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Item 2. Management’s Discussion and Analysis

2024-05-14 compared with 2023-11-09 · 156 added, 247 removed, 81 unchanged (83% 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 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.

You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated 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, 2023.

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.

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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 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.

We also plan to perform research activities as we seek to discover and develop additional product candidates;

carry out maintenance, expansion, enforcement, defense, and protection of our intellectual property portfolio;

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 our research and development efforts.

We may also need to consider 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 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;

● 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;

● 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.

Until such time as we generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of any stockholder 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 stockholders.

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 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.

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.

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.

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, and we are dedicated to developing targeted cancer therapies with first-in-class and best-in-class potential.

Our goal is to establish a broad pipeline of preclinical and clinical assets and successfully develop such assets into approved products for commercialization.

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

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

The clinical asset is AL102, an investigational gamma secretase inhibitor, or GSI, 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.

On October 2, 2023, we completed our merger with Morphimmune Inc., or Morphimmune, a preclinical biotechnology company focused on developing targeted oncology therapies, and Morphimmune became a wholly owned subsidiary of Immunome.

Our current programs and strategic collaboration

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 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:

AL-102 (Gamma Secretase Inhibitor)

Our clinical asset is AL102, an investigational GSI that we acquired from Ayala Pharmaceuticals, Inc., or Ayala, on March 25, 2024 pursuant to an Asset Purchase Agreement, or the Ayala Purchase Agreement.

AL102 is currently under evaluation in a Phase 3 trial for the treatment of desmoid tumors.

AL102 clinical activity was observed in two clinical trials that enrolled adult desmoid tumor patients.

A Phase 1 dose-escalation clinical trial was conducted by Bristol-Myers Squibb, or BMS, in patients with solid tumors.

In this trial, one patient with desmoid fibromatosis was enrolled.

This patient demonstrated tumor shrinkage of 16.5% while on study.

Based on these data and responses demonstrated with other GSIs, Ayala designed a seamless Phase 2/3 study called RINGSIDE to specifically evaluate the activity of AL102 in patients with progressing desmoid tumors who required therapy.

RINGSIDE Part A enrolled 42 patients at three different dosing regimens of AL102:

2 mg once a day for two days every week, 4 mg once a day for two days every week or 1.2 mg once a day daily.

Overall, the ORR in evaluable patients as measured by RECIST v1.1 by an independent radiologist was 61% for all doses tested.

The 1.2 mg daily dosing cohort had an ORR of 75% in the evaluable population.

AL102 was well tolerated overall with a safety profile consistent with that reported with other GSIs.

These data were reported at ESMO in 2023.

Based upon the clinical activity observed in RINGSIDE Part A at the dose of 1.2 mg given once daily, and following consultation with the U.S.

Food and Drug Administration, or FDA, the Phase 3 randomized registration trial, RINGSIDE Part B (NCT04871282) was initiated by Ayala in November 2022.

Enrollment was completed in February 2024.

RINGSIDE Part B is a registrational Phase 3, global, double-blind, randomized, placebo-controlled clinical trial, conducted at 61 clinical sites in North America, Europe, Asia and Australia.

It will evaluate the efficacy, safety and tolerability of AL102 compared to placebo in patients with progressing desmoid tumors.

One hundred fifty-six patients with histologically confirmed desmoid tumors with progressive disease (defined as tumor growth of at least 20% within the past 12 months as measured by RECIST v1.1) were enrolled.

Patients were either treatment-naïve with desmoid tumors not amenable to surgery or had refractory or recurrent disease after at least one line of therapy.

Patients in the study were randomized to receive either AL102 at a dose of 1.2 mg given once daily or placebo and evaluated for tumor progression using RECIST v1.1.

Patients who progress while on study are eligible to enter an open-label extension whereby they may receive AL102 at a dose of 1.2 mg once daily until disease progression or unacceptable toxicity.

The primary endpoint of RINGSIDE Part B is progression free survival with secondary endpoints of ORR, duration of response and specific patient-reported outcomes.

We expect to publish topline data for RINGSIDE Part B in the second half of 2025.

