Janux Therapeutics, Inc. 10-Q

Item 1 . Financial Statements. Janux Therapeutics, Inc. Condensed Bal ance Sheets (in thousands, except share and par value data) March 31, 2023 December 31, 2022 Assets (unaudited) Current assets: Cash and cash equivalents $ 30,355 $ 51,426 Accounts receivable 750 — Short-term investments 286,520 275,590 Prepaid expenses and other current assets 3,774 5,423 Total current assets 321,399 332,439 Restricted cash 816 816 Property and equipment, net 7,203 7,086 Operating lease right-of-use assets 21,927 22,279 Other long-term assets 1,611 1,390 Total assets $ 352,956 $ 364,010 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 2,051 $ 2,159 Accrued liabilities 7,737 8,010 Current portion of deferred revenue 4,935 5,406 Unvested stock liabilities 35 169 Current portion of operating lease liabilities 1,356 763 Total current liabilities 16,114 16,507 Deferred revenue, net of current portion 1,394 2,221 Operating lease liabilities, net of current portion 24,184 24,542 Total liabilities 41,692 43,270 Commitments and contingencies (Note 3) Stockholders’ equity: Preferred stock, $ 0.001 par value; authorized shares – 10,000,000 at March 31, 2023 and December 31, 2022, respectively; no shares issued and outstanding at March 31, 2023 and December 31, 2022 — — Common stock, $ 0.001 par value; authorized shares – 200,000,000 at March 31, 2023 and December 31, 2022, respectively; issued shares – 41,833,315 and 41,684,666 at March 31, 2023 and December 31, 2022, respectively; outstanding shares – 41,802,807 and 41,616,260 at March 31, 2023 and December 31, 2022, respectively 42 42 Additional paid-in capital 439,890 432,703 Accumulated other comprehensive loss ( 739 ) ( 1,535 ) Accumulated deficit ( 127,929 ) ( 110,470 ) Total stockholders’ equity 311,264 320,740 Total liabilities and stockholders’ equity $ 352,956 $ 364,010 See accompanying notes. 1 Table of Contents Janux Therapeutics, Inc. Unaudited Condensed Statemen ts of Operations and Comprehensive Loss (in thousands, except share and per share data) Three Months Ended March 31, 2023 2022 Collaboration revenue $ 2,048 $ 1,589 Operating expenses: Research and development 15,865 10,184 General and administrative 6,464 4,947 Total operating expenses 22,329 15,131 Loss from operations ( 20,281 ) ( 13,542 ) Other income: Interest income 2,822 132 Total other income 2,822 132 Net loss $ ( 17,459 ) $ ( 13,410 ) Other comprehensive loss: Unrealized gain (loss) on available-for-sale securities, net 796 ( 1,567 ) Comprehensive loss $ ( 16,663 ) $ ( 14,977 ) Net loss per common share, basic and diluted $ ( 0.42 ) $ ( 0.32 ) Weighted-average shares of common stock outstanding, basic and diluted 41,763,971 41,315,482 See accompanying notes. 2 Table of Contents Janux Therapeutics, Inc. Unaudited Condensed Statements of Stockholders’ Equity For the Three Months Ended March 31, 2023 and 2022 (in thousands, except share data) Common Stock Additional Paid-in Accumulated Other Comprehensive Accumulated Total Stockholders’ Shares Amount Capital Loss Deficit Equity Balance at December 31, 2022 41,616,260 $ 42 $ 432,703 $ ( 1,535 ) $ ( 110,470 ) $ 320,740 Exercise of common stock options 148,649 — 1,580 — — 1,580 Vesting of restricted shares 37,898 — 134 — — 134 Stock-based compensation — — 5,473 — — 5,473 Unrealized gain on available-for-sale securities, net — — — 796 — 796 Net loss — — — — ( 17,459 ) ( 17,459 ) Balance at March 31, 2023 41,802,807 $ 42 $ 439,890 $ ( 739 ) $ ( 127,929 ) $ 311,264 Common Stock Additional Paid-in Accumulated Other Comprehensive Accumulated Total Stockholders’ Shares Amount Capital Loss Deficit Equity Balance at December 31, 2021 41,243,137 $ 41 $ 413,967 $ ( 270 ) $ ( 47,411 ) $ 366,327 Exercise of common stock options 6,405 — 1 — — 1 Vesting of restricted shares 144,118 — 503 — — 503 Stock-based compensation — — 3,958 — — 3,958 Unrealized loss on available-for-sale securities, net — — — ( 1,297 ) — ( 1,297 ) Net loss — — — — ( 13,410 ) ( 13,410 ) Balance at March 31, 2022 41,393,660 $ 41 $ 418,429 $ ( 1,567 ) $ ( 60,821 ) $ 356,082 See accompanying notes. 3 Table of Contents Janux Therapeutics, Inc. Unaudited Condensed Statem ents of Cash Flows (in thousands) Three Months Ended March 31, 2023 2022 Cash flows from operating activities Net loss $ ( 17,459 ) $ ( 13,410 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 453 81 Stock-based compensation 5,473 3,958 Accretion of discounts on investments, net ( 1,678 ) ( 24 ) Changes in operating assets and liabilities: Accounts receivable ( 750 ) — Prepaid expenses and other current assets 1,649 ( 1,400 ) Other long-term assets ( 221 ) 55 Accounts payable ( 107 ) ( 740 ) Accrued expenses ( 560 ) 1,158 Deferred revenue ( 1,298 ) ( 1,214 ) Operating lease right-of-use assets and liabilities, net 587 14 Net cash used in operating activities ( 13,911 ) ( 11,522 ) Cash flows from investing activities Purchases of property and equipment ( 285 ) ( 971 ) Purchases of short-term investments ( 71,705 ) ( 45,061 ) Maturities of short-term investments 63,250 77,100 Net cash provided by (used in) investing activities ( 8,740 ) 31,068 Cash flows from financing activities Proceeds from exercise of vested and unvested common stock options and employee stock purchase plan 1,580 1 Net cash provided by financing activities 1,580 1 Net increase (decrease) in cash, cash equivalents and restricted cash ( 21,071 ) 19,547 Cash, cash equivalents and restricted cash – beginning of year 52,242 36,398 Cash, cash equivalents and restricted cash – end of period $ 31,171 $ 55,945 Supplemental disclosure of noncash investing and financing activities Unpaid property and equipment $ 395 $ 396 Vesting of restricted common stock $ 134 $ 503 Unrealized gain (loss) on available-for-sale securities, net $ 796 $ ( 1,297 ) See accompanying notes. 4 Table of Contents Janux Therapeutics, Inc. Notes to Unaudited Condensed Financial Statements 1. Organization and Summ ary of Significant Accounting Policies Organization Janux Therapeutics, Inc. (the “Company”) was incorporated in the State of Delaware in June 2017 and is based in San Diego, California. The Company is a clinical stage biopharmaceutical company developing a broad pipeline of novel immunotherapies by applying its proprietary technology to its Tumor Activated T Cell Engager ("TRACTr") and Tumor Activated Immunomodulator ("TRACIr") platforms to better treat patients suffering from cancer. Liquidity and Capital Resources From its inception through March 31, 2023, the Company has devoted substantially all its efforts to organizing and staffing, business planning, raising capital and developing its TRACTr and TRACIr therapeutic platforms and clinical and preclinical assets. The Company has incurred net losses and negative cash flows from operations since inception and had an accumulated deficit of $ 127.9 million as of March 31, 2023 . The Company has a limited operating history, has not generated any product revenue, and the sales and income potential of its business is unproven. To date the Company has funded its operations primarily with the net proceeds from the issuance of convertible promissory notes, the issuance of convertible preferred stock, the issuance of common stock in its initial public offering (“IPO”), the exercise of common stock options and amounts received under a collaboration agreement. The Company expects to incur substantial operating losses for the next several years and will need to obtain additional financing in order to continue its research and development activities, initiate and complete clinical trials and launch and commercialize any product candidates for which it receives regulatory approval. The Company plans to continue to fund its losses from operations and capital funding needs through public or private equity or debt financings or other sources. If the Company is not able to secure adequate additional funding, the Company may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, or suspend or curtail planned programs. Any of these actions could materially harm the Company’s business, results of operations and future prospects. There can be no assurance that such financing will be available or will be at terms acceptable to the Company, especially in light of the COVID-19 pandemic and other public health crises, current financial conditions within the banking industry, including the effects of recent failures of financial institutions and liquidity levels, as well as recent or anticipated changes in interest rates and the inflationary macro environment. Management believes the Company has sufficient capital to fund its operation for at least 12 months from the issuance date of these unaudited condensed financial statements. Unaudited Interim Financial Information The unaudited condensed financial statements as of March 31, 2023, and for the three months ended March 31, 2023 and 2022, have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”), and with accounting principles generally accepted in the United States (“GAAP”) applicable to interim financial statements. These unaudited condensed financial statements have been prepared on the same basis as the Company’s audited financial statements and include all adjustments, consisting of only normal recurring accruals, which in the opinion of management are necessary to present fairly the Company’s financial position as of the interim date and results of operations for the interim periods presented. Interim results are not necessarily indicative of results for a full year or future periods. The condensed balance sheet data as of December 31, 2022 was derived from the Company’s audited financial statements but does not include all disclosures required by GAAP. These unaudited condensed financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2022. Use of Estimates The Company’s financial statements are prepared in accordance with GAAP. The preparation of the Company’s financial statements requires it to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the Company’s financial statements and accompanying notes. The most significant estimates in the Company’s financial statements relate to estimates to complete the performance obligations and the estimated transaction price for collaboration revenue, accruals for research and development expenses, stock-based compensation and fair value measurements. