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Item 7. Management’s Discussion and Analysis

2024-03-28 compared with 2023-03-16 · 172 added, 188 removed, 84 unchanged (81% of the section changed)

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

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes included elsewhere in this Annual Report.

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes included elsewhere in this Annual Report.

Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business and related financing, 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 Annual Report, our actual results could differ materially from the results described in or implied by these forward-looking statements.

You should carefully read the “Risk Factors” section of this Annual Reports to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements.

As a result of many factors, including those factors set forth in the “Risk Factors” (Part I, Item 1A) section of this Annual Report, our actual results could differ materially from the results described in or implied by these forward-looking statements.

You should carefully read the “Risk Factors” (Part I, Item 1A) section of this Annual Report to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements.

Please also see the section entitled “Special Note Regarding Forward-Looking Statements.”

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.

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 and the Department of Defense, or the DoD.

In January 2023, we received a $30.0 million upfront payment from AbbVie under the Collaboration Agreement.

In addition, we received $17.6 million in expense reimbursement from the DoD under the OTA Agreement through December 31, 2022.

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

We are a biopharmaceutical company focused on the development of targeted oncology therapies.

We believe that the pursuit of novel or underexplored targets will be central to the next generation of transformative therapies.

For that reason, we pursue therapeutics that we believe have best-in-class or first-in-class potential.

Our goal is to establish a broad pipeline of preclinical and clinical assets which we can efficiently develop through successive value inflection points.

To support that goal, we pair business development activity with significant investment in our internal discovery programs.

We are advancing a named pipeline comprising one clinical and three preclinical assets.

The clinical asset is AL102, an investigational gamma secretase inhibitor, currently under evaluation in a Phase 3 trial for the treatment of desmoid tumors.

The preclinical assets are IM-1021, a receptor tyrosine kinase-like orphan receptor 1, or ROR1, antibody-drug conjugate, or ADC;

IM-3050, a fibroblast activation protein, or FAP, targeted radioligand therapy, or RLT, candidate;

and IM-4320, an anti-IL-38 immunotherapy candidate.

We anticipate submitting investigational new drug applications, or INDs, for IM-3050 and IM-1021 in the first quarter of 2025 and for IM-4320 at a later date.

We believe that each of these drugs has the potential to improve outcomes for patients across multiple indications.

Recent Events

Collaboration with AbbVie

In January 2023, we entered into a collaboration and option agreement, or the Collaboration Agreement, with AbbVie.

As part of the agreement, we will use our discovery platform to discover and validate targets derived from patients with three specified tumor types, and antibodies that bind to such targets, which may be the subject of further development and commercialization by AbbVie.

The research term is at least 66 months, subject to extension in certain circumstances by specified extension periods.

Under the Collaboration Agreement, AbbVie paid us an upfront payment of $30.0 million in January 2023 and may pay us certain additional platform access payments in the aggregate amount of up to $70.0 million based on our use of our discovery platform in connection with activities under each stage of the research plan, and delivery of VTPs (as defined in the Collaboration Agreement) to AbbVie.

AbbVie will also pay an option exercise fee in the low single digit millions for each of the up to 10 VTPs for which it exercises an option.

If AbbVie progresses development and commercialization of a Product (as defined in the Collaboration Agreement), AbbVie will pay us development and first commercial sale milestones of up to $120.0 million per target, and sales milestones based on achievement of specified levels of net sales of Products of up to $150.0 million in the aggregate per target, in each case, subject to specified deductions in certain circumstances.

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.

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

In October 2023, we completed the merger with Morphimmune Inc., or Morphimmune a preclinical biotechnology company focused on developing targeted oncology therapeutics.

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 us, or Merger Sub, Morphimmune merged with and into Merger Sub, with Morphimmune surviving as a wholly-owned subsidiary of us, or the Merger.

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

Asset Purchase Agreement

In December 2023, we entered into an asset purchase agreement, or the Atreca Purchase Agreement, with Atreca, Inc., or Atreca, pursuant to which we will acquire certain antibody-related assets and materials for an upfront payment of $5.5 million and up to $7.0 million in clinical development milestones.

The closing of the transaction is subject to customary conditions, including the approval of Atreca’s stockholders.

We expect the closing to occur in the second quarter of 2024.

Zentalis Pharmaceuticals, Inc License Agreement

In January 2024, we entered into a license agreement with Zentalis Pharmaceuticals, Inc., or the Zentalis Agreement, pursuant to which we received an exclusive, worldwide, royalty-bearing, sublicensable license under certain intellectual property relating to Zentalis’ proprietary antibody-drug conjugate, or ADC, platform technology, ROR1 antibodies and ADCs targeting ROR1 to exploit products covered by or incorporating the licensed intellectual property rights.