In parallel, we are evaluating and performing the additional manufacturing and pharmacology work required to support a new drug application, or NDA, submission.

IM-1021 (ROR1 ADC)

We are developing IM-1021, a preclinical stage ADC targeting ROR1 that we exclusively licensed from Zentalis Pharmaceuticals, Inc., or Zentalis, in January 2024.

In preclinical studies, IM-1021 showed sustained tumor regression in a mouse model of triple-negative breast cancer.

In this model, IM-1021 dosed weekly for three weeks at 2.5 mg/kg or 5.0 mg/kg demonstrated superior reductions in tumor volume compared with the same respective dose of a competitor, vedotin payload ROR1 ADC, with no meaningful weight loss observed.

Subject to obtaining an IND, our IM-1021 clinical strategy is designed to efficiently evaluate dose escalation in patients with solid tumors or lymphoma, followed by potential expansion of the solid tumor clinical program into targeted indications, potentially including non-small cell lung cancer, breast, prostate, pancreatic, and gastric cancer, and potential expansion of the lymphoma program into diffuse large B-cell lymphoma, mantle cell lymphoma, or other indications that are deemed to be appropriate.

Concurrent with the dose escalation and expansion studies, we plan to conduct non-clinical studies evaluating IM-1021 in combination with other therapies, and to evaluate and develop potential companion diagnostics that could help identify patients most likely to respond to IM-1021.

Our strategy is to pursue pivotal clinical studies in indications that have shown compelling clinical outcomes in earlier-stage trials, present significant commercial opportunities, have the potential for enhanced outcomes using a companion diagnostic, and offer potential for accelerated approval.

We expect to submit an IND for the IM-1021 program to the FDA in the first quarter of 2025.

IM-3050 (FAP Radioligand Therapy)

We are developing IM-3050, a FAP-targeted Lu-177 RLT development candidate for the treatment of solid tumors.

FAP serves as a tumor-specific marker due to its expression in approximately 75% of solid tumors.

FAP is predominantly expressed by cancer-associated fibroblasts, the most common tumor stromal cell.

IM-3050 is designed to deliver radioactive Lu-177 directly to FAP-expressing cells, where the “bystander” effect of the radiation may damage or kill nearby tumor cells.

We believe this RLT approach could overcome the limitations, such as poor internalization and low expression on tumor cells, that make FAP an unsuitable target for ADCs.

IM-3050, our lead FAP-targeted RLT, has four functional domains:

● A small molecule FAP-specific ligand

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● 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)

We developed 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, we announced that it successfully completed dosing of the first cohort of patients in a Phase 1b study with no significant treatment-related adverse events.

We have decided to seek a partner in order to continue the trial and for any further development activities.

We expect to submit an IND for the IM-3050 program to the FDA in the first quarter of 2025.

IM-4320 (Anti-IL-38 Immunotherapy)

We initiated our anti-IL-38 immunotherapy program on the basis of data generated by our proprietary memory B cell hybridoma screening technology.

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.

Our query of public and proprietary databases of cancer gene expression revealed over-expression of IL-38 in multiple solid tumors.

Furthermore, in some tumor types, we observed a correlation between high IL-38 expression and low levels of tumor-infiltrating immune effector cells, a hallmark of immune suppression, suggesting a role for IL-38 as an immune modulator.

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 intend to submit an IND for the IM-4320 program to the FDA subsequent to our anticipated IND submissions for IM-3050 and IM-1021.

Other Programs and Platforms

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.

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.

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

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

We intend to continue to invest in our platform, with the goal of developing first-in-class and best-in-class targeted cancer therapies, including immunotherapies, radioligand therapies and 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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While the focus area of our current programs is oncology, we may invest in intellectual property in other therapeutic areas as well.

We believe that our technology has broad utility and could enable the formation of attractive strategic partnerships, as exemplified by our OTA Agreement with the DoD and the Collaboration Agreement with AbbVie.

We believe that our technology has broad utility and could enable the formation of attractive strategic partnerships.

Therefore, to maximize the value of our platform we may, from time to time, contemplate and enter into various forms of collaborative agreements related to our platform, our programs and/or development candidates with third parties, including other companies, government agencies, academic institutions and non-profit groups.

