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Item 2. Management’s Discussion and Analysis

2023-11-09 compared with 2023-08-09 · 110 added, 127 removed, 218 unchanged (52% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations, as well as other sections in this Quarterly Report on Form 10 - Q, should be read in conjunction with (i) our unaudited interim financial statements and related notes thereto included elsewhere herein, (ii) Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the United States Securities and Exchange Commission (“SEC”) on March 16, 2023 and (iii) our other public reports filed with the SEC.

In addition to historical financial information, some of the information contained in the following discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

All statements other than statements of historical facts, including express or implied statements regarding Immunome’s beliefs and expectations regarding the advancement of its platform and programs, execution of its regulatory, research, clinical and strategic plans and anticipated upcoming milestones for its platform and programs, including expectations regarding, among other things, the timing and results of its preclinical studies and clinical trials, clinical plans, general regulatory actions, the translation of preclinical data into clinical safety and efficacy, the therapeutic potential and benefits of its programs and development candidates, the possible need and demand for its programs and development candidates , are forward-looking statements.

These statements involve known and unknown risks, uncertainties, assumptions and other important factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplates,” “believes,” “estimates,” “should,” ”seek,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions.

The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions.

We have based these forward-looking statements largely on our current expectations and projections about future events, financial trends and other matters that we believe may affect our business, financial condition and results of operations.

These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions that are difficult to predict.

Factors that could cause actual results to differ include, but are not limited to, those risks and uncertainties associated with:

our expectations regarding the announced merger transaction with Morphimmune;

the fact that research and development data are subject to differing interpretations and assessments;

Immunome’s ability to execute on its strategy, including with respect to its R&D efforts, IND submissions and other regulatory filings, timing of these filings and the timing and nature of governmental authority feedback regarding the same, initiation, continuation and completion of any clinical studies, confirmatory testing and other anticipated milestones as and when anticipated;

the effectiveness of Immunome’s programs and development candidates, including the possibility that further preclinical data and any clinical trial data may be inconsistent with the data used for advancing the programs and development candidates and that further variants of concern could emerge;

Immunome’s ability to fund operations and raise capital;

Immunome’s reliance on vendors;

the competitive landscape;

and the additional risks and uncertainties set forth more fully under the caption “Risk Factors” in Immunome’s Annual Report on Form 10-K filed with the SEC on March 16, 2023, and elsewhere in Immunome’s filings and reports with the SEC.

The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements.

Moreover, we operate in an evolving environment.

New risk factors and uncertainties may emerge from time to time, and it is not possible for us to predict all risk factors and uncertainties.

In addition, we may discuss our programs and development candidates that have not yet undergone clinical trials or been approved for marketing by the U.S.

Food and Drug Administration or other governmental authority, including expectations about their therapeutic potential and benefits thereof.

No representation is made as to the safety or effectiveness of these programs and development candidates for the use for which such programs and development candidates are being studied.

Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

Since our inception in 2006, we have devoted substantially all our resources to research and development, raising capital, building our management team and building our intellectual property portfolio and entering and executing on

collaborations.

To date, we have financed our operations primarily through sales of our common stock, Series A convertible preferred stock and warrants, warrant exercises, the issuance of convertible promissory notes, the Paycheck Protection Program loan, or the PPP loan, that was forgiven in May 2021, and strategic partnerships with AbbVie Global Enterprises Ltd., or AbbVie, and the Department of Defense, or the DoD.

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements and notes thereto and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2022.

Unless otherwise indicated, all references in this Quarterly Report on Form 10-Q to “Immunome,” the “company,” “we,” “our,” “us” or similar terms refer to Immunome, Inc.

and its subsidiary.

Forward-Looking Statements

In addition to historical financial information, this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties.

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled “Risk Factors” under Part II, Item 1A below.

In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” “predict,” “should,” “will” or the negative of these terms or other similar expressions.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject.

These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information.

These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.

Immunome is a biotechnology company dedicated to developing first-in-class and best-in-class targeted cancer therapies.

Our portfolio pursues each target with a modality appropriate to its biology, including immunotherapies, targeted effectors, radioligand therapies and ADCs.

We believe that pursuing underexplored targets with appropriate drug modalities leads to transformative therapies.

Our proprietary memory B cell hybridoma technology allows for the rapid screening and functional characterization of novel antibodies and targets.

Immunome is currently advancing its lead oncology program:

an antibody (IMM-ONC-01) against interleukin 38 (IL-38) a novel immune modulator for the treatment of various solid tumors, which is in preclinical development stage.