Under the Zentalis Agreement, we are required to use commercially reasonable efforts to develop an ADC targeting ROR1, two additional ADCs, and commercialize any product that has received regulatory approval.

Under the Zentalis Agreement, we paid to Zentalis upfront consideration totaling $15 million in cash and $20 million in shares of our common stock with the shares valued at the trailing 30-day volume-weighted average price.

We are obligated to pay Zentalis up to $150 million in development and regulatory milestones for the first product containing an ADC targeting ROR1, or a ROR1 ADC Product, to achieve such milestones and commercial milestones on ROR1 ADC Products.

We are also obligated to pay to Zentalis mid-to-high single digit royalties on ROR1 ADC Products.

In addition, we are obligated to pay Zentalis $25 million in development and regulatory milestones for the first product from each of the first five additional development programs using the licensed platform technology to generate products, and mid-single digit royalties on products from each such program.

Our 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 latest of (a) the ten (10)-year anniversary of such first commercial sale for such product in such country, (b) the expiration of regulatory exclusivity for such product in such country, and (c) the expiration of the last-to-expire valid claim of a licensed patent covering such product in such country.

Ayala Asset Purchase Agreement

In February 2024, we and Ayala Pharmaceuticals, Inc., or Ayala, entered into an Asset Purchase Agreement, or the Ayala Purchase Agreement, pursuant to which we acquired Ayala’s AL101 and AL102 programs and assumed certain of Ayala’s liabilities associated with the acquired assets.

The Ayala Asset Purchase closed on March 25, 2024, or the Ayala Closing.

At the Ayala Closing, we (i) paid Ayala $20.0 million in cash, less certain adjustments, (ii) issued Ayala 2,175,489 shares of our common stock with the shares valued at the trailing 30-day volume-weighted average price and (iii) assumed specified liabilities.

Pursuant to the Ayala Purchase Agreement, we are obligated to pay Ayala up to $37.5 million in development and commercial milestones.

No legal entities or employees were acquired from Ayala.

Follow-On Public Offering

In February 2024, we raised $230.0 million, before deducting underwriting discounts and commissions and estimated offering expenses payable by us, through a public offering of our common stock, or the 2024 Financing.

In connection with the closing of the public offering, we issued and sold 11,500,000 shares of our common stock.

Financial Overview

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 equity securities, and strategic partnerships and transactions.

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

As of December 31, 2023, our obligations under the OTA agreement with the DoD were completed.

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 were $36.9 million and $24.7 million for the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2022, we had a cash and cash equivalent balance of $20.3 million, which does not include the $30.0 million upfront payment that we received in January 2023 from AbbVie under the Collaboration Agreement.

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

Our net losses were $106.8 million, including non-cash write off of in-process research and development of $80.8 million acquired in the Merger, and $36.9 million for the years ended December 31, 2023 and 2022, respectively.

As of December 31, 2023, we had cash, cash equivalents and marketable securities of $138.1 million.

In addition, we raised gross proceeds of $230.0 million in the 2024 Financing.

We expect to continue to incur significant expenses and increasing operating losses in connection with ongoing research and development activities related to our portfolio of programs as we continue advancement of our programs and development candidates, including the ongoing and future clinical development of AL102 and preclinical and potential clinical development of IM-1021, IM-3050, IM-4320 and any of our future product candidates, and our business development efforts to pursue and give effect to further strategic transactions and collaborations.

We also plan to perform research activities as we seek to discover and develop additional programs and development 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 programs.

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

or reduce or cease operations.

If we engage in collaborations, we may receive lower consideration upon commercialization of such products or technologies than if we had not entered into such arrangements or if we entered into such arrangements at later stages in the research and development process.

Other than the current and potential future sources of funding under the Collaboration Agreement with AbbVie, we currently have no other sources of revenue, and our ability to continue to fund our future business plans is dependent on our ability to raise capital to fund our present and future business plans.

Additionally, volatility in the capital markets, the competitive landscape and general economic conditions in the United States may be a significant obstacle to raising the required funds.

We expect to continue to incur significant expenses and increasing operating losses in connection with ongoing activities, particularly if and as we:

● continue research and development activities;

● pursue regulatory approvals and implement other regulatory strategies for our programs and development candidates;

● take additional steps to advance our discovery engine and our existing and future pipeline;

● obtain, maintain, expand and protect our intellectual property portfolio;

● hire additional research and development, clinical and administrative personnel;

● scale up and expand our clinical and regulatory capabilities;

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

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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We may be unable to raise additional funds or enter into such other agreements when needed on favorable terms or at all.

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.

Through December 31, 2022, we raised an aggregate of $125.1 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, and the PPP loan.