Collaboration Agreement with AbbVie

On January 4, 2023, we entered into a collaboration and option agreement, or the Collaboration Agreement with AbbVie.

As part of the agreement, we will use our 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.

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

Pursuant to the terms of the Collaboration Agreement, with respect to each novel target-antibody pair we generate that meets certain mutually agreed criteria (each, a Validated Target Pair or VTP), we granted to AbbVie an exclusive option (up to a maximum of 10 in total) to purchase all rights in and to such Validated Target Pair, for all human and non-human diagnostic, prophylactic and therapeutic uses throughout the world, including without limitation the development and commercialization of certain products derived from the assigned Validated Target Pair and directed to the target comprising such VTP (Products).

No rights are granted by us to AbbVie under any of our platform technology covering our discovery engine.

Until the expiration of the research term, we are not permitted to conduct any activities in connection with targets or antibodies derived from patients with the specified tumor types, whether independently or with other third parties, except in limited circumstances with respect to certain target-antibody pairs that are no longer subject to the collaboration with AbbVie.

In addition, during the term of the Collaboration Agreement, we are not permitted to develop products directed to targets that are included in VTPs purchased by AbbVie, or to which AbbVie still has rights under the Collaboration Agreement, whether independently or with other third parties.

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 engine in connection with activities under each stage of the research plan, and delivery of VTPs 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, 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.

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.

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

The Collaboration Agreement will expire upon the expiration of the last to expire royalty payment obligation with respect to all Products in all countries, subject to earlier expiration if all option exercise periods for all Validated Target Pairs expire without AbbVie exercising any option.

In addition, the research term will terminate if AbbVie does not elect to make certain platform access payments at specified points during the research term, in order for us to continue the target discovery activities under the collaboration.

The Collaboration Agreement may be terminated by (a) either party upon the other party’s uncured material breach, or upon any insolvency event of the other party, (b) AbbVie for convenience upon a specified period prior written notice, or (c) AbbVie for our breach of representations and warranties with respect to debarment or compliance with anti-bribery and anti-corruption laws.

If AbbVie has the right to terminate the Collaboration Agreement for our uncured material breach or a breach of representations and warranties with respect to debarment or compliance with anti-bribery and anti-corruption laws, AbbVie may elect to continue the Collaboration Agreement, subject to certain specified reductions applicable to certain of AbbVie’s payment obligations (with a specified floor on such reductions).

Components of our results of operations

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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.

To date, we have generated our revenue through a Collaboration and Option Agreement, or 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 that we may enter into.

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

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

IPR&D expenses for the three months ended March 31, 2024 relate to the acquisition of our license pursuant to the Zentalis Agreement and the acquisition of certain assets from Ayala.

Research and development expenses

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personnel-related expenses, including salaries, bonuses, benefits and share-based compensation for employees engaged in research and development functions;

● expenses incurred in connection with the advancement of our programs, including under agreements with consultants, contractors, contract research organizations and other third-party vendors and suppliers;

expenses incurred in connection with the advancement of our programs and development candidates, including under agreements with consultants, contractors, contract research organizations, or CROs, and other third-party vendors and suppliers;

expenses to conduct clinical trials including regulatory and quality assurance;

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The prepaid amounts are expensed as the benefits are consumed.

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.

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 and new agreements.

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.

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 cash balances held with a financial institution.

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

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)

Comparison of the three months ended March 31, 2024 and 2023

The following table summarizes our results of operations for the periods presented (in thousands):

Three Months Ended March 31,

Collaboration revenue

Operating expenses:

In-process research and development

Research and development (1)

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Interest income

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 $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 $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 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 $4.4 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 $0.3 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

(1) Amounts include non-cash share-based compensation expense as follows (in thousands):

Three Months Ended March 31,

Research and development

General and administrative

Total share-based compensation expense

Collaboration revenue

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.

Collaboration revenue decreased by $1.4 million, from $2.4 million for the three months ended March 31, 2023 to $1.0 million for the three months ended March 31, 2024.

The decrease was primarily due to a decrease in certain research and development activities allocated to AbbVie during the three months ended March 31, 2024 compared to the same period in 2023.