Immunome is also studying the expression of IL-38 in various tumor types in order to select the most appropriate patient population for potential evaluation of IMM-ONC-01 clinical utility.

On October 2, 2023, the Company completed its merger with Morphimmune Inc., or Morphimmune.

Under the terms of the Agreement and Plan of Merger and Reorganization dated as of June 28, 2023, or the Merger Agreement, among the Company, Morphimmune and Ibiza Merger Sub, Inc., a wholly owned subsidiary of the Company, or Merger Sub, Morphimmune merged with and into Merger Sub, with Morphimmune surviving as a wholly-owned subsidiary of Immunome, or the Merger.

In connection with the Merger, on October 2, 2023, the Company issued and sold 21,690,871 shares of its common stock pursuant to the subscription agreements in a Private Investment in Public Equity, or PIPE, transaction which provided the Company with gross proceeds of $125.0 million.

Morphimmune is a preclinical biotechnology company focused on developing targeted oncology therapeutics.

Morphimmune’s Targeted Effector platform uses small molecule ligands to selectively deliver drug payloads to diseased

We believe this approach reduces toxicity and increases the efficacy of effector molecules, thereby improving outcomes for patients.

Morphimmune’s 177 Lu-FAP program is focused on developing a radiotherapy that targets FAP, or fibroblast activation protein, a protein overexpressed in cancer associated fibroblasts found in 75 percent of solid tumors.

We believe that a FAP radiotherapy with pharmacokinetics optimized by the Targeted Effector platform will demonstrate increased antitumor activity driven by increased tumor uptake and retention.

Since our inception in 2006, we have devoted substantially all our resources to research and development, raising capital, building our management team, building our intellectual property portfolio and entering and executing on collaborations and strategic transactions.

To date, we have financed our operations primarily through sales of our common stock, Series A convertible preferred stock and warrants, warrant exercises, the issuance of convertible promissory notes, the Paycheck Protection Program loan, or the PPP loan, that was forgiven in May 2021, strategic partnerships with AbbVie Global Enterprises Ltd., or AbbVie, and the Department of Defense, or the DoD, and the Merger.

To date, we have not generated any revenue from commercial sales and do not expect to generate revenue from commercial sale of products for the foreseeable future.

Since inception we have incurred significant operating losses.

Our net losses for the three months ended June 30, 2023 and 2022 were $5.6 million and $8.9 million, respectively, and $9.8 million and $20.6 million for the six months ended June 2023 and 2022, respectively.

As of June 30, 2023, we had cash and cash equivalents of $38.4 million.

Our net losses for the three months ended September 30, 2023 and 2022 were $4.3 million and $8.5 million, respectively, and $14.2 million and $29.1 million for the nine months ended September 2023 and 2022, respectively.

As of September 30, 2023, we had cash and cash equivalents of $90.6 million, which included $61.0 million of deposits related to the PIPE transaction.

We received the remaining $64.0 million of gross proceeds from the PIPE transaction on October 2, 2023.

We expect to continue to incur significant expenses and operating losses for the foreseeable future as we continue advancement of our programs and develop product candidates.

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and hire research and development, clinical and administrative personnel.

If we cannot obtain the necessary funding to support these activities on favorable terms, if at all, we will need to delay, scale back or eliminate some or all of our research and development efforts.

If we cannot obtain the necessary funding to support these activities on favorable terms, if at all, we will need to delay, scale back or eliminate some or all our research and development efforts.

We may also need to consider various strategic alternatives, including a merger or sale of the Company;

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● add operational, financial and management information systems and infrastructure to support our research and development programs, and any future commercialization efforts;

● complete the Merger with Morphimmune

● pursue and give effect to any further strategic transactions and collaborations, if any;

● continue to progress the combined company pipeline and otherwise operate as a merged company with Morphimmune.

As a result of these anticipated expenditures and potential unanticipated expenditures, we will need substantial additional financing to support our continuing operations and pursue our growth strategy.

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Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends.

If we raise additional funds through collaborations, strategic

alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates, or grant licenses on terms that may not be favorable to us.

If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates, or grant licenses on terms that may not be favorable to us.

If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts, or grant rights to develop and market programs and development candidates that we would otherwise prefer to develop and market ourselves.

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The inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy.