In addition, in July 2020, the Company entered into an Other Transaction Authority for Prototype Agreement, or the OTA Agreement, with the Department of Defense, or the DoD, to fund the Company’s efforts in developing an antibody cocktail therapeutic to treat COVID-19.

As of December 31, 2022, the Company has received $17.6 million in expense reimbursement from the DoD under the OTA Agreement.

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 our existing shelf registration statement having an aggregate offering price of up to $75.0 million through Jefferies Group LLC acting as sales agent.

The Company has not sold any shares under the ATM Agreement or the shelf registration statement as of December 31, 2022.

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.

The Company is potentially eligible to receive up to $2.8 billion from AbbVie under the Collaboration Agreement from the sources described in Note 15 to the financial statements.

We have received the $30.0 million upfront payment in January 2023.

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

We expect that our cash as of December 31, 2022, together with the $30.0 million upfront payment that we received in January 2023 from AbbVie under the Collaboration Agreement, will be sufficient to fund our operations at least 12 months from the filing date of this Annual Report on Form 10-K.

In October 2023, we issued and sold 21,690,871 shares of our common stock pursuant to the subscription agreements in the PIPE transaction which provided us with gross proceeds of $125.0 million.

In addition, in February 2024, we issued and sold 11,500,000 shares of our common stock in a public offering which provided us with gross proceeds of $230.0 million.

We expect that our existing cash, cash equivalents and marketable securities as of December 31, 2023, in combination with the proceeds from the 2024 Financing, 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 Annual Report on Form 10-K.

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.

Our current programs and strategic collaborations

Oncology (IMM-ONC-01)

Our lead oncology program targets IL-38, which we believe is a novel, negative regulator of inflammation capable of promoting tumor evasion of the immune system.

IL-38 was identified as the target of an antibody isolated from a hybridoma library generated from the memory B cells of a patient with squamous head and neck cancer.

Query of public and proprietary (Tempus) databases of cancer gene expression revealed over-expression of IL-38 in multiple solid tumors.

Further, a correlation with low levels of tumor-infiltrating immune effector cells, a hallmark of immune suppression in some of these patients’ tumors, and high IL-38 expression was also observed, suggesting a role for IL-38 as an immune modulator.

Data obtained from preclinical testing indicated that blocking IL-38 function using inhibitory antibodies increased the immune response to the tumor and resulted in anti-tumor activity in select animal models, suggesting that anti-IL-38 antibodies could have therapeutic utility as single agents or in combination with other therapeutic modalities.

Our recent analysis further confirms IL-38 expression is frequently elevated in samples of select patient tumor subtypes, in cancers such as head and neck, lung and gastroesophageal.

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 by mid-2023.

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

We are developing an antibody cocktail derived from the B cells of COVID-19 patients who exhibited high neutralizing titers.

IMM-BCP-01 targets non-overlapping regions of the Spike protein of SARS-CoV-2 which include highly conserved, subdominant epitopes.

The cocktail promotes both ACE2 and non-ACE2 dependent neutralization and induces natural viral clearance mechanisms such as antibody dependent cellular cytotoxicity, complement activation and phagocytosis in pre-clinical testing.

We are conducting this program in collaboration with the DoD.

The IMM-BCP-01 program is broadly focused on the emerging variants of SARS-CoV-2.

We submitted an IND application for the IMM-BCP-01 program to the U.S.

FDA in November 2021 and initiated the Phase 1b study of IMM-BCP-01 in patients infected with SARS-CoV-2 in June 2022 .

On January 6, 2023, the Company announced that it successfully completed dosing of the first cohort of patients in a Phase 1b study with no significant treatment-related adverse events.

The Company has decided to seek a partner in order to continue the trial and for any further development activities.

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.

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 technologies to yield programs and development candidates, such as Antibody-Drug Conjugates (ADCs).

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

We may in-license or acquire complementary intellectual property as needed or required, and we may continue to build our know-how and trade secrets.

We may pursue both therapeutic and diagnostic applications of our antibodies through composition of matter and/or method of use patents.

While our initial focus areas are in oncology and other diseases, we may invest in intellectual property in other therapeutic areas as well.

Collaboration with AbbVie

On January 4, 2023, the Company and AbbVie entered into the Collaboration Agreement, pursuant to which the Company will use its proprietary discovery engine to discover and validate targets derived from patients with three specified tumor types, and antibodies that bind to such targets, which may be the subject of further development and commercialization by AbbVie.

For a more comprehensive discussion regarding the Collaboration Agreement, please see Note 15 to the financial statements.

COVID-19 pandemic

The ongoing COVID-19 pandemic continues to affect economies and businesses around the world.

The extent and duration of such effects remain uncertain and difficult to predict, particularly as virus variants continue to spread.