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenues and expenses that are not readily apparent from other sources. The Company continues to use the best information available to update its accounting estimates. Actual results may differ materially and adversely from these estimates. 5 Table of Contents Janux Therapeutics, Inc. Notes to Unaudited Condensed Financial Statements–(Continued) Fair Value Measurements The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1: Observable inputs such as quoted prices in active markets. Level 2: Inputs, other than the quoted prices in active markets that are observable either directly or indirectly. Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, prepaid and other current assets, accounts payable, and accrued liabilities, approximate fair value due to the short-term nature of those instruments. The fair value of assets classified within Level 1 is based on quoted prices in active markets as provided by the Company’s investment managers. The fair value of short-term investments classified within Level 2 is based on standard observable inputs, including reported trades, broker/dealer quotes, and bids and/or offers. The Company validates the quoted market prices provided by its investment managers by comparing the investment managers’ assessment of the fair values of the Company’s investment portfolio balance against the fair values of the Company’s investment portfolio balance obtained from an independent source. The Company has no financial liabilities recorded at fair value on a recurring basis. None of the Company’s non-financial assets or liabilities are recorded at fair value on a non-recurring basis. No transfers between levels have occurred during the periods presented. The following tables summarize the Company’s financial instruments measured at fair value on a recurring basis (in thousands): Fair Value Measurements at Reporting Date Using Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) As of March 31, 2023: Assets: Cash equivalents: Money market funds $ 28,947 $ 28,947 $ — $ — Total cash equivalents 28,947 28,947 — — Short-term investments: U.S. Treasury securities 45,029 45,029 — — U.S. agency bonds 78,801 — 78,801 — U.S. agency discount notes 4,378 — 4,378 — Asset-backed securities 4,914 — 4,914 — Corporate debt securities 1,968 — 1,968 — Commercial paper 151,430 — 151,430 — Total short-term investments 286,520 45,029 241,491 — Restricted cash: Money market account 816 816 — — Total restricted cash 816 816 — — Total assets measured at fair value on a recurring basis $ 316,283 $ 74,792 $ 241,491 $ — 6 Table of Contents Janux Therapeutics, Inc. Notes to Unaudited Condensed Financial Statements–(Continued) Fair Value Measurements at Reporting Date Using Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) As of December 31, 2022: Assets: Cash equivalents: Money market funds $ 12,697 $ 12,697 $ — $ — Total cash equivalents 12,697 12,697 — — Short-term investments: U.S. Treasury securities 63,016 63,016 — — U.S. agency bonds 67,020 — 67,020 — U.S. agency discount notes 4,334 — 4,334 — Corporate debt securities 1,970 — 1,970 — Commercial paper 139,250 — 139,250 — Total short-term investments 275,590 63,016 212,574 — Restricted cash: Money market account 816 816 — — Total restricted cash 816 816 — — Total assets measured at fair value on a recurring basis $ 289,103 $ 76,529 $ 212,574 $ — Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. Cash and cash equivalents include cash in readily available checking accounts, commercial paper and money market funds. Restricted Cash Restricted cash consists of a money market account securing a standby letter of credit issued in connection with the Company’s Torrey Plaza operating lease (as defined and described in Note 3). The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the accompanying balance sheets that sum to the amounts shown in the statements of cash flows (in thousands): March 31, 2023 December 31, 2022 Cash and cash equivalents $ 30,355 $ 51,426 Restricted cash 816 816 Total cash and cash equivalents and restricted cash $ 31,171 $ 52,242 Short-Term Investments Short-term investments consist of U.S. Treasury securities, U.S. agency bonds, U.S. agency discount notes, asset-backed securities, corporate debt securities and commercial paper, all of which are highly rated by Moody’s, S&P, and Fitch. The Company has classified these investments as available-for-sale, as the sale of such investments may be required prior to maturity to implement management strategies, and therefore has classified all investment securities as current assets. Those investments with maturity dates of three months or less at the date of purchase are presented as cash equivalents in the accompanying balance sheets. Short-term investments are carried at fair value with the unrealized gains and losses included in accumulated other comprehensive income (loss) as a component of stockholders’ equity until realized. Any premium or discount arising at purchase is amortized or accreted to interest income as an adjustment to yield using the straight-line method over the life of the instrument. The Company records an allowance for 7 Table of Contents Janux Therapeutics, Inc. Notes to Unaudited Condensed Financial Statements–(Continued) credit losses when unrealized losses are due to credit-related factors. Realized gains and losses are calculated using the specific identification method and recorded as interest income. The following tables summarize short-term investments (in thousands): As of March 31, 2023 Amortized Unrealized Estimated Cost Gains Losses Fair Value U.S. Treasury securities $ 45,209 $ 7 $ ( 187 ) $ 45,029 U.S. agency bonds 79,054 11 ( 264 ) 78,801 U.S. agency discount notes 4,374 4 — 4,378 Asset-backed securities 4,921 — ( 7 ) 4,914 Corporate debt securities 1,980 — ( 12 ) 1,968 Commercial paper 151,721 13 ( 304 ) 151,430 Total $ 287,259 $ 35 $ ( 774 ) $ 286,520 As of December 31, 2022 Amortized Unrealized Estimated Cost Gains Losses Fair Value U.S. Treasury securities $ 63,675 $ — $ ( 659 ) $ 63,016 U.S. agency bonds 67,421 — ( 401 ) 67,020 U.S. agency discount notes 4,321 13 — 4,334 Corporate debt securities 1,975 — ( 5 ) 1,970 Commercial paper 139,733 26 ( 509 ) 139,250 Total $ 277,125 $ 39 $ ( 1,574 ) $ 275,590 The amortized cost and estimated fair value in the tables above exclu de $ 0.7 million and $ 0.7 million o f accrued interest receivable as of March 31, 2023 and December 31, 2022, respectively. Accrued interest receivable is included in prepaid expenses and other current assets in the accompanying balance sheets. Contractual maturities of available-for-sale debt securities are as follows (in thousands): As of March 31, 2023 Due in 1 Year or Less Due Between 1 and 2 Years U.S. Treasury securities $ 39,307 $ 5,722 U.S. agency bonds 63,674 15,127 U.S. agency discount notes 4,378 — Asset-backed securities — 4,914 Corporate debt securities 1,968 — Commercial paper 151,430 — Total $ 260,757 $ 25,763 As of December 31, 2022 Due in 1 Year or Less Due Between 1 and 2 Years U.S. Treasury securities $ 57,369 $ 5,647 U.S. agency bonds 37,202 29,818 U.S. agency discount notes 4,334 — Corporate debt securities — 1,970 Commercial paper 139,250 — Total $ 238,155 $ 37,435 8 Table of Contents Janux Therapeutics, Inc. Notes to Unaudited Condensed Financial Statements–(Continued) As of March 31, 2023 , 38 out of 48 of our available-for-sale debt securities were in an aggregate gross unrealized loss position. The Company relies on both qualitative and quantitative factors to determine whether the unrealized loss for each available-for-sale debt security at any balance sheet date is due to a credit loss. Qualitative factors may include a credit downgrade, severity of the decline in fair value below amortized cost and other adverse conditions related specifically to the security, as well as the intent to sell the security, or whether the Company will “more likely than not” be required to sell the security before recovery of its amortized cost basis. The Company considers the decline in market value for the securities to be primarily attributable to current economic conditions and interest rate adjustments, rather than credit-related factors and does not intend to sell any securities prior to maturity. No allowance for credit losses has been recorded as of March 31, 2023 or December 31, 2022. The following table summarizes our available-for-sale debt securities in an unrealized loss position for which an allowance for credit losses has not been recorded, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands): As of March 31, 2023 Less Than 12 Months 12 Months or Longer Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses U.S. Treasury securities $ — $ — $ 39,307 $ ( 187 ) $ 39,307 $ ( 187 ) U.S. agency bonds 63,674 ( 264 ) — — 63,674 ( 264 ) Asset-backed securities 4,914 ( 7 ) — — 4,914 ( 7 ) Corporate debt securities 1,968 ( 12 ) — — 1,968 ( 12 ) Commercial paper 124,409 ( 304 ) — — 124,409 ( 304 ) Total $ 194,965 $ ( 587 ) $ 39,307 $ ( 187 ) $ 234,272 $ ( 774 ) As of December 31, 2022 Less Than 12 Months 12 Months or Longer Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses U.S. Treasury