We expect that our cash as of June 30, 2023, exclusive of any potential proceeds received in connection with the potential closing of the Merger and concurrent PIPE transaction, will be sufficient to fund our operations at least 12 months from the filing date of this Quarterly Report on Form 10-Q.

We expect that our cash as of September 30, 2023, in addition to the remaining proceeds received in connection with the closing of the Merger and concurrent PIPE transaction in October 2023, will be sufficient to fund our operations for at least 12 months from the filing date of this Quarterly Report on Form 10-Q.

We have based these estimates on assumptions that may prove to be imprecise, and we may exhaust our available capital resources sooner than we currently expect.

See “Liquidity and capital resources.” Due to the numerous risks and uncertainties associated with the research and development of our programs, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the research and development of our programs and development candidates.

Merger Agreement

On June 29, 2023, we entered into an Agreement and Plan of Merger and Reorganization, or the Merger Agreement, with Morphimmune Inc., a Delaware corporation, or Morphimmune, a biotechnology company focused on developing targeted oncology therapeutics, and Ibiza Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Immunome, or Merger Sub.

Upon the terms and subject to the satisfaction of the conditions described in the Merger Agreement, Merger Sub will be merged with and into Morphimmune, with Morphimmune surviving as our wholly owned subsidiary, or the Merger.

The Merger is intended to qualify as a tax-free reorganization for U.S.

federal income tax purposes and is expected to close by the end of 2023.

At the Effective time, each share of Morphimmune capital stock outstanding immediately prior to the Effective Time will be automatically converted solely into the right to receive 0.3042 shares of the Company’s common stock, or the Exchange Ratio, and, if applicable, an amount in cash, rounded to the nearest whole cent, in lieu of any fractional share interest in the Company’s common stock to which such holder otherwise would have been entitled (after aggregating all fractional shares issuable to such holder).

Each option to purchase shares of Morphimmune capital stock, or a Morphimmune Option, that is outstanding and unexercised immediately prior to the Effective Time under Morphimmune’s 2020 Equity Incentive Plan, or the Morphimmune Plan, whether or not vested, will be converted into and become an option to purchase the Company’s common stock using the Exchange Ratio, and the Company will assume the Morphimmune Plan and each such Morphimmune Option in accordance with the terms of the Morphimmune Plan and the terms of the stock option agreement by which such Morphimmune Option is evidenced.

Immediately following the Merger, the pre-Merger equityholders of the Company are expected to own approximately 55% of the shares of the Company’s common stock and the pre-Merger equityholders of Morphimmune are expected to own approximately 45% of the Company’s common stock, in each case, on a fully diluted basis, excluding out-of-the-money securities of the Company as of June 28, 2023, unallocated shares of the Company’s common stock available for issuance under the Company’s 2020 Equity Incentive Plan and employee stock purchase plan, and the grant of a stock option to Dr.

Clay Siegall, Ph.D., in connection with his employment agreement to become Chief Executive Officer of the Company upon consummation of the Merger, and prior to giving effect to the PIPE financing as described below.

Anticipated Accounting Treatment

The Merger is expected to be treated as an asset acquisition by Immunome of Morphimmune in accordance with U.S.

Upon completion of the Merger, Immunome will obtain control of Morphimmune’s assets consisting primarily of cash and in-process research and development (IPR&D) associated with Morphimmune’s potential primary product candidate, Mi-1001, and development program, 177 Lu-FAP.

In accordance with U.S.

GAAP, Immunome must first assess whether an integrated set of assets and activities should be accounted for as an acquisition of a business or an asset acquisition.

An initial screen test is completed to determine if substantially all of the fair value of the gross assets acquired of Morphimmune is concentrated in a single asset or group of similar assets.

If that screen is met, the set is not considered a business and is accounted for as an asset acquisition.

Immunome will account for the acquisition of Morphimmune as an asset acquisition as substantially all of the fair value of the gross assets being acquired of Morphimmune is concentrated within the FA-TLR7a and 177 Lu-FAP development programs which are considered a group of similar assets.

These programs are deemed to be similar IPR&D assets being acquired based on the similarity of:

(i) their current preclinical stage of development, (ii) solid tumor therapeutic indications, (iii) risks for development, (iv) regulatory pathway, and (v) economics of commercialization.

Since the IPR&D being acquired has no alternative future use, Immunome expects to record the amount of consideration allocated to the IPR&D assets as research and development expense in its statement of operations on the date of acquisition.