We are actively monitoring and managing our response and assessing actual and potential impacts to our operating results and financial condition, as well as developments in our business, which could further impact the developments, trends and expectations described below.

See the risk factor related to the impact of the COVID-19 pandemic, “A pandemic, epidemic, or outbreak of an infectious disease, such as the COVID-19 pandemic, could materially and adversely affect our business and our financial results and cause a disruption to our research, development and commercialization efforts,” described in “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K.

Components of our results of operations

Collaboration revenue

We have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products for the foreseeable future.

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

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 into which we may enter.

We have not received any royalties under the Collaboration Agreement with AbbVie to date.

In-process research and development expenses, or IPR&D

Intangible assets acquired in an asset acquisition for use in research and development, or R&D, activities which have no alternative future use are expensed as IPR&D on the acquisition date.

In-process research and development expenses for the year ended December 31, 2023 relate to the acquisition of Morphimmune’s assets.

Research and development expenses

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Research and development activities are central to our business model.

We expect that our research and development expenses will increase substantially in connection with the continuation of our activities.

In July 2020, we entered into the OTA Agreement with the DoD to fund the development of IMM-BCP-01 to treat COVID-19.

The OTA Agreement was modified in May 2021 to increase such funding.

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 statements of operations.

We expect that our research and development expenses will increase substantially in connection with the continuation of our activities and new agreements.

General and administrative expenses

General and administrative expenses consist primarily of salaries and other related costs, including share-based compensation for personnel in our executive, business development, and administrative functions.

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.

We anticipate that our general and administrative expenses will increase in the future to support increased and progressed research and development activities.

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 eligible for a refundable employee retention credit subject to certain criteria.

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

Interest income (expense), net

Interest expense consists of interest expense related to our equipment loan payable.

Interest income consists of interest income earned on our cash.

In April 2020, the Company received a $0.5 million loan, or the PPP Loan, pursuant to the Paycheck Protection Program, or the PPP, under the Coronavirus Aid, Relief, and Economic Security Act implemented by the U.S.

Small Business Administration.

The loan was forgiven on May 21, 2021 and recorded as other income in the statement of operations.

We anticipate that our general and administrative expenses will increase in the future to support increased and progressed research and development activities and to operate as a public company.

Interest income

Interest income consists of interest earned on our marketable securities and on our cash and cash equivalent balances held with financial institutions.

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 new information that may emerge concerning the severity of COVID-19 and its variants or other public health crisis 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 years ended December 31, 2023 and 2022:

(in thousands)

Collaboration Revenue

Operating expenses:

In-process research and development

Research and development

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Loss from operations

Other income (expense):

Interest income (expense), net

Total other income

Interest income

Collaboration revenue

In January 2023, we entered into the Collaboration Agreement with AbbVie and recognized collaboration revenue of $14.0 million for the year ended December 31, 2023.

No collaboration revenue was recognized for the year ended December 31, 2022.

In-process research and development expenses

In-process research and development expense for the year ended December 31, 2023 was related to the write-off of in-process research and development assets that were acquired in the Merger and determined to have no alternative future use .

There were no similar transactions for the year ended December 31, 2022.

Research and development expenses

Research and development expenses were $23.3 million and $14.1 million, net of DoD reimbursement of $0.6 million and $15.2 million for the years ended December 31, 2022 and 2021, respectively.

Research and development expenses increased by $9.2 million for the year ended December 31, 2022.

Of the $9.2 million increase in research and development expenses, BCP-01 program related expenses increased by $6.8 million as a result of receiving the maximum reimbursement amount of $17.6 million from the DoD under the OTA Agreement during 2022 and using our own funds to support our clinical activities.

Prior to receiving the maximum reimbursement amount, contra-research and development expenses offset the expenses recognized for the period under the DoD agreement.

ONC-01 program related expenses increased by $2.3 million in connection with the advancement of our program.

Personnel-related costs increased by $0.7 million due to an increase of $0.5 million in share-based compensation and $0.2 million in personnel compensation.

These increases were offset by $0.6 million decrease in general expenses and facility related costs.

Research and development expenses were $23.1 million and $23.3 million for the years ended December 31, 2023 and 2022, respectively.

We record direct research and development expenses , consisting principally of external costs, such as fees paid to investigators, consultants, central laboratories and CROs in connection with our clinical trials, and costs related to manufacturing, to specific product development programs.

We do not allocate costs related to purchasing clinical trial materials, employee and contractor-related costs, and costs associated with our facility expenses, including depreciation or other indirect costs, to specific product programs because these costs support multiple product programs.

The table below shows our research and development expenses incurred with respect to each active program.

