% of further development costs. The cost-sharing percentages will be adjusted based on the actual ratio of U.S. to global profits for MAT2A products, as measured three and six years after global commercial launch thereof. Subject to GSK’s exercise of the Option (and HSR Clearance thereof, if applicable), we will be eligible to receive future development and regulatory milestones of up to $465.0 million, and commercial milestones of up to $475.0 million, with respect to each MAT2A product. Additionally, we are entitled to receive 50% of U.S. net profits and tiered royalties on global non-U.S. net sales of MAT2A products by GSK, its affiliates and their sublicensees ranging from high single digit to sub-teen double digit percentages, subject to certain customary reductions. We have a right to opt-out of the 50% U.S. net profit share and corresponding development cost share for the MAT2A program, in which case we would be eligible to receive tiered royalties on U.S. net sales of MAT2A products by GSK, its affiliates and their sublicensees at the same royalty rates as for global non-U.S. net sales thereafter, with economic adjustments based on the stage of the MAT2A program at the time of opt-out. GSK Collaboration - Pol Theta Program Pursuant to the GSK Collaboration Agreement, GSK holds a global, exclusive license to develop and commercialize POLQ products arising out of the POLQ program. GSK and we will collaborate on ongoing preclinical research for the POLQ program, and GSK will lead clinical development for the POLQ program. GSK will be responsible for all research and development costs for the POLQ program, including those incurred by us. We will be eligible to receive future development and regulatory milestones of up to $485.0 million, with respect to each POLQ product, including as applicable, for multiple POLQ products that target certain alternative protein domains or are based on alternative modalities. Additionally, we are eligible to receive up to $475.0 million of commercial milestones with respect to each POLQ product. We are also entitled to receive tiered royalties on global net sales of POLQ products by GSK, its affiliates and their sublicensees ranging from high single digit to sub-teen double digit percentages, subject to certain customary reductions. We believe there are potential synergies to evaluate a combination between our Pol Theta program and GSK’s approved PARP inhibitor, Zejula™, targeting the BRCA and HRD patient population. 30 GSK Collaboration - We rner Helicase Program Pursuant to the GSK Collaboration Agreement, GSK holds a global, exclusive license to develop and commercialize WRN products arising out of the WRN program. We and GSK will collaborate on ongoing preclinical research for the WRN program, and GSK will lead clinical development for the WRN program, with IDEAYA responsible for 20% and GSK responsible for 80% of such global research and development costs. The cost-sharing percentages will be adjusted based on the actual ratio of U.S. to global profits for WRN products, as measured three and six years after global commercial launch thereof. We will be eligible to receive future development milestones of up to $485.0 million, with respect to each WRN product, including as applicable, for multiple WRN products that are based on alternative modalities. Additionally, we will be eligible to receive up to $475.0 million of commercial milestones with respect to each WRN product. We will be entitled to receive 50% of U.S. net profits and tiered royalties on global non-U.S. net sales of WRN products by GSK, its affiliates and their sublicensees ranging from high single digit to sub-teen double digit percentages, subject to certain customary reductions. We will have a right to opt-out of the 50% U.S. net profit share and corresponding research and development cost share for the WRN program, and would be eligible to receive tiered royalties on U.S. net sales of WRN products by GSK, its affiliates and their sublicensees at the same royalty rates as for global non-U.S. net sales thereafter, with economic adjustments based on the stage of the WRN program at the time of opt-out. GSK Collaboration - General Under the terms of the GSK Collaboration Agreement, subject to certain exceptions, we and GSK will not, directly or through third parties, develop or commercialize other products whose primary and intended mechanism of action is the modulation of WRN, POLQ, or MAT2A (unless GSK does not exercise the Option or HSR Clearance does not occur with respect thereto, in which case such restriction shall cease to apply with respect to MAT2A) for an agreed upon period of time. We and GSK will form a joint steering committee, joint development committees, and joint commercialization committees responsible for coordinating all activities under the GSK Collaboration Agreement. GSK’s royalty obligations continue with respect to each country and each product until the later of (i) the date on which such product is no longer covered by certain intellectual property rights in such country and (ii) the 10th anniversary of the first commercial sale of such product in such country. Each party has the right to sublicense its rights under the GSK Collaboration Agreement subject to certain conditions. The GSK Collaboration Agreement will continue in effect on a product-by-product and country-by-country basis until the expiration of the obligation to make payments under the GSK Collaboration Agreement with respect to such product in each country, unless earlier terminated by either party pursuant to its terms. Either we or GSK may terminate the GSK Collaboration Agreement for the other party’s insolvency or certain uncured breaches. We may terminate the GSK Collaboration Agreement if GSK or any of its sublicensees or affiliates challenge certain patents of the Company. GSK may terminate the GSK Collaboration Agreement in its entirety or on a target-by-target basis upon 90-day notice to us. The GSK Collaboration Agreement contains various representations, warranties, covenants, dispute resolution mechanisms, indemnities and other provisions generally customary for transactions of this nature. 