Subscription Agreements

In connection with the execution of the Merger Agreement, on June 29, 2023, the Company entered into subscription agreements, each, a Subscription Agreement, with certain investors, or the PIPE Investors, pursuant to which, among other things, the PIPE Investors have agreed to subscribe for and purchase, and the Company has agreed to issue and sell to the PIPE Investors, an aggregate of 21,690,871 shares of the Company’s common stock for an aggregate purchase price of approximately $125.0 million, on the terms and subject to the conditions set forth therein.

The shares of the Company’s common stock were sold to the PIPE Investors at a price per share equal to $5.75 and, in the case of affiliate investors, $5.91 per share, the consolidated closing bid price per share immediately preceding the entry into the Subscription Agreement.

The closing of the PIPE financing is expected to occur in connection with and immediately following the consummation of the Merger.

Our current programs and strategic collaboration

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We believe that this information could potentially guide patient selection for early clinical testing and may improve the overall probability of demonstrating clinical utility, thereby improving the probability of clinical success.

We plan to submit our IND application for the IMM-ONC-01 program in the first quarter of 2024.

We expect to provide guidance in Q1 2024 regarding our timeline to prepare and submit to the FDA an IND for IMM-ONC-01.

As a result of the Merger, we are now developing a FAP-targeted Lu-177 radiotherapy product candidate for the treatment of solid tumors.

FAP, or fibroblast activation protein, serves as a tumor-specific marker due to its broad expression on cancer associated fibroblasts.

We believe that our FAP-targeted radiotherapy has the potential to deliver higher antitumor activity than FAP-targeted radiotherapies from competitor companies.

Our FAP-targeted radiotherapy has four functional domains:

● A small molecule FAP-specific ligand

● A linker tuned to drive tumor-specific uptake

● An albumin-binding domain to improve tumor retention

● A chelator to deliver the radionuclide

We are evaluating a series of potential drug candidates that explore options for each of the four domains in order to select the combination that is most likely to deliver therapeutic benefits in cancer patients.

We expect to nominate a potential development candidate in Q4 2023 with an anticipated IND submission with the FDA in Q1 2025.

SARS-CoV-2 (IMM-BCP-01)

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Other Programs and Platforms

In addition to the already described current programs, we will continue to invest in our proprietary discovery engine to expand our pipeline.

In addition to the already described current programs, we will continue to invest in our proprietary discovery engine and Morphimmune’s Targeted Effector platform to expand our pipeline.

The high output of antibody-target pairs resulting from our discovery engine may provide us with additional insights into the immune response against cancer and other diseases.

We intend to continue to invest in this platform, to evaluate novel antibody-target pairs and to develop a pipeline of antibody therapeutics as single agents or in combination with other therapeutics or utilize technologies to yield development candidates with therapeutic modalities, such as Antibody-Drug Conjugates, or ADCs.

In addition, Morphimmune’s Targeted Effector platforms use of small molecule ligands to selectively deliver drug payloads could potentially lead to a superior therapeutic index and better patient outcomes.

We intend to continue to invest in these platforms, with the goal of developing first-in-class and best-in-class targeted cancer therapies, including immunotherapies, targeted effectors, radioligand therapies and Antibody-Drug Conjugates, or ADCs.

Additionally, we plan to expand our intellectual property estate and infrastructure needed to discover and advance our platform and programs.

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On a Product-by-Product basis, AbbVie will pay us tiered royalties on net sales of Products at a percentage in the low single digits, subject to specified reductions and offsets in certain circumstances.

AbbVie’s royalty payment obligation will commence, on a Product-by-Product and country-by-country basis, on the first commercial sale of such Product in such country and will expire on the earlier of (a) (i) the ten (10)-year anniversary of such first commercial sale for such Product in such country, or (ii) solely with respect to a Product that incorporates an antibody comprising a VTP (or certain other antibodies derived from such delivered antibody), the expiration of all valid claims of patent rights covering the composition of matter of any such antibody (whichever out of (i) or (ii) is later), and (b) the expiration of regulatory exclusivity for such Product in such country.

Product that incorporates an antibody comprising a VTP (or certain other antibodies derived from such delivered antibody), the expiration of all valid claims of patent rights covering the composition of matter of any such antibody (whichever out of (i) or (ii) is later), and (b) the expiration of regulatory exclusivity for such Product in such country.

We are potentially eligible to receive up to approximately $2.8 billion from AbbVie under the Collaboration Agreement from the sources described above.

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To date, we have generated our revenue through the Collaboration Agreement with AbbVie.