In-process research and development expenses

IPR&D expense for the three months ended March 31, 2024 was related to the write-off of IPR&D assets that were acquired from Zentalis and Ayala and determined to have no alternative future use .

There was no IPR&D expense for the three months ended March 31, 2023.

Research and development expenses

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.

Research and development expenses increased by $11.5 million, from $3.9 million for the three months ended March 31, 2023 to $15.4 million for the three months ended March 31, 2024.

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 and clinical 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 candidates and clinical programs because these costs support multiple product programs.

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

Three Months Ended March 31,

Pre-clinical programs (2)

Other research and development activities (3)

Indirect research and development (4)

The increase in 2024 compared to 2023 was due to clinical trial activities related to AL102, which was acquired from Ayala during the three months ended March 31, 2024.

The increase in 2024 compared to 2023 was due primarily to increased outsourced research and materials pertaining to IM-1021, IM-3050, and IM-4320.

The increase in 2024 compared to 2023 was due primarily to increased ADC discovery activities.

The increase in 2024 compared to 2023 was due primarily to an increase in personnel and personnel-related costs associated with the Merger and our discovery platform.

General and administrative expenses

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.

General and administrative expenses increased by $3.1 million, from $2.9 million for the three months ended March 31, 2023 to $6.0 million for the three months ended March 31, 2024.

The increase was primarily a result of a $1.6 million increase in personnel-related costs, which included increases of $0.6 million in salary and benefits costs due to increased headcount associated with the Merger and $1.0 million in share-based compensation.

In addition, professional fees increased $1.1 million related to accounting, legal and patent fees and other overhead related costs.

Interest income

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.

Interest income increased by $2.6 million from $0.2 million for the three months ended March 31, 2023 to $2.8 million for the three months ended March 31, 2024.

The increase was primarily a result of increased interest rates and higher cash and cash equivalent and marketable security balances.

Liquidity and capital resources

Since our inception, we have incurred significant operating losses.

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

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.

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.

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.

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.

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 nine months ended September 30, 2023 and 2022:

Nine Months Ended September 30,

(in thousands)

Cash provided by (used in) operating activities

Sources of liquidity

To date, we have financed our operations primarily through sales of our equity securities, collaboration arrangements, strategic partnerships and transactions, and to a lesser extent, through expense reimbursements received from a governmental contract that ended in 2022.

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 and negative cash flows from operations.

Our net losses were $129.5 million and $4.3 million for the three months ended March 31, 2024 and 2023, respectively.

As of March 31, 2024, we had cash, cash equivalents and marketable securities of $309.7 million and an accumulated deficit of $352.3 million.

In February 2024, we completed a follow-on public offering and issued 11,500,000 shares of our common stock at $20.00 per share for net proceeds of $215.4 million, after deducting underwriting discounts and commissions and offering expenses payable by us, or the 2024 Financing.

In May 2024, we entered into a sales agreement, or the 2024 ATM Agreement, with TD Securities (USA) LLC, or TD Cowen, as sales agent, pursuant to which we may offer and sell from time to time shares of our common stock having an aggregate offering price of up to $200.0 million, or the ATM Shares.

The sales of the ATM Shares, if any, will be made by any method permitted that is deemed to be an “at-the-market” equity offering as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended, including sales made directly on or through the Nasdaq Capital Market.

We have agreed to pay TD Cowen a commission of up to 3.0% of the aggregate gross proceeds from any ATM Shares sold through the 2024 ATM Agreement.

We have not yet sold any ATM Shares under the 2024 ATM Agreement.

The following table summarizes our sources and uses of cash for the three months ended March 31, 2024 and 2023 (in thousands):

Three Months Ended March 31,

Cash (used in) provided by operating activities

Cash used in investing activities

Cash provided by financing activities

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

Net increase in cash and cash equivalents and restricted cash

Operating activities

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.

Net cash used in operating activities for the three months ended March 31, 2024 was $11.2 million, consisting primarily of our net loss of $129.5 million, partially offset by noncash charges of $113.8 million and a net change in operating assets and liabilities of $4.5 million.