31 IDE196 - PKC Inhibitor Clinical Candid ate We continue to execute on our ongoing Phase 1/2 clinical trial and preclinical research activities for our clinical candidate IDE196, a protein kinase C, or PKC, inhibitor for genetically-defined cancers having activating GNAQ or GNA11 hotspot mutations, including in metastatic uveal melanoma, or MUM, skin melanoma and other solid tumors. Our clinical trial strategy is to pursue IDE196 combination therapies in MUM, including with binimetinib, a MEK inhibitor, and independently with crizotinib, a cMET inhibitor, each pursuant to our Clinical Trial Collaboration and Supply Agreement, or Pfizer Agreement, with Pfizer. We have formed a joint development committee with Pfizer responsible for coordinating all regulatory and other activities under the Pfizer Agreement, including for both the IDE196/binimetinib combination study and IDE196/crizotinib combination study. If the clinical data from either or both of these combination studies is positive, we plan to enter into good faith negotiations with Pfizer to determine a regulatory submission strategy. We are continuing to evaluate IDE196 as monotherapy in non-MUM cancers, including in skin melanoma, where we recently announced meeting the clinical protocol criteria for an expansion cohort, based on observing one confirmed partial response in an initial four evaluable patients. IDE196 / Binimetinib Combination Therapy On June 26, 2020, we initiated a combination arm of our Phase 1/2 clinical trial to evaluate IDE196 in combination with binimetinib in patients having tumors harboring activating GNAQ or GNA11 hotspot mutations. An initial dose escalation portion of this arm of the clinical trial is evaluating the safety and efficacy of IDE196 in combination with binimetinib at various dose combinations, initially in patients with metastatic uveal melanoma, or MUM. Following our evaluation of tolerability and preliminary efficacy from the IDE196 / binimetinib combination arm of the clinical trial in MUM, we may also evaluate IDE196 / binimetinib combination therapy in patients having other solid tumors with activating GNAQ/11 hotspot mutations outside of uveal melanoma, such as skin melanoma. The IDE196 / binimetinib combination arm of our Phase 1/2 clinical trial is supported through the Pfizer Agreement, pursuant to which Pfizer supplies us with their MEK inhibitor, binimetinib. We have established a joint development committee with Pfizer to facilitate combination arm drug supply, trial initiation and ongoing development. We are continuing patient enrollment into the IDE196 / binimetinib combination arm under the clinical trial collaboration and supply agreement with Pfizer and are targeting combination expansion in the first quarter of 2021. We anticipate interim data from the IDE196 / binimetinib combination therapy Phase 1/2 portion of the clinical trial in MUM patients in 2021. IDE196 / Crizotinib Combination Therapy On September 23, 2020, we expanded the scope of our Pfizer Agreement to evaluate IDE196 and crizotinib as a combination therapy in patients having tumors harboring activating GNAQ or GNA11 hotspot mutations. We identified cMET as a potential biomarker and a cMET inhibitor as potential combination agent though our ongoing translational research. We observed preclinical synergies in cellular models, and a retrospective analysis of human clinical samples from the Novartis Phase 1 clinical trial also independently supported cMET expression / activation as potential biomarker / combo agent. We are the sponsor of this arm of the clinical trial and are targeting initiation in late 2020 to early 2021 to evaluate the combination of IDE196 and crizotinib. An initial dose escalation portion of this arm of the clinical trial will be evaluating the safety and efficacy of IDE196 in combination with crizotinib at various dose combinations, initially in patients with metastatic uveal melanoma, or MUM. Following our evaluation of tolerability and preliminary efficacy from the IDE196 / crizotinib combination arm of the clinical trial in MUM, we may also evaluate IDE196 / crizotinib combination therapy in patients having other solid tumors with activating GNAQ/11 hotspot mutations outside of uveal melanoma, such as skin melanoma. 32 Pursuant to the Pfizer Agreement, Pfizer will supply us with their cMET inhi bitor, crizotinib. We have established a joint development committee with Pfizer to facilitate combination arm drug supply, trial initiation and ongoing development. IDE196 Monotherapy Our ongoing monotherapy arm of the Phase 1/2 clinical trial was initiated in June 2019 to evaluate IDE196 in solid tumors harboring GNAQ or GNA11 hotspot mutations in a basket trial design. We have completed enrollment in the monotherapy arm of the Phase 1/2 clinical trial in MUM. We are also enrolling other, non-MUM solid tumors harboring GNAQ or GNA11 hotspot mutations, such as skin melanoma. In the Phase 2 basket arm evaluating IDE196 as monotherapy in non-MUM solid tumors harboring GNAQ or GNA11 hotspot mutations (GNAQ/11), the clinical protocol criteria have been met for cohort expansion in cutaneous melanoma, or skin melanoma. We are actively enrolling for this Phase 2 cohort expansion in skin melanoma. Of 4 evaluable skin melanoma patients harboring GNAQ/11 hotspot mutations (excluding 1 non-evaluable) as of August 1, 2020, a 100% Disease Control Rate was observed, and one confirmed partial response (cPR) was determined by RESIST, or Response Evaluation Criteria in Solid Tumors, 1.1 guidelines, satisfying the protocol requirement of at least one RECIST response in the first Stage 1 cohort (n=9) in order to expand into a second Stage 2 cohort (n=15). Following satisfaction of the clinical protocol criteria, we can enroll an additional 15 skin melanoma patients harboring GNAQ/11 mutations into the Stage 2 cohort expansion, for a total planned enrollment of 24 patients in the skin melanoma cohort. As of November 1, 2020, we have enrolled a total of seven patients with solid tumors other than MUM, including six patients with skin melanoma, into the Phase 2 monotherapy basket arm. We have added and are continuing to access potential additional clinical trial sites to supplement enrollment into the Phase 2 basket arm of the IDE196 clinical trial. We have established a relationship with Tempus and with CARIS, in each case through which we are accessing their network of clinical trial sites into which we can enroll qualifying patients having tumors harboring GNAQ/11 hotspot mutations. We anticipate disclosing interim data from the monotherapy arm of our ongoing IDE196-001 Phase 1/2 basket trial in 2021. IDE196 was initially developed by Novartis, and we obtained an exclusive, worldwide license to IDE196 from Novartis in September 2018. Pursuant to our license agreement with Novartis, except for Novartis’ ongoing Phase 1 clinical trial, we control all future clinical development, and all commercial rights to IDE196, and may rely on and incorporate data previously submitted to the FDA by Novartis into our own regulatory submissions. Novartis has completed enrollment in a Phase 1 clinical trial it is conducting to evaluate IDE196 in metastatic uveal melanoma. Phase 1 monotherapy data from Novartis was presented at the American Association for Cancer Research, or AACR, in April 2019. Regulatory / Potentially Registration-Enabling Clinical Trial In an end of Phase 1 meeting with the FDA in the fourth quarter of 2019, the FDA indicated that our proposed single-arm Phase 2 portion of the IDE196 001 Phase 1/2 clinical trial may be adequate to support a new drug application, or NDA, seeking Accelerated Approval for IDE196 monotherapy in MUM. The FDA indicated that such a single-arm, potentially registration enabling part of the Phase 1/2 clinical trial could target enrollment of 60 evaluable MUM patients with the primary endpoint of overall response rate, or ORR, as determined by blinded independent central review, or BICR, supported by BICR determined duration of response, or DOR, as a secondary endpoint. We initiated 13-week good laboratory practice-, or GLP-, compliant toxicology studies in two species in November 2019, in support of an FDA requirement that results of these studies be submitted prior to enrollment of more than approximately 50 patients in the potentially registrational arm that will support a marketing application. We have completed the 13-week preclinical toxicology studies of IDE196 in two species. 