Year Ended December 31,

SARS-CoV-2 (IMM-BCP-01) (1)

AbbVie Collaboration (3)

Other Research and Development Activities (4)

Indirect Research and Development (5)

(1) The decrease in 2023 compared to 2022 for SARS-CoV-2 (IMM-BCP-01) was due primarily to a decrease in clinical trial activity for this program following our decision in 2022 to cease further development of IMM-BCP-01 until we identify a development partner .

(2) The decrease in 2023 compared to 2022 for IM-4320 was due primarily to decreased development and manufacturing activities as we shifted available resources to the AbbVie Collaboration.

(3) The increase in 2023 compared to 2022 was due primarily to outsourced research and materials relating to the AbbVie Collaboration which was initiated in 2023.

(4) The increase in 2023 compared to 2022 was due primarily to the merger with Morphimmune and other research discovery related activities.

(5) The increase in 2023 compared to 2022 was due primarily to increased personnel and personnel-related costs in support of the AbbVie collaboration.

General and administrative expenses

General and administrative expenses increased by $2.5 million from $11.1 million for the year ended December 31, 2021 to $13.6 million for the year ended December 31, 2022.

This increase is primarily as a result of a $2.5 million increase in personnel-related costs due to an increase of $1.4 million in share-based compensation and $1.1 million in personnel-related costs.

Personnel-related costs increased as a result of an increase in wages and issuance of annual share-based awards.

Other income for the year ended December 31, 2021 primarily consists of the forgiveness of the PPP Loan.

Interest income (expense), net

Interest expense, net consists of interest expense related to our equipment loan payable which were paid in full as of December 31, 2021.

Interest income consists of interest earned on our cash balances held with financial institutions.

General and administrative expenses were $19.7 million and $13.6 million for the years ended December 31, 2023 and 2022, respectively.

The increase of $6.1 million is primarily a result of a $3.0 million increase in personnel-related costs including increases of $1.1 million in salary and benefits costs due to increased headcount associated with the Merger and supporting the AbbVie Collaboration Agreement, $1.1 million in severance costs, and $0.8 million in share-based compensation.

In addition, professional fees increased $4.0 million due to merger related costs with Morphimmune, partially offset by a decrease of $1.0 million in D&O insurance and other overhead related costs.

Interest income

Interest income was $2.7 million and an immaterial amount for the years ended December 31, 2023 and 2022, respectively.

Interest income increased by $2.7 million for the year ended December 31, 2023, primarily as a result of interest on marketable securities and also due to increased interest rates on our cash and cash equivalent balances held with a financial institution.

Our average marketable securities and cash and cash equivalent balances were higher in 2023 as a result of the proceeds from the AbbVie Collaboration Agreement and PIPE financing.

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.

As of December 31, 2022, we had $20.3 million in cash and cash equivalents which does not include the $30.0 million that we received from AbbVie under the Collaboration Agreement.

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 common shares 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 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.

The Company has not sold any shares under the ATM Agreement or the shelf registration statement as of December 31, 2022.

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.

Under the terms of the Collaboration Agreement, Immunome will grant AbbVie the option to purchase worldwide rights for up to 10 novel target-antibody pairs arising from the selected tumors.

AbbVie will pay the Company an option exercise fee in the low single digit

millions for each of the validated target pairs for which it exercises an option.

We received an upfront payment of $30.0 million in January 2023 and will be eligible to receive additional platform access payments in the aggregate amount of up to $70.0 million based on AbbVie’s election for us to continue research using our discovery engine.

We are also eligible to receive development and first commercial sale milestones of up to $120.0 million per target with respect to certain products derived from target-antibody pairs that AbbVie elects to purchase, sales-based milestones based on achievement of specified levels of net sales of products up to $150.0 million in the aggregate per target, and tiered low single digit royalties on net sales of products.

The Company is potentially eligible to receive up to $2.8 billion from AbbVie under the Collaboration Agreement from the sources described above.

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

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 product candidates and new product development, as well as to fund operations.

Through December 31, 2023, we raised an aggregate of $280.5 million in gross proceeds from strategic partnerships and transactions and the sale of our equity securities.

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

As of December 31, 2023, our obligation under the OTA agreement with the DoD were completed.

In February 2024, we raised $230.0 million, before deducting underwriting discounts and commissions and estimated offering expenses payable by us, in the 2024 Financing.

In connection with the closing of the 2024 Financing we issued and sold 11,500,000 shares of our common stock.

In June 2023, we entered into subscription agreements with certain investors pursuant to which we sold 21,690,871 shares of our common stock, immediately following the completion of the Merger in October 2023, in exchange for gross proceeds of $125.0 million.

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, strategic transactions, as well as to fund operations.

As and if necessary, we will seek to raise additional funds through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements.