The noncash charges primarily consisted of $112.0 million of in-process research and development assets acquired without alternative future use, and $2.2 million of share-based compensation.

The change in operating assets and liabilities primarily consisted of a decrease in prepaid expense and other current assets of $2.5 million, an increase in accounts payable of $2.4 million, and an increase in accrued expenses and other current liabilities of $0.7 million, partially offset by a decrease in deferred revenue of $1.0 million.

Net cash provided by operating activities for the three months ended March 31, 2023 was $24.2 million, consisting primarily of our net loss of $4.3 million, offset by noncash charges of $1.4 million and a net change in operating assets and liabilities of $27.1 million.

The noncash charges primarily consisted of $1.2 million of share-based compensation.

The change in operating assets and liabilities primarily consisted of an increase in deferred revenue of $27.6 million, an increase in accounts payable of $0.7 million, and a decrease in prepaid expenses and other current assets of $0.2 million, partially offset by a decrease in accrued expenses and other liabilities and other long-term liabilities of $1.5 million.

Investing activities

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.

Net cash used in investing activities for the three months ended March 31, 2024 was $37.2 million, consisting primarily of $35.1 million in IPR&D assets acquired from Zentalis and Ayala and $2.2 million of purchases of property and equipment.

Net cash used in investing activities for the three months ended March 31, 2023 was $0.1 million, consisting primarily of purchases of property and equipment.

Financing activities

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.

Net cash provided by financing activities for the three months ended March 31, 2024 was $219.4 million, consisting of net proceeds of $215.8 million from the 2024 Financing and $3.6 million from the exercise of options and common stock warrants.

Net cash provided by financing activities for the three months ended March 31, 2023 was $34,000, consisting of net proceeds from the sales of common stock under our prior ATM sales agreement that we terminated in November 2023.

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;

● 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;

● 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.

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-3050, IM-4320, 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 expect that our existing cash, cash equivalents and marketable securities as of March 31, 2024 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 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;

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.

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.

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, including pursuant to the 2024 ATM Agreement, debt financings, collaborations, strategic alliances, and licensing arrangements.

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, including pursuant to the 2024 ATM Agreement, 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.

Debt financing and 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.

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Critical accounting policies and use of estimates

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.

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 in our Annual Report filed on Form 10-K with the SEC on March 16, 2023, we believe that the following accounting policies are the most critical to the judgments and estimates used in the preparation of our financial statements.

Collaboration revenue

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

We evaluate our collaborative arrangements pursuant to ASC 808, Collaborative Arrangements, or ASC 808, and ASC 606, Revenue from Contracts with Customers, or 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, 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.

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 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.

As a result, if factors change and management uses different inputs and assumptions, our share-based compensation expense could be materially different for future awards.

Expected volatility is a subjective assumption based on the historical stock volatility of several of our comparable publicly traded companies over a period of time equal to the expected term.

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.

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

Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period.

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

Recently adopted accounting standard

On January 1, 2023, we adopted ASU No.

2016-13, Measurement of Credit Losses on Financial Instruments .

This standard amended its guidance on the recognition of impairment losses of certain financial instruments.

The ASU established the current expected credit loss model, which is based on expected losses rather than incurred losses.

Adoption of this standard had no impact on our condensed financial statements.

If we cannot obtain the necessary funding to support these activities on favorable terms, or at all, we will need to delay, scale back or eliminate some or all of our research and development programs, including our clinical and preclinical development of our product candidates.

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 that we may be required to pay upon the achievement of development, regulatory or commercial milestones under the terms of the Ayala Purchase Agreement, nor do they include potential contingent payments upon the achievement 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 7 and 8 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Critical accounting policies and estimates

There have been no material changes in our critical accounting policies and estimates from those disclosed in our Form 10-K for the fiscal year ended December 31, 2023.

For a discussion of our critical accounting policies and estimates, refer to “ Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical accounting policies and significant judgments ” in Part II, Item 7 of our Form 10-K for the fiscal year ended December 31, 2023.

Recent accounting pronouncements

See Note 2, Summary of significant accounting policies , to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information regarding recently issued accounting pronouncements.

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

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What changed 10-Q

Item 2. Management’s Discussion and Analysis