33 We plan to evaluate clinical tolerability and efficacy data from each of th e ongoing IDE196 monotherapy Phase 1 portion of the clinical trial in MUM patients and the IDE196 combination therapy Phase 1/2 portions of the clinical trial in MUM patients, as well as potential strategic partnering of the IDE196 program, prior to initia tion of a potentially registrational clinical trial in MUM. We will provide updated guidance on timing for a potential NDA submission for IDE196 in MUM after making such decision on a potential registrational pathway in MUM. Other Potential Indications We are continuing our preclinical evaluation of IDE196 in Sturge-Weber Syndrome, or SWS, a rare neurocutaneous disorder characterized by capillary malformations and associated with mutations in GNAQ. Our preclinical evaluation will include potential feasibility for pediatric use. Impact of COVID-19 Pandemic on IDE-001 Phase 1/2 Clinical Trial and IDE196 Preclinical Research We continue to monitor the COVID-19 pandemic and its potential impact on the ongoing IDE196 clinical program. GNAQ/11 patients enrolled in the ongoing Phase 1/2 clinical trial and sites affected by COVID-19 restrictions are adapting to logistical constraints on activities, such as travel and site visits. For example, patients are continuing on IDE196 therapy, which is an oral drug and is being shipped to and self-administered by patients at home. Patients are being monitored through a combination of telemedicine visits and local visits. COVID‐19 infection rates have increased recently in several states in which our clinical trial sites are located. As such, ongoing monitoring of enrolled patients, including obtaining patient computed tomography, or CT, scans, may be impacted; the specific impact is currently uncertain. Additionally, enrollment into the Phase 2 expansion arm for IDE196 as a monotherapy in non-MUM solid tumors having GNAQ or GNA11 hotspot mutations may be delayed by circumstances resulting from the COVID-19 pandemic, including for example, as a result of recent increases in COVID-19 infection rates in several states in which our clinical trial sites are located, and by clinical site-specific policies and practices related to COVID-19. The specific impact on enrollment into the Phase 2 expansion of the monotherapy arm for non-MUM solid tumors having GNAQ or GNA11 hotspot mutations is currently uncertain. Enrollment into the combination arm evaluating IDE196 and binimetinib and/or the combination arm of IDE196 and crizotinib, in each case as combination therapy in MUM and non-MUM solid tumors having GNAQ or GNA11 hotspot mutations, may be delayed by circumstances resulting from the COVID-19 pandemic, including for example, by clinical site-specific policies and practices related to COVID-19. The specific impact on enrollment into this combination arm of the Phase 1/2 clinical trial is currently uncertain. We plan to continue to use third-party service providers, including clinical research organizations, or CROs, and clinical manufacturing organizations, or CMOs, to carry out our preclinical and clinical development and manufacture and supply of our preclinical and clinical materials to be used during the development of our product candidates. To date, the COVID-19 pandemic has not materially affected our supply chain or development schedule, but further escalation of the health crisis has the potential to cause delays in our supply chain and manufacturing operations, which could materially adversely impact our business. Clinical Trial Collaboration and Supply Agreement for IDE196 Program On March 11, 2020, we entered into the Pfizer Agreement with Pfizer Inc., pursuant to which Pfizer will supply us with their MEK inhibitor, binimetinib, to evaluate the combination in patients with tumors harboring activating GNAQ or GNA11 hotspot mutations. On September 23, 2020, we expanded the scope of our clinical trial collaboration and supply agreement with Pfizer, pursuant to which Pfizer will supply us with their cMET inhibitor, crizotinib to evaluate IDE196 and crizotinib as a combination therapy in patients having tumors harboring activating GNAQ or GNA11 hotspot mutations. 34 For each of the IDE196/binimetinib and IDE196/crizotinib combination arms of the clinical trial, we have established a joint development committee, and there will be joint decision ma king and data sharing of the clinical trial results between the parties. We will sponsor the clinical studies and Pfizer will provide the binimetinib and crizotinib drug supply. If there is clinical data from the collaboration studies that could be used to obtain regulatory approvals or label changes, we will enter into good faith negotiations with Pfizer to determine a regulatory submission strategy. Public Offering and Sale of IDEAYA Common Stock On June 22, 2020, we closed on an underwritten public offering, or the Offering, of 6,666,667 shares of our common stock at an offering price of $15.00 per share, pursuant to which we received gross proceeds of $100.0 million, before deducting underwriting discounts and commissions and other offering expenses. On July 22, 2020, as part of the Offering, the Company sold and issued an additional 500,000 shares of common stock upon the exercise of the overallotment option by the underwriters for gross proceeds of $7.5 million before deducting underwriting discounts and commissions and other offering. We realized aggregate gross proceeds of $107.5 million from the Offering, including gross proceeds from the sale of shares in the base Offering and the sale of shares from exercise of the overallotment option, and before deducting underwriting discounts and commissions and other offering expenses payable by us. Private Placement of IDEAYA Common Stock with GSK On June 17, 2020, we entered into a stock purchase agreement with Glaxo Group Limited, or GGL, an affiliate of GlaxoSmithKline, pursuant to which GGL agreed to purchase in a private placement, subject to certain conditions, 1,333,333 shares of our common stock at a price per share of $15.00, which is equal to the public offering price per share in the Offering. The common stock sold pursuant thereto was not registered under the Securities Act of 1933, as amended, or the Securities Act. The closing of this private placement occurred on August 3, 2020, following HSR Clearance of the associated GSK Collaboration Agreement, described below, and satisfaction of other certain customary closing conditions, pursuant to which we received proceeds of $20.0 million. On August 3, 2020, following HSR Clearance of the associated GSK Collaboration Agreement, we closed on the private placement of 1,333,333 shares of our common stock to Glaxo Group Limited, or GGL, an affiliate of GlaxoSmithKline, at a price per share of $15.00, which is equal to the public offering price per share in the Offering. The common stock sold pursuant