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Cash provided by financing activities

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

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

Operating activities

Net cash used in operating activities for the year ended December 31, 2022 was $28.7 million, consisting primarily of our net loss of $36.9 million and decreases in accrued expenses and other liabilities, accounts payable, and other long-term liabilities of $2.8 million, offset by net noncash charges of $6.0 million for depreciation and amortization expense and share-based compensation expense and a $5.1 million decrease in prepaids expenses and other assets.

Net cash used in operating activities for the year ended December 31, 2021 was $18.2 million, consisting primarily of our net loss of $24.7 million and increases of prepaid expenses and other assets of $4.3 million, offset by net noncash charges of $3.7 million for depreciation and amortization expense, share-based compensation expense, and forgiveness of PPP loan, and an increase in accounts payable and accrued expenses and other liabilities of $7.1 million due to our growth in expenditures.

Net cash used in operating activities for the year ended December 31, 2023 was $7.6 million, consisting primarily of our net loss of $106.8 million, increases in prepaid expenses and other assets of $4.1 million, offset by a noncash charge of $80.8 million for the purchase of in-process research and development assets, a noncash charge of $6.2 million for share-based compensation expense, and a $16.0 million increase in deferred revenue.

term liabilities of $2.8 million, offset by noncash charges of $5.3 million for share-based compensation expense and a $5.1 million decrease in prepaids expenses and other assets.

Investing activities

During the years ended December 31, 2022 and 2021, we used $0.2 million and $0.1 million, respectively, for the purchase of property and equipment.

Net cash used in investing activities for the year ended December 31, 2023 was $30.5 million, consisting primarily of $38.9 million used to purchase marketable securities and $0.8 million to purchase property and equipment, offset by $9.3 million received in connection with the Morphimmune merger.

Net cash used in investing activities for the year ended December 31, 2022 was $0.2 million, consisting primarily of the purchase of property and equipment.

Financing activities

During the year ended December 31, 2023, financing activities provided $116.4 million consisting of gross proceeds of $125.4 million from the PIPE transaction, the exercise of options, and the issuance of common stock under the ATM, partially offset by the payment of $9.0 million for offering costs related to the PIPE transaction.

During the year ended December 31, 2022, financing activities provided $32,000 from exercise of stock options.

During the year ended December 31, 2021, cash provided by financing activities was $27.8 million, consisting primarily of $26.7 million of net proceeds received from the private investment in public equity (PIPE) funding, $1.4 million of proceeds from the exercise of common stock warrants and stock options, offset by $0.2 million of offering costs in connection with the Company’s shelf registration statement and $0.1 million for payments related to our equipment loan payable.

Funding requirements

Our operating expenses are expected to increase substantially as we continue to advance our discovery engine and programs.

Specifically, our expenses will increase if and as we:

● further develop our discovery engine;

● continue our research and development programs for our programs and development candidates from our current programs;

● seek to identify additional programs and development candidates;

● maintain, expand, enforce, defend, and protect our intellectual property portfolio and provide reimbursement of third-party expenses related to our patent portfolio;

● seek marketing approvals for any of our programs and development candidates that successfully complete clinical trials;

● establish a sales, marketing, and distribution infrastructure to commercialize any medicines for which we may obtain marketing approval;

● hire additional personnel including research and development, clinical and administrative personnel;

● add operational, financial, and management information systems and personnel, including personnel to support our product development;

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

● continue to operate as a public company.

We expect that our existing cash at December 31, 2022, together with the $30.0 million upfront payment we received in January 2023 from AbbVie under the Collaboration Agreement, will enable us to fund our current and planned operating expenses and capital expenditures at least 12 months from the filing date of this Annual Report on Form 10-K.

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

We expect our expenses to increase substantially in connection with our ongoing and future activities, particularly as we advance and expand our clinical development of AL102, seek regulatory approval for AL102, continue the preclinical and potential clinical development of IM-1021, IM -4320, IM-3050, and any other future product candidates, and continue to pursue our business development strategy.

We expect that our primary uses of capital will be for clinical development services, non-clinical research, strategic transactions, manufacturing, legal and other regulatory compliance expenses, compensation and related expenses, risk management, and general overhead costs.

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

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.