We recognize revenue over the expected performance period under this agreement.

Our Collaboration revenue to date consists of payments from Abbvie that we recognize over the expected performance period under this agreement.

We expect that revenues for the foreseeable future will be derived primarily from this agreement and any additional collaborations that we may enter into.

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In connection with the OTA Agreement, we record expense reimbursements received from the DoD as contra-research and development expenses in the same period the underlying expenses are incurred.

Under the provisions of the CARES Act signed into law on March 27, 2020 and the subsequent extension of the CARES Act, the Company was deemed eligible to receive the employee retention credit subject to certain criteria.

The Company recognized the employee retention credit as contra-expense to personnel related costs in research and development expenses in the condensed statements of operations.

General and administrative expenses

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General and administrative expenses also include legal fees relating to intellectual property and corporate matters, professional fees for accounting, auditing, tax and consulting services, insurance costs, travel, direct and allocated facility related expenses and other operating costs.

The Company recognized the employee retention credit as contra-expense to personnel related costs in general and administrative expenses in the condensed statements of operations.

Interest income

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Results of operations

The ultimate extent of the impact of any epidemic, pandemic, outbreak, or other public health crisis on our results of operations will depend on future developments, which are highly uncertain, including public health crises and actions taken to contain or prevent the further spread, among others.

Accordingly, we cannot fully predict the extent to which our business and results of operations will be affected by the pandemic.

Comparison of the three and six months ended June 30, 2023 and 2022

Three Months Ended June 30,

Six Months Ended June 30,

Comparison of the three and nine months ended September 30, 2023 and 2022

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

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Interest income

Three months ended June 30, 2023 and 2022

Three months ended September 30, 2023 and 2022

Collaboration revenue

In January 2023, we entered into the Collaboration Agreement with AbbVie and recognized collaboration revenue of $4.3 million for the three months ended June 30, 2023.

No collaboration revenue was recognized for the three months ended June 30, 2022.

In January 2023, we entered into the Collaboration Agreement with AbbVie and recognized collaboration revenue of $3.6 million for the three months ended September 30, 2023.

No collaboration revenue was recognized for the three months ended September 30, 2022.

Research and development expenses

Research and development expenses were $5.7 million for both the three months ended June 30, 2023 and 2022.

Research and development expenses were flat for the three months ended June 30, 2023.

ONC-01 external program related expenses decreased by $1.2 million as a result of a decrease in product development activities.

BCP-01 external program related expenses decreased by $1.0 million, net of contra expense, as a result of our decision to seek a partner in order to continue the BCP-01 trial and further development activities.

Research and development expenses were $3.8 million and $5.2 million for the three months ended September 30, 2023 and 2022.

Research and development expenses decreased by $1.4 million for the three months ended September 30, 2023.

BCP-01 external program related expenses decreased by $1.7 million as a result of our decision to seek a partner in order to continue the BCP-01 trial and further development activities.

ONC-01 external program related expenses and general research decreased by $1.6 million as a result of a decrease in research and product development activities.

These decreases were offset by an increase of $1.0 million in outsourced research and materials relating to the AbbVie collaboration.

In addition, personnel related costs increased by $0.9 million for the three months ended June 30, 2023 primarily as a result of $0.6 million contra-expense to personnel related costs relating to the CARES Act employee retention credit recorded during the three months ended June 30, 2022 and a $0.3 million increase in fringe benefits.

In addition, personnel related costs increased by $0.9 million for the three months ended September 30, 2023 primarily as a result of an increase in headcount and wage increases for employees.

General and administrative expenses

General and administrative expenses were $4.3 million and $3.2 million for the three months ended June 30, 2023 and 2022, respectively.

General and administrative expenses increased by $1.1 million for the three months ended June 30, 2023.

The increase was primarily a result of a $1.6 million increase in professional fees including consulting and legal related costs associated with the Merger offset by a $0.4 million decrease in general expenses including insurance, and a $0.1 million decrease in personnel-related costs.

Personnel-related costs decreased as a result of a $0.3 million decrease in share-based compensation offset by $0.2 million in contra-expense to personnel related costs relating to the CARES Act employee retention credit recorded during the three months ended June 30, 2023.

General and administrative expenses were $4.4 million and $3.3 million for the three months ended September 30, 2023 and 2022, respectively.

General and administrative expenses increased by $1.1 million for the three months ended September 30, 2023.