securities $ 15,566 $ ( 82 ) $ 47,450 $ ( 577 ) $ 63,016 $ ( 659 ) U.S. agency bonds 67,020 ( 401 ) — — 67,020 ( 401 ) Corporate debt securities 1,970 ( 5 ) — — 1,970 ( 5 ) Commercial paper 118,840 ( 509 ) — — 118,840 ( 509 ) Total $ 203,396 $ ( 997 ) $ 47,450 $ ( 577 ) $ 250,846 $ ( 1,574 ) Concentrations of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents and short-term investments. The Company invests its cash reserves in money market funds or available-for-sale debt securities in accordance with its investment policy. The Company’s investment policy includes guidelines on acceptable investment securities, limits interest-bearing security investments to certain types of debt and money market instruments issued by the U.S. government and institutions with investment grade credit ratings and places restrictions on maturities and concentration by asset class and issuer in order to maintain appropriate diversification. In accordance with the Company’s policies, the Company monitors exposure with its counterparties. The Company also maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such account and management believes that the Company is not exposed to significant credit risk. The Company is also subject to credit risk from its accounts receivable. The Company generally does not perform evaluations of customers’ financial condition and generally does not require collateral. As of March 31, 2023, and December 31, 2022, all of the Company’s accounts receivable, if any, relate to a single customer. For the three months ended March 31, 2023 , all of the Company’s revenue related to a single customer. 9 Table of Contents Janux Therapeutics, Inc. Notes to Unaudited Condensed Financial Statements–(Continued) Leases The Company determines if a contract contains a lease at the inception of the contract and evaluates each lease agreement to determine whether the lease is an operating or finance lease. For leases where the Company is the lessee, right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. Liabilities from operating leases are included in current portion of operating lease liabilities, and operating lease liabilities, net of current portion on the accompanying balance sheets. The Company does not have any financing leases. Short-term leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company does not have material short-term lease costs. Lease liabilities are measured at the present value of the lease payments not yet paid discounted using the discount rate for the lease established at the lease commencement date. To determine the present value, the implicit rate is used when readily determinable. For those leases where the implicit rate is not provided, the Company determines an incremental borrowing rate (“IBR”) based on the information available at the lease commencement date in determining the present value of lease payments. The IBR is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. ROU assets are measured as the present value of the lease payments and also include any prepaid lease payments made and any other indirect costs incurred, and exclude any lease incentives received. Lease terms may include the impact of options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating leases is recognized on a straight-line basis over the lease term. The Company’s operating leases are subject to additional variable charges, including common area maintenance, property taxes, property insurance and other variable costs. Given the variable nature of such costs, they are recognized as expense as incurred. The Company has elected the practical expedient to account for the lease and non-lease components, such as common area maintenance charges, as a single lease component for the Company's facilities leases. The Company has elected to recognize lease incentives, such as tenant improvement allowances, at the lease commencement date as a reduction to the ROU asset and lease liabilities balance until paid to it by the lessor to the extent that the lease provides a specified fixed or maximum level of reimbursement and the Company is reasonably certain to incur reimbursable costs at least equaling such amounts. Revenue Recognition The Company recognizes revenue in a manner that depicts the transfer of control of a product or a service to a customer and reflects the amount of the consideration the Company is entitled to receive in exchange for such product or service. In doing so, the Company follows a five-step approach: (i) identify the contract with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when (or as) the customer obtains control of the product or service. The Company considers the terms of a contract and all relevant facts and circumstances when applying the revenue recognition standard. A customer is a party that has entered into a contract with the Company, where the purpose of the contract is to obtain a product or a service that is an output of the Company’s ordinary activities in exchange for consideration. To be considered a contract, (i) the contract must be approved (in writing, orally, or in accordance with other customary business practices), (ii) each party’s rights regarding the product or the service to be transferred can be identified, (iii) the payment terms for the product or the service to be transferred can be identified, (iv) the contract must have commercial substance (that is, the risk, timing or amount of future cash flows is expected to change as a result of the contract), and (v) it is probable that the Company will collect substantially all of the consideration to which it is entitled to receive in exchange for the transfer of the product or the service. A performance obligation is defined as a promise to transfer a product or a service to a customer. The Company identifies each promise to transfer a product or a service (or a bundle of products or services, or a series of products and services that are substantially the same and have the same pattern of transfer) that is distinct. A product or a service is distinct if both (i) the customer can benefit from the product or the service either on its own or together with other resources that are readily available to the customer and (ii) the Company’s promise to transfer the product or the service to the customer is separately identifiable from other promises in the contract. Each distinct promise to transfer a product or a service is a unit of accounting for revenue recognition. If a promise to transfer a product or a service is not separately identifiable from other promises in the contract, such promises should be combined into a single performance obligation. The transaction price is the amount of consideration the Company is entitled to receive in exchange for the transfer of control of a product or a service to a customer. To determine the transaction price, the Company considers the existence of any significant financing component, the effects of any variable elements, noncash considerations and consideration payable to the customer. If a significant financing component exists, the transaction price is adjusted for the time value of money. If an element of variability exists, the Company must estimate the consideration it expects to receive and uses that amount as the basis for recognizing revenue as the 10 Table of Contents Janux Therapeutics, Inc. Notes to Unaudited Condensed Financial Statements–(Continued) product or the service is transferred to the customer. There are two methods for determining the amount of variable consideration: (i) the expected value method, which is the sum of probability-weighted amounts in a range of possible consideration amounts, and (ii) the mostly likely amount method, which identifies the single most likely amount in a range of possible consideration amounts. If a contract has multiple performance obligations, the Company allocates the transaction price to each distinct performance obligation in an amount that reflects the consideration the Company is entitled to receive in exchange for satisfying each distinct performance obligation. For each distinct performance obligation, revenue is recognized when (or as) the Company transfers control of the product or the service applicable to such performance obligation. In those instances where the Company first receives consideration in advance of satisfying its performance obligation, the Company classifies such consideration as deferred revenue until (or as) the Company satisfies such performance obligation. In those instances where the Company first satisfies its performance obligation prior to its receipt of consideration, the consideration is recorded as accounts receivable. The Company expenses incremental costs of obtaining and fulfilling a contract as and when incurred if the expected amortization period of the asset that would be recognized is one year or less, or if the amount of the asset is immaterial. Otherwise, such costs are capitalized as contract assets if they are incremental to the contract and amortized to expense proportionate to revenue recognition of the underlying contract. Research and Development Expenses All research and development costs are expensed in the period incurred. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and payments made in advance of performance are reflected in the accompanying balance sheets as prepaid expenses. The Company records accruals for estimated costs incurred for ongoing research and development activities. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the services, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates may be made in determining the prepaid or accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates. Stock-Based Compensation Stock-based compensation expense represents the grant date fair value of equity awards, consisting of stock options and employee stock purchase rights, recognized on a straight-line basis over the requisite service period for stock options and over the respective offering period for employee stock purchase plan rights. The Company estimates the fair value of equity awards using the Black-Scholes option pricing model and recognizes forfeitures as they occur. Comprehensive Loss Comprehensive loss is defined as a change in equity during a period from transactions and other events and circumstances from non-owner sources. The only component of other comprehensive loss is unrealized gain (loss) on available-for-sale securities. Comprehensive losses have been reflected in the statements of operations and comprehensive loss and as a separate component in the statements of stockholders’ equity. Net Loss Per Share Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding for the period, without consideration for potentially dilutive securities. The Company has excluded weighted-average unvested shares of 49,457 shares and 307,765 shares from the weighted-average number of common shares outstanding for the three months ended March 31, 2023 and 2022, respectively. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares and dilutive common stock equivalents outstanding for the period determined using the treasury-stock and if-converted methods. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding as inclusion of the potentially dilutive securities would be anti-dilutive. Potentially dilutive securities not included in the calculation of diluted net loss per share, because to do so would be anti-dilutive, are as follows (in common stock equivalent shares): 11 Table of Contents Janux Therapeutics, Inc. Notes to Unaudited Condensed Financial Statements–(Continued) March 31, 2023 2022 Common stock options 8,889,905 7,122,220 Unvested common stock 30,508 235,707 Employee stock purchase plan shares 44,231 23,672 Total potentially dilutive shares 8,964,644 7,381,599 2. Balance Sheet Details Property and equipment, net consist of the following (in thousands): March 31, 2023 December 31, 2022 Laboratory equipment $ 7,173 $ 6,838 Furniture and fixtures 797 752 Computer equipment and software 377 323 Construction in progress 268 145 Total property and equipment 8,615 8,058 Less: accumulated depreciation ( 1,412 ) ( 972 ) Property and equipment, net $ 7,203 $ 7,086 Accrued liabilities consist of the following (in thousands): March 31, 2023 December 31, 2022 Accrued compensation $ 1,371 $ 2,671 Accrued research and development 5,632 4,716 Other accrued liabilities 734 623 Accrued liabilities $ 7,737 $ 8,010 3. Commitments and Contingencies License Agreement with WuXi Biologics (Hong Kong) Limited In April 2021, the Company entered into a cell line license agreement (“Cell Line License Agreement”) with WuXi Biologics (Hong Kong) Limited (“WuXi Biologics”), pursuant to which the Company received a non-exclusive, worldwide, sublicensable license under certain of WuXi Biologics’ patent rights, know-how and biological materials (“WuXi Biologics Licensed Technology”), to use the WuXi Biologics Licensed Technology to make, use, sell, offer for sale and import certain therapeutic products produced through the use of the cell line licensed by WuXi Biologics under the Cell Line License Agreement (“WuXi Biologics Licensed Product”). In consideration for the license, the Company paid WuXi Biologics a non-refundable, one-time license fee of $ 0.2 million upon WuXi Biologics’ achievement of a certain technical milestone. This one-time license fee was recognized as research and development expense when incurred since the WuXi Biologics Licensed Technology had no alternative future use. If the Company does not engage WuXi Biologics or its affiliates to manufacture the WuXi Biologics Licensed Products for its commercial supplies, the Company is required to make royalty payments to WuXi Biologics in an amount equal to a low single-digit percentage of specified portions of net sales of WuXi Biologics Licensed Products manufactured by a third-party manufacturer. The Company has the right (but not the obligation) to buy out its remaining royalty obligations with respect to each WuXi Biologics Licensed Product by paying WuXi Biologics a one-time payment in an amount ranging from low single digit million dollars to a maximum of $ 15.0 million depending on the development and commercialization stage of the WuXi Biologics Licensed Product (the “Buyout Option”), and upon such payment, the Company’s license with respect to such WuXi Biologics Licensed Product will become fully paid-up, irrevocable, and perpetual. The royalty obligations will remain in effect during the term of the Cell Line License Agreement so long as the Company has not exercised the Buyout Option. 12 Table of Contents Janux Therapeutics, Inc. Notes to Unaudited Condensed Financial Statements–(Continued) The Cell Line License Agreement will continue indefinitely unless terminated (i) by the Company upon three months’ prior written notice and the Company’s payment of all amounts due to WuXi Biologics through the effective date of termination, (ii) by either party for the other party’s material breach that remains uncured for 30 days after written notice, and (iii) by WuXi Biologics if the Company fails to make a payment and such failure continues for 30 days after receiving notice of such failure. Operating Leases In October 2021, the Company entered into a lease agreement (the "Torrey Plaza Lease") to lease office and laboratory space in San Diego, California. The Company determined this facilities lease was an operating lease at the inception of the lease contract. According to accounting standards, the Torrey Plaza Lease commenced on April 1, 2022 and has a term of 130 months from the commencement date. The lease provides an option to extend the term of the lease for a period of 5 years beyond the initial term, which the Company is not reasonably certain to exercise and therefore was not considered in determining the ROU assets and lease liabilities balance. As required under the terms of the Torrey Plaza Lease, in October 2021 the Company entered into a standby letter of credit, which is secured by a money market account in the amount of $ 0.8 million. The letter of credit is subject to draw down by the landlord upon certain events of breach or default by the Company. The letter of credit amount is subject to a 50 % reduction subject to certain conditions on or following the date that is 54 months following the contractual lease commencement date. Future minimum noncancelable operating lease payments as of March 31, 2023 are as follows (in thousands): 2023 (remaining) 2,489 2024 3,403 2025 3,505 2026 3,611 Thereafter 24,421 Total minimum lease payments 37,429 Less: Imputed interest ( 11,889 ) Total operating lease liabilities 25,540 Less: Current portion of operating lease liabilities ( 1,356 ) Operating lease liabilities, net of current portion $ 24,184 The Torrey Plaza lease had a remaining lease term of 9.8 years and a discount rate of 8 % as of March 31, 2023. Operating lease expense included in the measurement of lease liabilities for the three months ended March 31, 2023 was $ 0.9 million. Cash paid for amounts included in the measurement of lease liabilities for the three months ended March 31, 2023 was $ 0.3 million. Operating lease expense and cash paid for amounts included in the measurement of lease liabilities for the three months ended March 31, 2022 were immaterial. Contingencies From time to time, the Company may be subject to claims or lawsuits arising in the ordinary course of business. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. As of March 31, 2023 , the Company is not currently party to any material legal proceedings. 4. Related Party Transactions In January 2021, the Company entered into a Support Services Agreement (the "2021 Support Services Agreement") with COI Pharmaceuticals, Inc. (“COI”) that outlines the terms of services provided by COI to the Company, as well as the fees charged for such services. COI is a shared service company that provides certain back-office and administrative and research and development support services, including facilities support, to the portfolio companies of Avalon Ventures, an entity that beneficially owns greater than 5 % of our outstanding capital stock. The 2021 Support Services Agreement was most recently renewed in January 2023 and will continue to renew for additional one-year renewal periods until terminated by the parties. Either party may terminate the 2021 Support Services Agreement with 30 days written notice. 13 Table of Contents Janux Therapeutics, Inc. Notes to Unaudited Condensed Financial Statements–(Continued) Operating expense recognized by the Company under the 2021 Support Services Agreement for the three months ended March 31, 2023 was immaterial. Operating expense recognized by the Company under the 2021 Support Services Agreement for the three months ended March 31, 2022 was as follows (in thousands): Three Months Ended March 31, 2022 Research and development $ 208 General and administrative 42 Total $ 250 5. Stockholders’ Equity Shelf Registration Statement In August 2022, the Company filed a shelf registration statement (File No. 333-266720), which was declared effective in September 2022. The shelf registration statement provides the Company with the ability to offer up to $ 400.0 million of certain securities, including shares of its common stock, from time to time. The specific terms of any offering under the shelf registration statement are established at the time of such offering. Additionally, in August 2022, the Company entered into an Open Market Sale Agreement SM (“Sale Agreement”) with Jefferies LLC (“Jefferies”) to sell shares of common stock, from time to time, through an “at the market offering” program having an aggregate offering price of up to $ 100.0 million through which Jefferies would act as sales agent. As of March 31, 2023, $ 100.0 million of common stock remained available for sale under the Sale Agreement. On May 5, 2023 , the Company delivered written notice to Jefferies of its decision to terminate the Sale Agreement, which termination was effective immediately on the date of delivery. 