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Our future funding requirements will depend on many factors including:

● the costs of continuing to develop our discovery engine;

● the costs of acquiring licenses, should we choose to do so, for the expansion of product development;

● the scope, progress, results, and costs of discovery, preclinical development, laboratory testing, manufacturing and clinical trials for programs and development candidates;

● the extent to which we acquire or in-license products, intellectual property , and other technologies, and the terms on which we acquire or in-license those assets;

● the scope, progress, results and costs of discovery, preclinical development, manufacturing and clinical trials for programs and development candidates that we currently own and those that we may acquire rights to in the future;

● the costs of continuing to operate and advance our discovery and ADC platforms;

● the costs of preparing, filing, and prosecuting patent applications, maintaining and enforcing our intellectual property and proprietary rights, and defending intellectual property-related claims and the success of our intellectual property portfolio;

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● the costs of future activities, including product sales, medical affairs, marketing, manufacturing, distribution, coverage and reimbursement for any programs or development candidates for which we receive regulatory approval;

● the success of our license agreements and our collaborations;

● our ability to establish and maintain additional collaborations on favorable terms, if at all;

● the achievement of milestones or occurrence of other developments that trigger payments under any additional collaboration agreements we obtain;

● the extent to which we acquire or in-license products, intellectual property, and technologies;

● t he success of our existing and any future license agreements, collaborations and other strategic transactions and the achievement of milestones or occurrence of other developments that trigger payments to or from us under any such agreements and transactions and ;

● the costs of operating as a public company.

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.

We do not have any committed external source of funds.

As a result of the war between Russia and Ukraine, conflict in the Middle East, bank failures, inflationary pressures on the economy and monetary policy responses taken by government agencies and other macroeconomic and political factors, the global credit and financial markets have experienced extreme volatility, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth and uncertainty about economic stability.

There can be no assurance that deterioration in credit and financial markets and confidence in economic conditions will not occur.

If equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult to obtain, more costly and/or more dilutive.

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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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.

Contractual Obligations and Contingencies

We have no material non-cancelable purchase commitments with service providers, as we have generally contracted on a cancelable, purchase order basis.

Our expected material cash requirements do not include potential contingent payments upon the achievement by us of development, regulatory or commercial milestones that we may be required to make under the terms of the Ayala Purchase Agreement or Atreca purchase agreement, nor do they include potential contingent payments upon the achievement by us of development, regulatory and commercial milestones or royalty payments that we may be required to make under license agreements we have entered into or may enter into with various entities pursuant to which we have in-licensed certain intellectual property.

For further details on the potential contingent payments related to asset acquisitions and license agreements, see Notes 10 and 16 of the notes of our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

Critical accounting policies and significant judgments

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States.

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.

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States.

The preparation of these consolidated 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 consolidated 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 evaluate our estimates and assumptions on an ongoing basis.

Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 2 to our audited financial statements appearing elsewhere in this Annual Report, we believe that the following accounting policies are the most critical to the judgments and estimates used in the preparation of our financial statements.

While our significant accounting policies are described in more detail in Note 2 to our audited consolidated financial statements appearing elsewhere in this Annual Report, we believe that the following accounting policies are the most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Asset Acquisitions

Acquisitions of assets or a group of assets that do not meet the definition of a business are accounted for as asset acquisitions, with a cost accumulation model used to determine the cost of the acquisition.

Common stock issued as consideration in an acquisition of assets is generally measured based on the acquisition date fair value of the equity interests issued.

Direct transaction costs are recognized as part of the cost of an acquisition of assets.

Intangible assets that are acquired in an asset acquisition for use in research and development activities that have an alternative future use are capitalized as IPR&D.

Acquired IPR&D that has no alternative future use is expensed immediately in the consolidated statements of operations and comprehensive loss.

Collaboration revenue

In January 2023, we entered into the Collaboration Agreement with AbbVie, which was determined to be within the scope of ASC 606, Revenue from Contracts with Customers, or ASC 606.

We evaluate our collaborative arrangements pursuant to ASC 808, Collaborative Arrangements, or ASC 808, and ASC 606.

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, 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.

Payments pursuant to collaborative arrangements may include non-refundable upfront payments, research option and license option payments, milestone payments upon the achievement of significant regulatory and development events, commercial sales milestones, and royalties on product sales.

The amount of variable consideration is constrained until it is probable that the revenue is not at a significant risk of reversal in a future period.

In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under a collaboration arrangement, we apply the five-step model of ASC 606:

(i) identify the contract with a customer;

(ii) identify the performance obligations in the contract, including whether they are capable of being distinct;

(iii) determine the transaction price, including the constraint on variable consideration;

(iv) allocate the transaction price to the performance obligations;

and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

We apply significant judgment when evaluating whether contractual obligations represent distinct performance obligations, allocating transaction price to performance obligations within a contract, determining when performance obligations have been met, and assessing the recognition of variable consideration.

When consideration is received prior to us completing our performance obligation under the terms of a contract, a contract liability is recorded as deferred revenue.

Deferred revenue expected to be recognized as revenue within the twelve months following the balance sheet date is classified as a current liability.

Share-based compensation

We recognize the grant-date fair value of share-based awards issued as compensation expense on a straight-line basis over the requisite service period, which is generally the vesting period of the award.