The increase was primarily a result of a $1.6 million increase in professional fees including consulting and legal related costs associated with the Merger offset by a $0.4 million decrease in general expenses including D&O insurance, and a $0.1 million decrease in personnel-related costs.

Personnel-related costs decreased as a result of a $0.1 million decrease in share-based compensation expense and headcount.

Interest income

Interest income was $0.2 million and $2,000 for the three months ended June 30, 2023 and 2022, respectively.

Interest income increased by $0.2 million for the three months ended June 30, 2023 as a result of increased interest rates on our cash balances held with a financial institution.

Six months ended June 30, 2023 and 2022

Interest income was $0.3 million and $0.0 million for the three months ended September 30, 2023 and 2022, respectively.

Interest income increased by $0.3 million for the three months ended September 30, 2023 as a result of increased interest rates on our cash balances held with a financial institution.

Nine months ended September 30, 2023 and 2022

Collaboration revenue

In January 2023, we entered into the Collaboration Agreement with AbbVie and recognized collaboration revenue of $6.6 million for the six months ended June 30, 2023.

No collaboration revenue was recognized for the six months ended June 30, 2022.

In January 2023, we entered into the Collaboration Agreement with AbbVie and recognized collaboration revenue of $10.2 million for the nine months ended September 30, 2023.

No collaboration revenue was recognized for the nine months ended September 30, 2022.

Research and development expenses

Research and development expenses were $9.6 million and $13.8 million for the six months ended June 30, 2023 and 2022, respectively.

Research and development expenses decreased by $4.2 million for the six months ended June 30, 2023.

Of the $4.2 million decrease in research and development expenses, ONC-01 external program related expenses decreased by $3.4 million as a result of a decrease in product development activities.

BCP-01 external program related expenses decreased by $3.2 million, net of contra expense, as a result of our decision to seek a partner in order to continue the BCP-01 trial and further development activities.

These decreases were offset by an increase of $1.7 million in outsourced research and materials relating to the AbbVie collaboration.

In addition, personnel related costs increased by $0.7 million for the six months ended June 30, 2023 primarily as a result of $0.6 million contra-expense to personnel related costs relating to the CARES Act employee retention credit recorded during the six months ended June 30, 2023.

Research and development expenses were $13.5 million and $19.0 million for the nine months ended September 30, 2023 and 2022, respectively.

Research and development expenses decreased by $5.5 million for the nine months ended September 30, 2023.

Of the $5.5 million decrease in research and development expenses, BCP-01 external program related expenses decreased by $4.9 million, net of contra expense, as a result of our decision to seek a partner in order to continue the BCP-01 trial and further development activities.

ONC-01 external program related expenses and general research decreased by $5.0 million as a result of a decrease in research and product development activities related to outsourced CMC related activities in preparation for IND filing.

These decreases were offset by an increase of $2.7 million in outsourced research and materials relating to the AbbVie collaboration and $0.2 million increase in general expenses.

In addition, personnel related costs increased by $1.5 million for the nine months ended September 30, 2023 primarily related to increase in headcount and wage increases for employees.

General and administrative expenses

General and administrative expenses were $7.2 million and $6.8 million for the six months ended June 30, 2023 and 2022, respectively.

General and administrative expenses increased by $0.4 million for the three months ended June 30, 2023.

The increase was primarily a result of a $1.2 million increase in professional fees, including consulting and legal related costs associated with the Merger, offset by a $0.8 million decrease in general expenses including insurance.

General and administrative expenses were $11.6 million and $10.1 million for the nine months ended September 30, 2023 and 2022, respectively.

General and administrative expenses increased by $1.5 million for the nine months ended September 30, 2023.

The increase was primarily a result of a $2.8 million increase in professional fees, including consulting and legal related costs associated with the Merger, offset by a $1.1 million decrease in general expenses including D&O insurance.

In addition, personnel related costs decreased by $0.2 million primarily as a result of a decrease in share-based compensation expense and headcount vacancies during the nine months ended September 30, 2022.

Interest income

Interest income was $0.4 million and $3,000 for the six months ended June 30, 2023 and 2022, respectively.

Interest income increased by $0.4 million for the six months ended June 30, 2023 as a result of increased interest rates on our cash balances held with a financial institution.

Interest income was $0.7 million and $0.0 million for the nine months ended September 30, 2023 and 2022, respectively.

Interest income increased by $0.7 million for the nine months ended September 30, 2023 as a result of increased interest rates on our cash balances held with a financial institution.