2017 Equity Incentive Plan In August 2017, the Company adopted the Janux Therapeutics, Inc. 2017 Equity Incentive Plan (the “2017 Plan”), which provided for the grant of incentive stock options, nonstatutory stock options, restricted stock awards and other stock awards to its employees, members of its board of directors and consultants. The maximum term of options granted under the 2017 Plan is ten years and, in general, the options issued under the 2017 Plan vest over a four-year period from the vesting commencement date. The 2017 Plan allows for the early exercise of stock options, which may be subject to repurchase by the Company at the original exercise price. Upon the effectiveness of the 2021 Plan defined and described below, no further grants will be made under the 2017 Plan. Any outstanding awards granted under the 2017 Plan will remain subject to the terms of the 2017 Plan and applicable award agreements. 2021 Equity Incentive Plan In June 2021, the Company adopted the 2021 Equity Incentive Plan (the “2021 Plan,” and together with the 2017 Plan the “Plans”). Under the 2021 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock awards, performance cash awards and other forms of stock awards to employees, directors and consultants. The maximum term of options granted under the 2021 Plan is ten years and, in general, the options issued under the 2021 Plan vest over a four-year period from the vesting commencement date. The 2021 Plan does not permit early exercises. A total of 2,775,890 new shares of common stock were initially reserved for issuance under the 2021 Plan. The number of shares reserved that were remaining under the 2017 Plan as of the effective date of the 2021 Plan, or 1,424,110 shares, were added to the shares initially reserved under the 2021 Plan upon its effectiveness and any future cancellations under the 2017 Plan will become available for future issuance under the 2021 Plan. In addition, the number of shares of common stock available for issuance under the 2021 Plan automatically increases on January 1 of each calendar year through January 1, 2031, in an amount equal to 5% of the total number of shares of the Company’s common stock on the last day of the calendar month before the date of each automatic increase, or a lesser number of shares determined by the Company’s board of directors. As of March 31, 2023 , there were 8,759,876 shares authorized for issuance under the 2021 Plan, inclusive of shares added from 2017 Plan cancellations. 14 Table of Contents Janux Therapeutics, Inc. Notes to Unaudited Condensed Financial Statements–(Continued) A summary of the Company’s stock option activity under its Plans is as follows (in thousands, except share, per share data and years): Number of Outstanding Options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (in years) Aggregate Intrinsic Value Balance at December 31, 2022 7,345,444 $ 11.67 8.31 $ 29,806 Granted 1,730,000 $ 14.06 Exercised ( 148,649 ) $ 10.63 Forfeited or cancelled ( 36,890 ) $ 16.09 Balance at March 31, 2023 8,889,905 $ 12.13 8.53 $ 24,122 Vested and expected to vest at March 31, 2023 8,889,905 $ 12.13 8.53 $ 24,122 Exercisable at March 31, 2023 5,301,088 $ 9.09 8.01 $ 23,378 The weighted-average grant date fair value per share of option grants for the three months ended March 31, 2023 and 2022 was $ 10.21 , and $ 14.02 , respectively. The total intrinsic value of stock options exercised for the three months ended March 31, 2023 and 2022 was $ 1.5 million and $ 0.1 million, respectively. As of March 31, 2023 , total unrecognized stock-based compensation cost associated with option grants was $ 52.7 million, which is expected to be recognized over a remaining weighted-average period of approximately 2.7 years. The assumptions used in the Black-Scholes option pricing model to determine the fair value of stock option grants under the Plans were as follows: Three Months Ended March 31, 2023 2022 Risk-free interest rate 3.5 % – 4.2 % 1.5 % – 1.7 % Expected volatility 83 % 84 % – 85 % Expected term (in years) 6.0 6.1 Expected dividend yield — — Risk-free interest rate . The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero coupon U.S. Treasury notes with maturities similar to the expected term of the awards. Expected volatility . Given the Company’s limited historical stock price volatility data, the expected volatility assumption is based on volatilities of a peer group of similar companies whose share prices are publicly available. The peer group was developed based on companies in the biotechnology industry. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available. Expected term . The expected term represents the period of time that options are expected to be outstanding. Because the Company does not have historical exercise behavior, it determines the expected life assumption using the simplified method, for employees, which is an average of the contractual term of the option and its vesting period. The expected term for nonemployee options is generally the contractual term. Expected dividend yield . The Company bases the expected dividend yield assumption on the fact that it has never paid cash dividends and has no present intention to pay cash dividends and, therefore, used an expected dividend yield of zero. 2021 Employee Stock Purchase Plan In June 2021, the Company adopted the 2021 Employee Stock Purchase Plan (the “ESPP”), which became effective on June 10, 2021. The ESPP permits eligible employees who elect to participate in an offering under the ESPP to have up to 15 % of their eligible earnings withheld, subject to certain limitations, to purchase shares of common stock pursuant to the ESPP. The price of common stock purchased under the ESPP is equal to 85 % of the lower of the fair market value of the common stock at the commencement date of each offering period or the relevant date of purchase. A total o f 466,000 shares of common stock were approved to be initially reserved for issuance under the ESPP. In addition, the number of shares of common stock available for issuance under the ESPP 15 Table of Contents Janux Therapeutics, Inc. Notes to Unaudited Condensed Financial Statements–(Continued) automatically increases on January 1 of each calendar year through January 1, 2031, in an amount equal to the lesser of (i) 1 % of the total number of shares of the Company’s common stock on the last day of the calendar month before the date of each automatic increase and (ii) 932,000 shares; provided that before the date of any such increase, the Company’s board of directors may determine that such increase will be less than the amount set forth in clauses (i) and (ii). In June 2021, employees began to enroll in the ESPP and the Company’s first offering period commenced. For the three months ended March 31, 2023 and 2022, stock-based compensation expense related to the ESPP was immaterial. As of March 31, 2023 , total unrecognized stock-based compensation expense related to the ESPP was $ 1.0 million, which is expected to be recognized over a remaining weighted-average period of approximately 1.4 years. Stock-Based Compensation Expense Stock-based compensation expense has been reported in the statements of operations and comprehensive loss as follows (in thousands): Three Months Ended March 31, 2023 2022 Research and development $ 2,358 $ 1,660 General and administrative 3,115 2,298 Total $ 5,473 $ 3,958 Unvested Stock Liabilities A summary of the Company’s unvested shares and unvested stock liabilities is as follows (in thousands, except share data): Number of Unvested Shares Unvested Stock Liabilities Balance at December 31, 2022 68,406 $ 169 Vested shares ( 37,898 ) ( 134 ) Balance at March 31, 2023 30,508 $ 35 Common Stock Reserved for Future Issuance Common stock reserved for future issuance consists of the following: March 31, December 31, 2023 2022 Common stock options outstanding 8,889,905 7,345,444 Shares available for issuance under the Plans 4,403,124 4,012,001 Shares available for issuance under the ESPP 1,233,324 816,478 Total 14,526,353 12,173,923 6. Research Collaboration and Exclusive License Agreement In December 2020, the Company entered into a research collaboration and exclusive license agreement (the “Merck Agreement”), pursuant to which the Company granted Merck Sharp & Dohme Corp. (“Merck”) an exclusive, worldwide, royalty-bearing, sublicensable license to certain of its patent rights and know-how for up to two collaboration targets (“First Collaboration Target” and “Second Collaboration Target”, together the “Collaboration Targets”) related to next generation T cell engager immunotherapies for the treatment of cancer. In each case, once the Collaboration Targets are designated by Merck, they have the right to research, develop, make, have made, use, import, offer to sell, and sell compounds and any licensed products related thereto. Merck selected the First Collaboration Target upon execution of the Merck Agreement and selected the Second Collaboration Target in May 2022. Following the research term, Merck will have the sole right to research, develop, manufacture, and commercialize the licensed compounds and products directed against the Collaboration Targets. Consideration in the Merck Agreement consists of (i) an $ 8.0 million non-refundable and non-creditable upfront fee, (ii) $ 8.0 million paid upon the selection of the Second Collaboration Target, 16 Table of Contents Janux Therapeutics, Inc. Notes to Unaudited Condensed Financial Statements–(Continued) (iii) research program funding (iv) development and regulatory milestones, (v) commercial milestones, and (vi) royalty payments. Under the Merck Agreement, the Company is eligible to receive up to an aggregate of $ 142.5 million per Collaboration Target in milestone payments ($ 285.0 million collectively for both Collaboration Targets), contingent on the achievement of certain regulatory and development milestones. Merck is also required to make milestone payments to the Company upon the successful completion of certain commercial milestones, in an aggregate amount not to exceed $ 350.0 million for each licensed product under either of the Collaboration Targets. The Merck Agreement provides that Merck is obligated to pay to the Company tiered royalty payments on a product-by-product and country-by-country basis, ranging from low single-digit to low teens percentage royalty rates on specified portions of annual net sales for licensed products under either of the Collaboration Targets that are commercialized. Such royalties are subject to reduction, on a product-by-product and country-by-country basis, for licensed products not covered by patent claims, or that require Merck to obtain a license to obtain a license to third-party intellectual property in order to commercialize the licensed products, or that are subject to compulsory licensing. The Merck Agreement will terminate at the end of the calendar year in which the expiration of all royalty obligations occurs for all licensed products under the agreement. Merck has the unilateral right to terminate the Merck Agreement in its entirety or on a Collaboration Target by Collaboration Target basis at any time and for any reason upon prior written notice to the Company. Both parties have the right to terminate the agreement for an uncured material breach, certain illegal or unethical activities, and insolvency of the other party. Upon expiration of the agreement but not early termination thereof, and provided all payments due under the agreement have been made, Merck’s exclusive licenses under the agreement will become fully paid-up and perpetual. The Company recognized $ 2.0 million and $ 1.6 million of revenue under the Merck Agreement for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023 , aggregate deferred revenue related to the Merck Agreement was $ 6.3 million, $ 4.9 million of which was classified as current. The Company had $ 0.8 million and $ 0 of accounts receivable outstanding as of March 31, 2023 and December 31, 2022, respectively. The remaining performance obligations under the Merck Agreement relate to the Company’s conduct of research services and the Company’s participation in a joint research committee for the Second Collaboration Target. The performance obligations related to the First Collaboration Target were completed as of March 31, 2023. As it relates to the Second Collaboration Target, the Company estimates the remaining term of the research services, over which revenue will be recognized, to be 1.4 years as of March 31, 2023. 17 Table of Contents Item 2 . 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 unaudited condensed financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q (Quarterly Report) and the audited financial statements and related notes thereto as of and for the year ended December 31, 2022 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (SEC), on March 10, 2023. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly 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 Quarterly Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. You should carefully read the “Risk Factors” section of this Quarterly Report to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Furthermore, past operating results are not necessarily indicative of results that may occur in future periods. Overview We are an innovative clinical-stage biopharmaceutical company developing a broad pipeline of novel immunotherapies by applying our proprietary technology to our Tumor Activated T Cell Engager (TRACTr) and Tumor Activated Immunomodulator (TRACIr) platforms to better treat patients suffering from cancer. Our initial focus is on developing a novel class of T cell engagers (TCEs), and our lead product candidates are designed to target clinically validated drug targets. While TCE therapeutics have displayed potent anti-tumor activity in hematological cancers, developing TCEs to treat solid tumors has faced challenges due to the limitations of prior TCE technologies, namely (i) overactivation of the immune system leading to cytokine release syndrome (CRS), (ii) on-target, healthy tissue toxicities and (iii) poor pharmacokinetics (PK) leading to short half-life. We use our TRACTr platform technology to engineer product candidates designed to overcome these limitations. We are developing a broad pipeline with lead programs targeting prostate-specific membrane antigen (PSMA), epidermal growth factor receptor (EGFR), and trophoblast cell surface antigen 2 (TROP2). In October 2022, the first patient was dosed with our PSMA-TRACTr (JANX007) in our first-in-human Phase 1 clinical trial in patients with prostate cancer and we anticipate providing an interim clinical update from the trial in the second half of 2023. In April 2023, the first patient was dosed with our EGFR-TRACTr (JANX008) in our first-in-human Phase 1 clinical trial in patients with advanced or metastatic solid tumors including colorectal cancer, squamous cell carcinoma of the head and neck, non-small cell lung cancer, and renal cell carcinoma. For our TROP2-TRACTr we expect to select a development candidate in 2023. We are also applying our proprietary technology to develop a TRACIr costimulatory bispecific product candidate (JANX009) against programmed death-ligand 1 (PD-L1) and Cluster of Differentiation 28 (CD28) designed to further enhance the anti-tumor activity of T cells, which we believe has the potential to be used as a single-agent or in combination with our current TRACTr pipeline and other modalities. We expect to submit an Investigational New Drug application (IND) for this product candidate in 2023. Based on data we have generated in non-human primates (NHPs), we believe our TRACTr and TRACIr product candidates have the potential for (i) significantly reduced risk of toxic CRS responses, (ii) reduced risk of on-target, healthy tissue toxicities, and (iii) improved half-life with once-weekly dosing in humans. We were incorporated in June 2017. To date, we have devoted substantially all of our resources to organizing and staffing our company, business planning, business development, raising capital, developing and optimizing our technology platform, identifying potential product candidates, undertaking research and development for our lead programs, establishing and enhancing our intellectual property portfolio and providing general and administrative support for these operations. All of our product candidates and research programs other than JANX007 and JANX008 are in preclinical development, and none have been approved for commercial sale. We have never generated any revenue from product sales and have incurred net losses each year since we commenced operations. We have funded our operations primarily with the net proceeds from the issuance of convertible promissory notes, the issuance of convertible preferred stock, the exercise of common stock options, proceeds from our initial public offering (IPO) and amounts received under a collaboration agreement with Merck Sharp & Dohme Corp. (Merck). We have incurred operating losses since our inception and have not yet generated any product revenue. Our net losses were $17.5 million and $13.4 million for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, we had an accumulated deficit of $127.9 million. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on a variety of factors including the timing and scope of our clinical and preclinical studies and our expenditures on other research and development activities and the timing of any revenue recognition under our collaboration agreement with Merck. We expect our expenses and operating losses will increase substantially and that we will continue to incur significant losses for the foreseeable future as we conduct our ongoing and planned research and development activities and conduct preclinical studies and clinical trials, hire additional personnel, protect our intellectual property and incur additional costs associated with being a public company. 