thereto was not registered under the Securities Act of 1933, as amended, or the Securities Act. We received proceeds of $20.0 million from the sale of these shares in this private placement. Prospectus Supplement - At-the-Market Facility On August 12, 2020, we filed a prospectus supplement to the prospectus dated June 10, 2020, activating our at-the-market, or ATM, facility by entering into a sales agreement with Jefferies LLC, or Jefferies, relating to shares of our common stock offered by the prospectus supplement and the accompanying prospectus. Pursuant to the terms of the sales agreement, we may offer and sell shares of our common stock, $0.0001 par value per share, having an aggregate offering price of up to $50,000,000 from time to time through Jefferies acting as agent. During the three months ended September 30, 2020, we did not make any sales under the ATM facility. Corporate Update We do not have any products approved for sale and have not generated any revenue since inception. We have funded our operations through September 30, 2020 primarily through the sale and issuance of common stock, redeemable convertible preferred stock, and convertible promissory notes. In May 2019, we completed our initial public offering, or IPO. In June and July 2020, we added an aggregate of $227.5 million to our balance sheet from a follow-on public offering of $107.5 million in gross proceeds, a direct private placement equity investment by GGL with $20.0 million in gross proceeds, and a non-dilutive upfront cash payment of $100 million from GSK. 35 Since our inception in June 2015, we have devoted substantially all of our resources to discovering and developing our product candidates. We have incurred significant operating losses to date and expect that our operating expenses will increase significantly as we advance our product candidates through preclinical and clinical development ; seek regulatory approval, and prepare for, and, if approved, proceed to commercialization; acquire, discover, validate and develop additional product candidates; obtain, maintain, protect and enforce our intellectual property portfolio; and hire additional personnel. Certain program costs that contribute to our operating e xpenses will be reimbursed by GSK pursuant to the GSK Collaboration Agreement , including 100% of costs we incur for research we perform in connection with the Pol T heta program and 80% of the aggregate program costs incurred by us and GSK for research each of us performs for the Werner Helicase program, and if GSK exercises the Option, also the MAT2A program . In addition, we expect to incur additional costs associated with operating as a public company. Our net losses were $29.4 million and $31.2 million for the nine months ended September 30, 2020 and September 30, 2019, respectively. As of September 30, 2020, we had an accumulated deficit of $121.9 million. Our ability to generate product revenue will depend on the successful development, regulatory approval and eventual commercialization of one or more of our product candidates, ourselves, or for some programs, in collaboration with our strategic partners. We are leading and solely responsible for preclinical, translational and clinical research and development, as applicable, for (i) the IDE196 monotherapy arm of our IDE196-001 clinical trial, (ii) our PARG program and (iii) our DNA Damage Target or DDT program. We are leading clinical development in the ongoing IDE196 / binimetinib combination arm and the planned IDE196/crizotinib combination arm of our IDE196-001 clinical trial, in each case in coordination with Pfizer pursuant to the Clinical Trial Collaboration and Supply Agreement. We are leading preclinical development and plan to lead early-stage clinical development for evaluation of IDE397 in a clinical trial which we plan to initiate in the first half of 2020, in coordination with GSK pursuant to the GSK Collaboration Agreement. We are collaborating with GSK on preclinical research for our Pol Theta and Werner Helicase programs, pursuant to the GSK Collaboration Agreement. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings, or other capital sources, including potential collaborations with other companies or other strategic transactions. Adequate funding may not be available to us on acceptable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of our product candidates. As of September 30, 2020, we had cash, cash equivalents and marketable securities of $288.8 million. We believe that our cash, cash equivalents and marketable securities will be sufficient to fund our planned operations for at least 12 months from the date of the issuance of these financial statements. These funds will support our efforts through potential achievement of multiple preclinical and clinical milestones across multiple programs. Anticipated clinical milestones in our synthetic lethality pipeline include Phase 1 monotherapy interim data for IDE397, our MAT2A inhibitor development candidate, Phase 1 monotherapy interim data for our Pol theta inhibitor development candidate, which we are targeting to designate in 2021, and Phase 1 initiation for our PARG inhibitor development candidate, which we are targeting to select in 2021. Anticipated clinical milestones for our IDE196 Phase 1/2 clinical trial include initiation of a Phase 1 dose escalation arm of our clinical trial for evaluating IDE196 and crizotinib as combination therapy in the first half of 2021, expansion of IDE196 / binimetinib combination arm of clinical trial, interim data for IDE196 monotherapy in MUM and other GNAQ/11 solid tumors, as well as interim data for IDE196 and binimetinib as combination therapy in 2021. 36 Components of Operating Results Collaboration Revenues To date, we have not generated any revenue from product sales, and we do not expect to generate any revenue from product sales for the foreseeable future. Our revenue primarily consists of collaboration revenue under the GSK Collaboration Agreement, including amounts that are recognized related to upfront payments and amounts due to us for research and development services. In the future, revenue may include additional milestone payments, option exercise payments, profit sharing, and royalties on any net product sales under our collaborations. We expect that any revenue we generate will fluctuate from period to period as a result of the timing and amount of license, research and development services, and milestone and other payments. Operating Expenses Research and Development Expenses Substantially all of our research and development expenses consist of expenses incurred in connection with discovery and development of our product candidates. These expenses include certain payroll and personnel-related expenses, including salaries, employee benefit costs and stock-based compensation expenses for our research and product development employees, fees to third parties to conduct certain research and development activities on our behalf including fees to CMOs and CROs in support of manufacturing and clinical activity for IDE 196, consulting costs, costs for laboratory supplies, costs for product licenses and allocated overhead, including