Liquidity and capital resources

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We expect to incur significant expenses and operating losses for the foreseeable future as we continue advancement of our programs and development candidates.

Through June 30, 2023, we raised an aggregate of $155.2 million in gross proceeds from sales of our common stock, Series A convertible preferred stock and warrants, warrant and stock option exercises, the issuance of convertible promissory notes, the Paycheck Protection Program, or PPP, loan that was forgiven in May 2021, and strategic partnerships with AbbVie Global Enterprises Ltd, or AbbVie.

In January 2023, we received a $30.0 million upfront payment from AbbVie under the collaboration and option agreement, or the Collaboration Agreement.

In addition, we received $17.6 million in expense reimbursement from the Department of Defense, or DoD under the Other Transaction Authority for Prototype Agreement, or the OTA Agreement, from inception through 2022.

On October 1, 2021, we entered into an Open Market Sale Agreement, or the ATM Agreement, with Jefferies Group LLC, which provides that, upon the terms and subject to the conditions and limitations in the ATM Agreement, we may elect, from time to time, to offer and sell shares of common stock under the registration statement having an aggregate offering price of up to $75.0 million through Jefferies Group LLC acting as sales agent.

We filed a shelf registration

statement on Form S-3, which was declared effective by the Securities and Exchange Commission, or the SEC, on October 14, 2021, pursuant to which we may issue from time-to-time securities with an aggregate value of up to $200.0 million.

Through June 30, 2023, we sold 5,925 shares of common stock under the ATM Agreement resulting in net proceeds of approximately $34,000.

We can elect to sell additional shares under the ATM Agreement or shelf registration statement.

In addition, on January 4, 2023, we entered into the Collaboration Agreement with AbbVie directed to the discovery of up to 10 novel target-antibody pairs leveraging our discovery engine.

We are potentially eligible to receive up to approximately $2.8 billion from AbbVie under the Collaboration Agreement from the sources described in the section “Our current programs and strategic collaboration”.

Through September 30, 2023, we raised an aggregate of $155.1 million in gross proceeds from sales of our common stock, Series A convertible preferred stock and warrants, warrant and stock option exercises, the issuance of convertible promissory notes, the PPP loan that was forgiven in May 2021, and strategic partnerships with AbbVie.

In addition, we received $17.6 million in expense reimbursement from the DoD under the OTA Agreement, from inception through 2022.

As of September 2023, the Company’s obligation under the OTA agreement with the DoD were completed.

In June 2023, the Company entered into subscription agreements with certain investors pursuant to which the Company would sell shares of its common stock, immediately following the completion of the Merger, in exchange for gross proceeds of $125.0 million.

Immediately following the completion of the Merger, the Company sold 21,690,871 shares of its common stock pursuant to the subscription agreements in a PIPE transaction.

The Company recognized gross proceeds of $125.0 million of which $61.0 million was received on or prior to September 30, 2023 and is recorded as a deposit liability on the September 30, 2023 balance sheet.

On January 4, 2023, we entered into the Collaboration Agreement with AbbVie directed to the discovery of up to 10 novel target-antibody pairs leveraging our discovery engine and we received a $30.0 million upfront payment from AbbVie.

Additionally, we are potentially eligible to receive up to approximately $2.8 billion from AbbVie under the Collaboration Agreement from the sources described in the section “Our current programs and strategic collaboration”.

There are no assurances that we will receive additional payments from AbbVie beyond the $30.0 million upfront payment.

The closing of the PIPE financing is expected to occur in connection with and immediately following the consummation of the Merger.

Through September 30, 2023, we sold 5,925 shares of common stock under the ATM Agreement resulting in net proceeds of approximately $34,000.

On November 8, 2023, the Company provided notice of termination of the ATM Agreement to Jefferies.

We will need to raise additional capital before we exhaust our current cash to continue to fund our research and development, including our plans to continue advancement of our programs and development candidates and new product development, as well as to fund operations.

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We can give no assurances that we will be able to secure such additional sources of funds to support our operations, or, if such funds are available to us, that such additional financing will be sufficient to meet our needs.

The following table summarizes our sources and uses of cash for the six months ended June 30, 2023 and 2022:

Six Months Ended June 30,

The following table summarizes our sources and uses of cash for the nine months ended September 30, 2023 and 2022:

Nine Months Ended September 30,

(in thousands)

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Operating activities

Net cash provided by operating activities for the six months ended June 30, 2023 was $18.5 million, consisting primarily of increases in deferred revenue of $23.4 million, noncash charges of $2.6 million for share-based compensation expense, depreciation and amortization of right-of-use asset, increases in accounts payable of $1.3 million, and decreases in prepaid expenses and other assets of $1.2 million, offset by our net loss of $9.8 million.