18 Table of Contents We do not expect to generate any revenues from product sales unless and until we successfully complete development and obtain regulatory approval for one or more product candidates, which will not be for many years, if ever. Accordingly, until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including potentially grants, collaborations, licenses or other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates or to our platform technologies that we would otherwise prefer to develop and market ourselves. Based on our current operating plan, we believe that our existing cash and cash equivalents and short-term investments, will be sufficient to meet our anticipated cash requirements through at least the next 12 months, following the date of this Quarterly Report. Our Research Collaboration with Merck In December 2020, we entered into a research collaboration and exclusive license agreement with Merck to develop TRACTr product candidates that are distinct from those in our internally developed pipeline (the Merck Agreement). Merck has the right to select up to two collaboration targets (each a Collaboration Target) related to next generation T cell engager immunotherapies for the treatment of cancer. Merck selected the first Collaboration Target upon execution of the agreement and selected the second Collaboration Target in May 2022. Merck received an exclusive worldwide license for each selected target and intellectual property from the collaboration. In return, we are eligible to receive up to $500.5 million per target in upfront and milestone payments, plus royalties on sales of the products derived from the collaboration. Merck provides research funding under the collaboration. Risks and Uncertainties Global economic and business activities continue to face widespread macroeconomic uncertainties, including those associated with the COVID-19 pandemic and other public health crises, bank failures, inflation and monetary supply shifts, recession risks and potential disruptions from the ongoing Russia-Ukraine conflict and related sanctions. For example, in 2023, the Federal Deposit Insurance Corporation took control and was appointed receiver of certain financial institutions. If other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our existing cash, cash equivalents and investments may be threatened and could have a material adverse effect on our business and financial condition. Inflation generally affects us by increasing our salaries and fees paid to third-party contract service providers. We have considered potential impacts arising from the risks and uncertainties as described above and have not experienced any material disruption to our operations to date. Support Services Agreement with COI Pharmaceuticals, Inc. In January 2021, we entered into a Support Services Agreement (the 2021 Support Services Agreement) with COI Pharmaceuticals Inc. (COI) that outlines the terms of services provided by COI to the Company, as well as the fees charged for such services. COI is a shared service company that provides certain back-office and administrative and research and development support services, including facilities support, to the portfolio companies of Avalon Ventures, an entity that beneficially owns greater than 5% of our outstanding capital stock. The amounts paid to COI include support service fees or mark-ups of up to 5%. The 2021 Support Services Agreement was most recently renewed in January 2023 and will continue to renew for additional one-year renewal periods until terminated by the parties. Either party may terminate the 2021 Support Services Agreement with 30 days written notice. Financial Operations Overview Revenues To date, we have not generated any revenues from the commercial sale of any products, and we do not expect to generate revenues from the commercial sale of any products for the foreseeable future, if ever. We recognized $2.0 million and $1.6 million of revenue under the Merck Agreement for the three months ended March 31, 2023 and 2022, respectively. Research and Development To date, our research and development expenses have related primarily to direct and indirect expenses in connection with the development of our TRACTr and TRACIr platforms, discovery efforts and preclinical and clinical development of our product candidates. Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received. Our direct research and development expenses include: 19 Table of Contents • external research and development expenses incurred under agreements with CROs and consultants to conduct our preclinical and clinical studies; • license fees; and • laboratory equipment, materials and supplies. Our indirect research and development expenses include: • salaries and employee-related costs, including recruiting fees and stock-based compensation for those individuals involved in research and development efforts; • maintenance of facilities and equipment, software license fees, depreciation; and • allocated facilities and equipment-related expenses, which include rent, utilities, insurance, and office supplies. Certain research and development expenses as listed above include amounts paid to COI. We anticipate that our research and development expenses will substantially increase for the foreseeable future as we continue the development of our TRACTr and TRACIr platforms and the discovery and development of product candidates under our TRACTr and TRACIr platforms. We cannot determine with certainty the timing of initiation, the duration or the completion costs of clinical trials and preclinical studies of product candidates due to the inherently unpredictable nature of preclinical and clinical development. Preclinical and clinical development timelines, the probability of success and development costs can differ materially from expectations. We anticipate that we will make determinations as to which product candidates and development programs to pursue and how much funding to direct to each product candidate or program on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product candidate’s commercial potential. We will need to raise substantial additional capital in the future. In addition, we cannot forecast which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. General and Administrative General and administrative expenses consist primarily of salaries and employee-related costs, including stock-based compensation, for personnel in executive, finance and other administrative functions. Other significant general and administrative expenses include facility-related costs, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities; legal fees relating to intellectual property and corporate matters; professional fees for accounting, tax and consulting services; insurance costs; and other operating costs. Our general and administrative expenses include amounts paid to COI for certain back-office and administrative support services, including facilities support. We anticipate that our general and administrative expenses will increase for the foreseeable future as we continue to increase our general and administrative headcount to support our continued research and development activities and, if any of our product candidates receive marketing approval, commercialization activities. We also anticipate increased expenses associated with operating as a public company, including expenses related to audit, legal, regulatory, and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums and investor relations costs. Other Income Other income consists of interest income on our cash and cash equivalents and short-term investments. 20 Table of Contents Results of Operations Comparison of the Three Months Ended March 31, 2023 and 2022 Three Months Ended March 31, 2023 2022 Change (in thousands) Collaboration revenue $ 2,048 $ 1,589 $ 459 Operating expenses: Research and development 15,865 10,184 5,681 General and administrative 6,464 4,947 1,517 Total operating expenses 22,329 15,131 7,198 Loss from operations (20,281 ) (13,542 ) (6,739 ) Other income 2,822 132 2,690 Net loss $ (17,459 ) $ (13,410 ) $ (4,049 ) Collaboration Revenue Collaboration revenues were $2.0 million and $1.6 million for the three months ended March 31, 2023 and 2022, respectively. The increase of $0.4 million was due to an increase in full-time equivalent hours incurred in the performance of research services required under the Merck Agreement. Research and Development Expense The following table summarizes our direct and indirect research and development expenses for the three months ended March 31, 2023 and 2022: Three Months Ended March 31, 2023 2022 Change (in thousands) Direct costs: JANX007 $ 1,716 $ 1,131 $ 585 JANX008 1,342 2,263 (921 ) Preclinical stage programs and other direct unallocated costs 5,608 2,666 2,942 Total direct costs 8,666 6,060 2,606 Indirect costs 7,199 4,124 3,075 Total research and development expenses $ 15,865 $ 10,184 $ 5,681 IND applications for JANX007 and JANX008 were cleared by the U.S. Food and Drug Administration (FDA) in May 2022 and January 2023, respectively. As a result, we have separated direct costs for the development of JANX007 and JANX008 from preclinical stage programs and other direct unallocated costs for the three months ended March 31, 2023 and 2022. We will further separate direct costs related to our other programs as future IND applications are cleared by the FDA. These changes in presentation had no effect on net loss, total research and development expenses, stockholders' equity, or cash flows as previously reported. Research and development expenses were $15.9 million and $10.2 million for the three months ended March 31, 2023 and 2022, respectively. The increase of $5.7 million was primarily due to increases in indirect costs of $3.1 million, preclinical stage programs and other unallocated direct costs of $2.9 million and direct costs related to JANX007 of $0.6 million, offset by decreases in direct costs related to JANX008 of $0.9 million. The increase in indirect costs was primarily due to personnel costs of $1.2 million, stock-based compensation expense of $0.7 million, and facilities and other costs of $1.2 million as operations grew in support of program advances. General and Administrative Expense General and administrative expenses were $6.5 million and $4.9 million for the three months ended March 31, 2023 and 2022, respectively. The increase of $1.6 million was primarily due to increases in stock-based compensation of $0.8 million and personnel and facilities related costs of $0.8 million. Other Income 21 Table of Contents Other income was $2.8 million and $0.1 million for the three months ended March 31, 2023 and 2022, respectively. The increase of $2.7 million was due to the impact of increases in interest rates on