The fair value of stock options is estimated at the time of grant using the Black-Scholes option pricing model, which requires the use of inputs and assumptions such as the fair value of the underlying common stock, exercise price of the option, expected term, risk-free interest rate, expected volatility and dividend yield.

The fair value of stock options

is estimated at the time of grant using the Black-Scholes option pricing model, which requires the use of inputs and assumptions such as the fair value of the underlying common stock, exercise price of the option, expected term, risk-free interest rate, expected volatility and dividend yield.

The inputs and assumptions used to estimate the fair value of share-based payment awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment.

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Accrued research and development expenses

As part of the process of preparing our financial statements, we are required to estimate our accrued research and development expenses.

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses.

This process involves reviewing open contracts and purchase orders and communicating with personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs.

The majority of our service providers invoice us on a pre-determined schedule or when contractual milestones are met.

We make estimates of our accrued expenses as of each balance sheet date in the financial statements based on facts and circumstances known to us at that time.

We make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time.

We periodically confirm the accuracy of these estimates with the service providers and make adjustments, if necessary.

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To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses.

Recently adopted accounting standards

ASC Topic 842, Leases

On January 1, 2022, the Company adopted ASC 842, which supersedes the lease accounting guidance under ASC 840.

The standard generally requires lessees to recognize operating and finance lease liabilities and corresponding right-of-use (ROU) assets in the balance sheets and provide enhanced disclosures on the amount, timing, and uncertainty of cash flows arising from lease arrangements.

The Company adopted ASC 842 using the modified retrospective approach.

The Company elected the package of practical expedients available for existing contracts, which allowed the Company to carry forward its historical assessments of lease identification, lease classification, and initial direct costs.

The Company also elected a policy to not apply the recognition requirements of ASC 842 for short-term leases with a term of 12 months or less.

As of January 1, 2022, the effective date, the Company identified one operating lease arrangement relating to the Company’s headquarters facility and one short-term lease relating to laboratory equipment.

The adoption of ASC 842 resulted in a recognition of an ROU asset and lease liability of $0.5 million in the Company’s balance sheets relating to the lease as of January 1, 2022.

The adoption of the standard did not have a material effect on the Company’s statements of operations and statements of cash flows.

ASU Topic 832, Government Assistance

In November 2021, the FASB issued ASU 2021-10, Government Assistance , or Topic 832, which requires enhanced disclosures of transactions with governments that are accounted for by applying a grant or contribution model.

pronouncement requires entities to provide information about the nature of the transaction, terms and conditions associated with the transaction and financial statement line items affected by the transaction.

The Company adopted the standard for the annual period beginning January 1, 2022.

The DoD expense reimbursement contract and the employee retention credit received under the CARES Act qualify as government assistance programs under Topic 832 and resulted in enhanced required disclosures, as described in Note 5.

ASU 2021-04, Earnings Per Share

In May 2021, the FASB issued ASU 2021-04 Earnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40) , or ASU 2021-04, that requires the issuer to treat a modification of an equity-classified written call option (i.e., a warrant) that does not cause the option to become liability-classified as an exchange of the original option for a new option.

An issuer should measure the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange.

The Company adopted the standard for interim periods beginning January 1, 2022.

As described in Note 11, in September 2022, the Company modified its Series B Warrants which resulted in a reduction in exercise price from $45.00 per share to $10.00 per share.

The Company recognized a deemed dividend of $0.6 million which was recorded in the Company’s statement of operations as an increase to the net loss attributable to common stockholders for purposes of computing net loss per share, basic and diluted.

The net impact to the statements of changes in stockholders’ equity was zero because the warrants were equity classified before and after the modification.

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act.

As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies, including reduced disclosure about our executive compensation arrangements, exemption from the requirements to hold non-binding advisory votes on executive compensation and golden parachute payments and exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.

We may take advantage of these exemptions until the last day of the fiscal year following the fifth anniversary of our initial public offering or such earlier time that we are no longer an emerging growth company.

We would cease to be an emerging growth company earlier if we have more than $1.07 billion in annual revenue, we have more than $700.0 million in market value of our stock held by non-affiliates (and we have been a public company for at least 12 months and have filed one annual report on Form 10-K) or we issue more than $1.0 billion of non-convertible debt securities over a three-year period.

For so long as we remain an emerging growth company, we are permitted, and intend, to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies.

We may choose to take advantage of some, but not all, of the available exemptions.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards.

This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

We have elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company.

Therefore, the reported results of operations contained in our financial statements may not be directly comparable to those of other public companies.

Quantitative and Qualitative Disclosures About Market Risk

Not required.

Financial Statements and Supplementary Data

The information required by this Item 8 is set forth on pages 119 through 145 hereto.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

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-K

Item 7. Management’s Discussion and Analysis