Net cash used in operating activities for the six months ended June 30, 2022 was $14.4 million, consisting primarily of our net loss of $20.6 million and decreases in accrued expenses and other liabilities of $3.3 million, offset by noncash charges of $2.9 million for stock compensation expense, depreciation and amortization of right-of-use asset, decreases in prepaid expenses and other assets of $4.4 million, and increases in accounts payable of $2.2 million.

Net cash provided by operating activities for the nine months ended September 30, 2023 was $9.9 million, consisting primarily of increases in deferred revenue of $19.8 million, noncash charges of $4.1 million for share-based compensation expense, depreciation and amortization of right-of-use asset, and expensing of the deferred offering costs, and decreases in prepaid expenses and other assets of $1.6 million, offset by our net loss of $14.2 million and decreases in accrued expenses and other current liabilities and other long-term liabilities of $1.5 million .

Net cash used in operating activities for the nine months ended September 30, 2022 was $22.0 million, consisting primarily of our net loss of $29.1 million and net decreases of accrued expenses and other liabilities and accounts payable of $2.4 million, offset by net noncash charges of $4.3 million for stock compensation expense, depreciation and amortization of right-of-use asset and decreases in prepaid expenses and other assets of $5.2 million.

Investing activities

During the six months ended June 30, 2023 and 2022, we used $0.4 million and $0.2 million, respectively, for the purchase of property and equipment.

During the nine months ended September 30, 2023 and 2022, we used $0.5 million and $0.2 million, respectively, for the purchase of property and equipment.

Financing activities

During the six months ended June 30, 2023, financing activities provided approximately $34,000 in net proceeds from the sales of common stock under the ATM agreement.

During the six months ended June 30, 2022, financing activities provided $32,000 from exercise of stock options.

During the nine months ended September 30, 2023, financing activities provided $61.0 million in gross proceeds from prepayments received in relation to the PIPE transaction associated with the closing of the Merger in October 2023.

The Company received these funds prior to the closing of the Merger and recorded this transaction as a deposit liability in the accompanying condensed balance sheets as of September 30, 2023.

Financing activities also provided $34,000 in net proceeds from the sales of common stock under the ATM Agreement offset by $0.1 million in payments of deferred offering costs associated with the PIPE transaction.

During the nine months ended September 30, 2022, financing activities provided $32,000 from exercise of stock options.

Funding requirements

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● acquire or in-license products, intellectual property, and technologies;

● complete the Merger with Morphimmune;

● continue to operate as a public company.

We expect that our existing cash at June 30, 2023, exclusive of any potential proceeds received in connection with the potential closing of the merger and concurrent PIPE transaction, will enable us to fund our current and planned operating expenses and capital expenditures at least 12 months from the filing date of this Quarterly Report on Form 10-Q.

● pursue and give effect to any further strategic transactions and collaborations, if any;

● continue to progress the combined company pipeline and otherwise operate as a merged company with Morphimmune and continue to operate as a public company.

We expect that our existing cash at September 30, 2023, in addition to the remaining proceeds received in connection with the closing of the merger and concurrent PIPE transaction in October 2023, will enable us to fund our current and planned operating expenses and capital expenditures for at least 12 months from the filing date of this Quarterly Report on Form 10-Q.

We will need additional financing to support its continuing operations and pursue its research and development strategy.

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Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, and licensing arrangements.

Other than in connection with the possible PIPE, we do not have any committed external source of funds.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of any purchaser will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders.

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The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements.

We base our estimates on historical experience, known trends and events and various other

factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

We evaluate our estimates and assumptions on an ongoing basis.

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We consider the nature and contractual terms of collaborative arrangements and assesses whether the arrangement involves a joint operating activity pursuant to which we are an active participant and is exposed to significant risks and rewards with respect to the arrangement.

If we are an active participant and are exposed to significant risks and rewards with respect to the arrangement, the we account for the arrangement as a collaboration under ASC 808.

If we are an active participant and are exposed to significant risks and rewards with respect to the arrangement, the we account for

the arrangement as a collaboration under ASC 808.

If we are not exposed to significant risks and rewards and the contract is with a customer, we account for the collaboration under ASC 606.

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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 2. Management’s Discussion and Analysis