rent, equipment, depreciation, information technology costs and utilities. We expense both internal and external research and development expenses as they are incurred. We have entered into various agreements with CMOs and CROs. Our research and development accruals are estimated based on the level of services performed, progress of the studies, including the phase or completion of events, and contracted costs. The estimated costs of research and development provided, but not yet invoiced, are included in accrued liabilities on the balance sheet. If the actual timing of the performance of services or the level of effort varies from the original estimates, we will adjust the accrual accordingly. Payments made to CMOs and CROs under these arrangements in advance of the performance of the related services are recorded as prepaid expenses and other current assets until the services are rendered. Costs of certain activities, such as preclinical studies, are generally recognized based on an evaluation of the progress to completion of specific tasks. Nonrefundable payments made prior to the receipt of goods or services that will be used or rendered for future research and development activities are deferred and capitalized as prepaid expenses and other current assets on our balance sheet. The capitalized amounts are recognized as expense as the goods are delivered or the related services are performed. We are focusing substantially all of our resources on the development of our product candidates. We expect our research and development expenses to increase substantially during the next few years, as we seek to initiate clinical trials for our product candidates, complete our clinical program, pursue regulatory approval of our product candidates and prepare for a possible commercial launch. Predicting the timing or the cost to complete our clinical program or validation of our commercial manufacturing and supply processes is difficult and delays may occur because of many factors, including factors outside of our control. For example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development. Furthermore, we are unable to predict when or if our product candidates will receive regulatory approval with any certainty. 37 General and Administrative Expenses General and administrative expenses consist primarily of payroll and personnel-related expenses, including salaries, employee benefit costs and stock-based compensation expense, professional fees for legal, patent, consulting, accounting and tax services, allocated overhead, including rent, equipment, depreciation, information technology costs and utilities, and other general operating expenses not otherwise classified as research and development expenses. We anticipate that our general and administrative expenses will increase, as a result of increased personnel costs, including salaries, benefits and stock-based compensation expense, patent costs for our product candidates, expanded infrastructure and higher consulting, legal and accounting services associated with maintaining compliance with our NASDAQ stock exchange listing and requirements of the Securities and Exchange Commission, or the SEC, investor relations costs and director and officer insurance policy premiums associated with being a public company. Other Income (Expense) Interest Income and Other Income (Expense), Net Interest income and other income (expense), net consists primarily of interest income earned on our cash, cash equivalents and marketable securities. Results of Operations Comparison of Three Months Ended September 30, 2020 and 2019 The following table summarizes our results of operations for the periods indicated (in thousands): Three Months Ended September 30, % 2020 2019 Change Change Revenue: Collaboration revenue $ 8,967 $ — $ 8,967 100 % Operating expenses: Research and development 10,025 8,923 1,102 12 % General and administrative 3,938 2,700 1,238 46 % Loss from operations (4,996 ) (11,623 ) 6,627 57 % Interest income and other income (expense), net 70 654 (584 ) (89 %) Net loss $ (4,926 ) $ (10,969 ) $ 6,043 55 % Collaboration Revenue Collaboration revenue increased by $9.0 million in the three months ended September 30, 2020. In July 2020, the GSK Collaboration Agreement became effective, and we started recognizing collaboration revenue, which consists of revenue from preclinical and Phase 1 monotherapy clinical research and development services under the MAT2A program as well as preclinical research services and the related license under the Pol Theta and WRN programs. Collaboration revenue recognized in the three months ended September 30, 2020 also included revenue from the exercise by GSK of the material right associated with the option to license IDEAYA-owned technology under the MAT2A program to the extent necessary for preclinical activities. Research and Development Expenses Research and development expenses increased by $1.1 million, or 12%, from the three months ended September 30, 2019 to the three months ended September 30, 2020. The increase in research and development expenses was primarily due to an increase in fees to CROs of $1.2 million as well as fees to contractors of $0.5 million related to support costs for our Phase 1/2 clinical trial to evaluate IDE196 in solid tumors, the advancement of our lead product candidates through preclinical studies and regulatory support activity, which was partially offset by a decrease in costs for laboratory supplies used in support of our research programs of $0.4 million and a decrease in payroll expenses, including salaries, benefits and stock-based compensation expense, of $0.2 million. 38 General and Administrative Expenses General and administrative expenses increased by $1.2 million, or 46%, from the three months ended September 30, 2019 to the three months ended September 30, 2020. The increase in general and administrative expenses was primarily due to an increase in payroll expenses, including salaries, benefits and stock-based compensation expense, of $0.9 million related to increased headcount to support our growth as a public company and an increase in consulting expenses of $0.2 million related to human resources, accounting and information technology projects. Interest Income and Other Income (Expense), Net Interest income and other income (expense), net decreased by $0.6 million, or 89%, from the three months ended September 30, 2019 to the three months ended September 30, 2020, primarily due to a decrease in interest rate yields on our cash, cash equivalents and marketable securities balances during the three months ended September 30, 2020 compared to the three months ended September 30, 2019. Comparison of Nine months Ended September 30, 2020 and 2019 The following table summarizes our results of operations for the periods indicated (in thousands): Nine Months Ended September 30, % 2020 2019 Change Change Revenue: Collaboration revenue $ 8,967 $ — $ 8,967 100 % Operating expenses: Research and development 27,647 25,778 1,869 7 % General and administrative 11,384 7,174 4,210 59 % Loss from operations (30,064 ) (32,952 ) 2,888 9 % Interest income and other income (expense), net 704 1,758 (1,054 ) (60 %) Net loss $ (29,360 ) $ (31,194 ) $ 1,834 6 % Collaboration Revenue Collaboration revenue increased by $9.0 million in the nine months ended September 30, 2020. In July 2020, the GSK Collaboration Agreement became effective, and we started recognizing collaboration revenue, which consists of revenue from preclinical and Phase 1 monotherapy clinical research and development services under the MAT2A program as well as preclinical research services and the related license under the Pol Theta and WRN programs. Collaboration revenue recognized in the nine months ended September 30, 2020 also included revenue from the exercise by GSK of the material right associated with the option to license IDEAYA-owned technology under the MAT2A program to the extent necessary for preclinical activities. Research and Development Expenses Research and development expenses increased by $1.9 million, or 7%, from the nine months ended September 30, 2019 to the nine months ended September 30, 2020. The increase in research and development expenses was primarily due to an increase in fees to CROs of $3.3 million as well as fees to contractors of $1.1 million related to support costs for our Phase 1/2 clinical trial to evaluate IDE196 in solid tumors and the advancement of our lead product candidates through preclinical studies, which was partially offset by a decrease in payroll expenses, including salaries, benefits and stock-based compensation expense, of $1.4 million, and a decrease in costs for laboratory supplies used in support of our research programs of $1.4 million. 39 General and Administrative Expenses General and administrative expenses increased by $4.2 million, or 59%, from the nine months ended September 30, 2019 to the nine months ended September 30, 2020. The increase in general and administrative expenses was primarily due to an increase in payroll expenses, including salaries, benefits and stock-based compensation expense, of $2.3 million related to increased headcount to support our growth as a public company, an increase in D&O insurance policy premiums of $0.9 million as a public company, an increase in legal expense of $0.3 million related to an increase in patent filings, an increase in costs associated with the filing of a shelf registration statement on Form S-3 of $0.2 million, and an increase in consulting expenses of $0.2 million related to human resources and information technology projects. Interest Income and Other Income (Expense), Net Interest income and other income (expense), net decreased by $1.1 million, or 60%, from the nine months ended September 30, 2019 to the nine months ended September 30, 2020, primarily due to a decrease in interest rate yields on our cash, cash equivalents and marketable securities balances during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. Liquidity and Capital Resources ; Plan of Operations Sources of Liquidity We have funded our operations primarily through the sale and issuance of common stock, redeemable convertible preferred stock, and convertible promissory notes, as well as the up-front payment received from GSK. As of September 30, 2020, we had cash, cash equivalents and marketable securities of $288.8 million, consisting primarily of money market funds, U.S. government securities, commercial paper, and corporate bonds. Future Funding Requirements We have incurred net losses since our inception. For the nine months ended September 30, 2020 and September 30, 2019, we had net losses of $29.4 million and $31.2 million, respectively, and we expect to incur substantial additional losses in future periods. As of September 30, 2020, we had an accumulated deficit of $121.9 million. Based on our current business plan, we believe that our existing cash, cash equivalents and marketable securities will be sufficient to fund our planned operations for at least 12 months from the date of the issuance of these financial statements. To date, we have not generated any product revenue. We do not expect to generate any meaningful product revenue unless and until we obtain regulatory approval of and commercialize any of our product candidates, and we do not know when, or if, it will occur. We expect to continue to incur significant losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates and begin to commercialize any approved products. We are subject to all of the risks typically related to the development of new product candidates, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. Moreover, we expect to incur additional costs associated with operating as a public company. We will continue to require additional capital to develop our product candidates and fund operations for the foreseeable future. We may seek to raise capital through private or public equity or debt financings, collaborative or other arrangements with corporate sources, or through other sources of financing. Adequate additional funding may not be available to us on acceptable terms or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategies. We anticipate that we will need to raise substantial additional capital, the requirements for which will depend on many factors, including: • the scope, timing, rate of progress and costs of our drug discovery, preclinical development activities, laboratory testing and clinical trials for our product candidates; • the number and scope of clinical programs we decide to pursue; • the scope and costs of manufacturing development and commercial manufacturing activities; 40 • the extent to which we acquire or in-license other product candidates and technologies; • the cost, timing and outcome of regulatory review of our product candidates; • potential delays in our ongoing clinical programs as a result of the COVID-19 pandemic; • the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; • our ability to establish and maintain collaborations on favorable terms, if at all; • our efforts to enhance operational systems and our ability to attract, hire and retain qualified personnel, including personnel to support the development of our product candidates; • the costs associated with being a public company; and • the cost and timing associated with commercializing our product candidates, if they receive marketing approval. A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Furthermore, our operating plans may change in the future, and we will continue to require additional capital to meet operational needs and capital requirements associated with such operating plans. If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Any future debt financing into which we enter may impose upon us additional covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, repurchase our common stock, make certain investments or engage in certain merger, consolidation or asset sale transactions. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders. If we are unable to raise additional funds when needed, we may be required to delay, reduce, or terminate some or all of our development programs and clinical trials. We may also be required to sell or license to others rights to our product candidates in certain territories or indications that we would prefer to develop and commercialize ourselves. Adequate additional funding may not be available to us on acceptable terms or at all. See the section of this Quarterly Report titled “Part II, Item 1A – Risk Factors” for additional risks associated with our substantial capital requirements. Summary Statement of Cash Flows The following table sets forth the primary sources and uses of cash, cash equivalents, and restricted cash for each of the periods presented below (in thousands): Nine Months Ended September 30, 2020 2019 Net cash provided by (used in): Operating activities $ 67,059 $ (30,607 ) Investing activities (141,689 ) (1,622 ) Financing activities 121,801 50,572 Net increase in cash, cash equivalents and restricted cash $ 47,171 $ 18,343 Cash Flows from Operating Activities Net cash provided operating activities was $67.1 million for the nine months ended September 30, 2020. Cash provided by operating activities was primarily due to an increase in contract liability of $91.0 million as a result of the up-front payment received from GSK, stock-based compensation expense of $2.6 million, an increase of accrued and other liabilities of $1.2 million due to fees to CROs and CMOs in support of research and manufacturing activities and an increase in accrued payroll expenses due to increased headcounts, depreciation and amortization expense of $1.0 million and an increase in accounts payable of $0.7 million due to fees to CROs and CMOs in support of research and manufacturing activities, partially offset by the use of funds in our operations to develop our product candidates resulting in a net loss of $29.4 million. 41 Net cash used in operating activities was $30.6 million for the nine months ended September 30, 2019. Cash used in operating activities was primarily due to the use of funds in our operations to develop our product candidates resulting in a net loss of $31.2 million, adjusted for the net amortization of premiums and discounts on marketable securities of $0.5 million and an increase in prepaid expenses and other assets of $2.1 million mainly due to advance payment for director’s and officers’ liability insurance premiums and CRO fees, partially offset by depreciation and amortization expense of $0.9 million and stock-based compensation expense of $1.4 million, and an increase in accrued and other liabilities of $1.0 million mainly due to fees to CMOs in support of manufacturing activity for IDE196 and for external research and personnel-related expenses. Cash Flows from Investing Activities Net cash used in investing activities was $141.7 million for the nine months ended September 30, 2020, which consisted of $214.4 million used to purchase marketable securities and $0.3 million used to purchase property and equipment, partially offset by $73.0 million provided by maturities of marketable securities. Net cash used in investing activities was $1.6 million for the nine months ended September 30, 2019, which consisted of $86.1 million used to purchase marketable securities and $1.1 million used to purchase property and equipment, offset by $67.5 million provided by maturities of marketable securities and $18.1 million from sales of marketable securities. Cash Flows from Financing Activities Net cash provided by financing activities was $121.8 million for the nine months ended September 30, 2020, which consisted of $100.7 million of net proceeds from our follow-on offering, $20.0 million of net proceeds from our private placement of common stock, $1.0 million of proceeds from exercise of common stock options, and $0.1 million of proceeds from ESPP purchase. Net cash provided by financing activities was $50.6 million for the nine months ended September 30, 2019, which consisted primarily of $50.2 million of net proceeds from our IPO. Contractual Obligations and Commitments The disclosure of our contractual obligations and commitments is set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Contractual Obligations” in our Annual Report on Form 10-K filed with the SEC on March 24, 2020. We lease our laboratory and office facilities in South San Francisco, California under a non-cancelable operating lease with an expiration date in July 2024, dated August 26, 2016 and amended in May 2018. In September 2019, we further amended our South San Francisco facility lease agreement to expand the size of the premises by adding 5,588 rentable square feet of additional space, which we took possession of in August 2020 (“Second Expansion”). The Second Expansion increased our operating lease obligations by $1.2 million as of September 30, 2019. Other than the increase in our operating lease obligations due to the Second Expansion, there have been no material changes in our contractual obligations and commitments since December 31, 2019. Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC. 42 Critical Accounting Policies , Significant Judgments and Use of Estimates Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates. Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Use of Estimates” in our Annual Report on Form 10-K filed with the SEC on March 24, 2020, and the notes to the financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. During the nine months ended September 30, 2020, except as described in Note 2 to the unaudited interim condensed financial statements appearing elsewhere in this Quarterly Report on Form 10-Q, there were no material changes to our critical accounting policies from those discussed in our Annual Report on Form 10-K filed with the SEC on March 24, 2020. Revenue Recognition We follow Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, we recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that we determine are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. We apply the five-step model to contracts when (1) parties have approved the contract and are committed to performing respective obligations, (2) we can identify each party’s rights regarding the goods or services to be transferred, (3) we can identify the payment terms for the goods or services to be transferred, (4) the contract has commercial substance, and (5) it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. At contract inception, we assess the goods or services promised within each contract and determine the performance obligations by assessing whether each promised good or service is distinct. Goods or services that are not distinct are bundled with other goods or services in the contract until a bundle of goods or services that is distinct is created. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligations when (or as) the performance obligations are satisfied. We constrain our estimate of the transaction price up to the amount (the “variable consideration constraint”) that a significant reversal of recognized revenue is not probable. Licenses of intellectual property: If a license to our intellectual property is determined to be distinct from the other promised goods or services identified in an arrangement, we recognize revenue from non-refundable, upfront fees allocated to the license at the point in time when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are bundled with other goods or services, we utilize 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 toward satisfying the performance obligation for purposes of recognizing revenue from non-refundable, upfront fees. We evaluate the measure of progress each reporting period and, if necessary, adjusts the measure of progress and related revenue recognition. 