our debt securities, resulting in increased interest income. Liquidity and Capital Resources We have incurred net losses and negative cash flows from operations since our inception and anticipate we will continue to incur net losses and negative cash flows for the foreseeable future. As of March 31, 2023, we had cash, cash equivalents, restricted cash and short-term investments of $317.7 million. Inclusive in this amount is $0.8 million of restricted cash that is not available for current use. In August 2022, we filed a shelf registration statement (File No. 333-266720), which was declared effective in September 2022. The shelf registration statement provides us with the ability to offer up to $400.0 million of certain securities, including shares of our common stock, from time to time. The specific terms of any offering under the shelf registration statement are established at the time of such offering. Additionally, in August 2022, we entered into an Open Market Sale Agreement SM (Sale Agreement) with Jefferies LLC (Jefferies) to sell shares of our common stock, from time to time, through an “at the market offering” program having an aggregate offering price of up to $100.0 million through which Jefferies would act as sales agent. As of March 31, 2023, $100.0 million of common stock remained available for sale under the Sale Agreement. On May 5, 2023, we delivered written notice to Jefferies of our decision to terminate the Sale Agreement, which termination was effective immediately on the date of delivery. The following summarizes our cash flows for the periods indicated: Three Months Ended March 31, 2023 2022 (in thousands) Net cash provided by (used in): Operating activities $ (13,911 ) $ (11,522 ) Investing activities (8,740 ) 31,068 Financing activities 1,580 1 Net increase in cash, cash equivalents and restricted cash $ (21,071 ) $ 19,547 Operating Activities Net cash used in operating activities of $13.9 million for the three months ended March 31, 2023 was primarily due to our net loss of $17.5 million and a change in operating assets and liabilities and other non-cash charges of $1.9 million, adjusted for $5.5 million of stock-based compensation expense. Net cash used in operating activities of $11.5 million for the three months ended March 31, 2022 was primarily due to our net loss of $13.4 million and a change in operating assets and liabilities and other non-cash charges of $2.1 million, adjusted for $4.0 million of stock-based compensation expense. Investing Activities Net cash used in investing activities of $8.7 million for the three months ended March 31, 2023 was primarily due to $8.4 million of net purchases of short-term investments and our purchase of property and equipment, primarily consisting of laboratory equipment of $0.3 million. Net cash provided by investing activities of $31.1 million for the three months ended March 31, 2022 was primarily due to $32.1 million of net maturities of short-term investments offset by our purchase of property and equipment, primarily consisting of laboratory equipment of $1.0 million. Financing Activities Net cash provided by financing activities of $1.6 million for the three months ended March 31, 2023 was due to proceeds from stock option exercises. Net cash provided by financing activities for the three months ended March 31, 2022 was immaterial. Funding Requirements Based on our current operating plan, we believe that our existing cash and cash equivalents and short-term investments, will be sufficient to meet our anticipated cash requirements through at least the next 12 months, following the date of this Quarterly Report. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate 22 Table of Contents on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. Additionally, the process of testing product candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain. Our future capital requirements will depend on many factors, including: • the initiation, trial design, progress, timing, costs and results of drug discovery, preclinical studies and clinical trials of our product candidates, and in particular the clinical trials for JANX007 and JANX008 and the IND-enabling studies and planned future clinical trials for TROP2-TRACTr and TRACIr costimulatory bispecific; • the number and characteristics of clinical programs that we pursue; • the outcome, timing and costs of seeking FDA, European Commission and any other comparable regulatory approvals for any future drug candidates; • the costs of manufacturing our product candidates; • the costs associated with hiring additional personnel and consultants as our preclinical, manufacturing and clinical activities increase; • the receipt of marketing approval and revenue received from any commercial sales of any of our product candidates, if approved; • the cost of commercialization activities for any of our product candidates, if approved, including marketing, sales and distribution costs; • the ability to establish and maintain strategic collaboration, licensing or other arrangements and the financial terms of such agreements; • the extent to which we in-license or acquire other products and technologies; • the costs involved in preparing, filing, prosecuting, maintaining, expanding, defending and enforcing patent claims, including litigation costs and the outcome of such litigation; • our implementation of additional internal systems and infrastructure, including operational, financial and management information systems; • our costs associated with expanding our facilities or building out our laboratory space; • the effects of the disruptions to and volatility in the credit and financial markets in the United States and worldwide from the COVID-19 pandemic or other epidemics; and • the costs of operating as a public company. Until such time, if ever, as we can generate substantial product revenues to support our cost structure, we expect to finance our cash needs through a combination of equity offerings, debt financings or other capital sources, including potentially grants, collaborations, licenses or other similar arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders 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 capital expenditures or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves. Contractual Obligations and Commitments In April 2021, we entered into a cell line license agreement (Cell Line License Agreement) with WuXi Biologics (Hong Kong) Limited (WuXi Biologics). According to the terms of the Cell Line License Agreement, if we do not engage WuXi Biologics or its affiliates to manufacture the therapeutic products produced through the use of the cell line licensed by WuXi Biologics under the Cell Line License Agreement (WuXi Biologics Licensed Products) for our commercial supplies, we are required to make royalty payments to WuXi Biologics in an amount equal to a low single-digit percentage of specified portions of net sales of WuXi Biologics Licensed Products manufactured by a third-party manufacturer. We have the right (but not the obligation) to buy out our remaining royalty obligations with respect to each WuXi Biologics Licensed Product by paying WuXi Biologics a one-time payment in an amount ranging from low single digit million dollars to a maximum of $15.0 million (Buyout Option). The royalty obligations will remain in 23 Table of Contents effect during the term of the Cell Line License Agreement so long as we have not exercised the Buyout Option. See the section within Item 1 of Part I, “Notes to Condensed Financial Statements — Note 3 — Commitments and Contingencies” of this Quarterly Report for additional information. In October 2021, we entered into a noncancelable agreement to lease office and laboratory space in San Diego, California (Torrey Plaza Lease) with aggregate payments of approximately $38.0 million over the 126-month term of the lease. The Torrey Plaza Lease commenced in July 2022. See the section within Item 1 of Part I, “Notes to Condensed Financial Statements — Note 3 — Commitments and Contingencies” of this Quarterly Report for additional information. We enter into contracts in the normal course of business with various third parties for preclinical and clinical research studies and testing, manufacturing and other services and products for operating purposes. These contracts provide for termination upon notice. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including non-cancellable obligations of our service providers, up to the date of cancellation. Critical Accounting Policies and Estimates Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to estimates to complete the performance obligations and the estimated transaction price for collaboration revenues, accruals for research and development expenses and estimates used in valuing our equity awards for stock-based compensation expense. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be 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. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies are those accounting principles generally accepted in the United States that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those principles. For a description of our critical accounting policies, see Item 1 of Part I, “Notes to Condensed Financial Statements — Note 1 — Organization and Summary of Significant Accounting Policies” of this Quarterly Report and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” contained in our Annual Report on Form 10-K, filed with the SEC on March 10, 2023. There have not been any material changes to the critical accounting policies discussed therein during the three months ended March 31, 2023. Item 3 . Quantitative and Qualitative Disclosures About Market Risk. Not applicable to a smaller reporting company.