43 Customer options for additional goods or services: If a contract contains customer options that allow the customer to acquire additional goods or services, including a license to our intellectual property, the goods and services underlying the customer options are evaluated to determine whether they are deemed to represent a material right. In determining whether the customer op tion has a material right, we assess whether there is an option to acquire additional goods or services at a discount. If the customer option is determined not to represent a material right, the option is not considered to be a performance obligation. If t he customer option is determined to represent a material right, the material right is recognized as a separate performance obligation. We allocate the transaction price to material rights based on the relative standalone selling price, which is determined based on the identified discount and the probability that the customer will exercise the option. Amounts allocated to a material right are not recognized as revenue until the option is exercised. Milestone payments: At the inception of each arrangement or amendment that includes development, regulatory or commercial milestone payments, we evaluate whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price. ASC 606 prescribes two methods to use when estimating the amount of variable consideration: the expected value method and the most likely amount method. Under the expected value method, an entity considers the sum of probability-weighted amounts in a range of possible consideration amounts. Under the most likely amount method, an entity considers the single most likely amount in a range of possible consideration amounts. Whichever method is used, it should be consistently applied throughout the life of the contract; however, it is not necessary for us to use the same approach for all contracts. If it is probable that a significant revenue reversal would not occur when the uncertainty associated with the milestone is resolved, the associated milestone value is included in the transaction price. Milestone payments that are highly susceptible to factors outside our influence, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. If there is more than one performance obligation, the transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis. We recognize revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, we re-evaluate the probability or achievement of each milestone and any related constraint, and if necessary, adjusts its estimates of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment. Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). Upfront payments and fees are recorded as contract liabilities upon receipt or when due and may require deferral of revenue recognition to a future period until we perform its obligations under these arrangements. Amounts payable to us are recorded as accounts receivable when our right to consideration is unconditional. Amounts payable to us and not yet billed to the collaboration partner are recorded as contract assets. We do not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less. Contractual cost sharing payments received from a customer or collaboration partner are accounted for as variable consideration. We include an expected value in the transaction price. Contractual cost sharing payments received from a customer or collaboration partner are accounted for as variable consideration. We include an expected value in the transaction price. Contractual cost sharing payments made to a customer or collaboration partner are accounted for as a reduction to the transaction price if such payments are not related to distinct goods or services received from the customer or collaboration partner. 44 Contracts may be amended to account for changes in contract specifications and requirements. Contract modifications exist when the amendment either creates new, or changes existing, enforceable rights and obligations. When contract modifications create new performance obligations and the increase in consideration approximates the standalone selling price for goods and services related to such new performance obligations as adjusted for specific facts and circumstances of the contract, the modification is ac counted for as a separate contract. If a contract modification is not accounted for as a separate contract, we account for the promised goods or services not yet transferred at the date of the contract modification (the remaining promised goods or services) prospectively, as if it were a termination of the existing contract and the creation of a new contract, if t he remaining goods or services are distinct from the goods or services transferred on or before the date of the contract modification. We account for a contract modification as if it were a part of the existing contract if the remaining goods or services a re not distinct and, therefore, form part of a single performance obligation that is partially satisfied at the date of the contract modification. In such case the effect that the contract modification has on the transaction price, and on the entity’s meas ure of progress toward complete satisfaction of the performance obligation, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) at the date of the contract modification (the adjustment to revenue is made on a cumu lative catch-up basis). Upfront payment contract liabilities resulting from our license and collaboration agreements do not represent a financing component as the payment is not financing the transfer of goods and services, and the technology underlying the licenses granted reflects research and development expenses already incurred by us. As such, we do not adjust its revenues for the effects of a significant financing component. 45 Item 3. Quantitative and Qualitati ve Disclosures About Market Risk. Interest Rate Sensitivity The market risk inherent in our financial instruments and in our financial position represents the potential loss arising from adverse changes in interest rates or exchange rates. As of September 30, 2020, we had cash equivalents and marketable securities of $288.7 million, consisting of interest-bearing money market funds, investments in U.S. government securities, commercial paper, and corporate bonds, for which the fair value would be affected by changes in the general level of U.S. interest rates. However, due to the short-term maturities and the low-risk profile of our cash equivalents and marketable securities, an immediate 10% change in interest rates would not have a material effect on the fair value of our cash equivalents and marketable securities. We do not believe that inflation, interest rate changes or exchange rate fluctuations have had a significant impact on our results of operations for any periods presented herein.