Nkarta, Inc. 10-K

Item 8. Financial Statements and Supplementary Data. Nkarta, Inc. Index to Financial Statements For the years ended December 31, 2020 and 2019 Page Report of Independent Registered Public Accounting Firm 108 Audited Financial Statements Balance Sheets 109 Statements of Operation and Comprehensive Loss 110 Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit) 111 Statements of Cash Flows 112 Notes to Financial Statements 113 107 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors of Nkarta, Inc. Opinion on the Financial Statements We have audited the accompanying balance sheets of Nkarta, Inc. (the Company) as of December 31, 2020 and 2019, the related statements of operations and comprehensive loss, convertible preferred stock and stockholders’ equity (deficit) and cash flows, for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2019. Redwood City, California March 25, 2021 108 NKARTA, INC. Balance Sheets (In thousands, except share and per share data) December 31, 2020 2019 Assets Current assets: Cash and cash equivalents $ 96,692 $ 20,607 Short-term investments, available-for-sale 218,221 16,384 Prepaid expenses and other current assets 3,922 474 Total current assets 318,835 37,465 Restricted cash 413 268 Property and equipment, net 9,350 3,080 Operating lease right-of-use assets 8,505 7,144 Other long-term assets 547 455 Total assets $ 337,650 $ 48,412 Liabilities, convertible preferred stock and stockholders' equity (deficit) Current liabilities: Accounts payable $ 1,176 $ 1,882 Operating lease liabilities, current portion 1,402 1,516 Preferred stock purchase right liability — 1,478 Accrued and other current liabilities 6,253 3,289 Total current liabilities 8,831 8,165 Operating lease liabilities, net of current portion 7,517 5,780 Other long-term liabilities 82 134 Total liabilities 16,430 14,079 Commitments and contingencies (Note 7) Convertible preferred stock, $0.0001 par value; no shares and 54,350,179 shares authorized at December 31, 2020 and 2019, respectively; no shares and 27,283,973 shares issued and outstanding at December 31, 2020 and 2019, respectively — 59,815 Stockholders' equity (deficit): Preferred stock, $0.0001 par value; 54,350,179 shares and no shares authorized at December 31, 2020 and 2019, respectively; no shares issued and outstanding at December 31, 2020 and 2019 — — Common stock, $0.0001 par value; 100,000,000 and 71,919,982 shares authorized at December 31, 2020 and 2019, respectively; 32,627,963 and 1,600,601 shares issued and outstanding at December 31, 2020 and 2019, respectively 3 1 Additional paid-in capital 439,235 1,179 Accumulated other comprehensive loss 3 (2 ) Accumulated deficit (118,021 ) (26,660 ) Total stockholders' equity (deficit) 321,220 (25,482 ) Total liabilities, convertible preferred stock and stockholders' equity (deficit) $ 337,650 $ 48,412 See accompanying notes to the financial statements. 109 NKARTA, INC. Statements of Operations and Comprehensive Loss (In thousands, except share and per share data) Year Ended December 31, 2020 2019 Collaboration revenue $ — $ 115 Operating expenses: Research and development 36,220 17,217 General and administrative 15,288 5,247 Total operating expenses 51,508 22,464 Loss from operations (51,508 ) (22,349 ) Other income (expense), net: Change in fair value of preferred stock purchase right liability (40,163 ) 1,318 Change in fair value of derivative liability — 858 Loss from extinguishment of debt — (752 ) Interest income 313 304 Interest expense — (473 ) Other income (expense), net (3 ) 18 Total other income (expense), net (39,853 ) 1,273 Net loss $ (91,361 ) $ (21,076 ) Comprehensive loss: Net loss (91,361 ) (21,076 ) Other comprehensive loss: Unrealized loss on securities 5 (2 ) Comprehensive loss $ (91,356 ) $ (21,078 ) Net loss per share, basic and diluted $ (5.44 ) $ (14.41 ) Weighted-average number of common shares used in net loss per share, basic and diluted 16,806,262 1,462,511 See accompanying notes to the financial statements. 110 NKARTA, INC. Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) (In thousands, except share data) Convertible Preferred Stock Stockholders' Equity (Deficit) Common Stock $0.00001 Additional Accumulated Other Total Stockholders' Number of Shares Amount Number of Shares Par Value Paid-In Capital Accumulated Deficit Comprehensive Loss Equity (Deficit) Balance at January 1, 2019 6,170,349 $ 12,709 1,231,840 $ 1 $ 187 $ (5,584 ) $ — $ (5,396 ) Beneficial conversion feature upon issuance of convertible — 261 — — — — — — Reacquisition of beneficial conversion feature upon settlement of promissory notes — (145 ) — — — — — — Issuance of Series B convertible preferred stock upon conversion of promissory notes 2,621,181 6,237 — — — — — — Issuance of Series B convertible preferred stock, net of issuance costs 18,492,443 43,548 — — — — — — Series B preferred stock purchase right liability upon issuance of Series B convertible preferred stock — (2,795 ) — — — — — — Vesting of shares of common stock subject to repurchase — — 354,632 — 42 — — 42 Issuance of common stock upon exercise of stock option, net of repurchase — — 14,129 — 3 — — 3 Share-based compensation expense — — — — 947 — — 947 Unrealized loss on short-term investments — — — — — — (2 ) (2 ) Net loss — — — — — (21,076 ) — (21,076 ) Balance at December 31, 2019 27,283,973 $ 59,815 1,600,601 $ 1 $ 1,179 $ (26,660 ) $ (2 ) $ (25,482 ) Issuance of Series B second tranche convertible preferred stock, net of issuance costs 27,066,206 64,321 — — — — — — Reclassification of preferred stock purchase right liability to equity upon issuance of convertible preferred stock — 41,641 — — — — — — Conversion of convertible preferred stock to common stock (54,350,179 ) (165,777 ) 14,689,215 1 165,776 — — 165,777 Issuance of common stock upon initial public offering, net of issuance costs — — 16,100,000 1 265,095 — — 265,096 Vesting of shares of common stock subject to repurchase — — 85,304 — 50 — — 50 Issuance of common stock upon exercise of stock option, net of repurchase — — 152,843 — 387 — — 387 Share-based compensation expense — — — — 6,748 — — 6,748 Unrealized loss on short-term investments — — — — — — 5 5 Net loss — — — — — (91,361 ) — (91,361 ) Balance at December 31, 2020 — $ — 32,627,963 $ 3 $ 439,235 $ (118,021 ) $ 3 $ 321,220 See accompanying notes to the financial statements. 111 NKARTA, INC. Statements of Cash Flows (In thousands) Year Ended December 31, 2020 2019 Cash flows from operating activities: Net loss $ (91,361 ) $ (21,076 ) Adjustments to reconcile net loss to net cash used in operating activities: Share-based compensation expense 6,748 947 Depreciation and amortization expense 786 401 Accretion of discount and amortization of premium on investments, net 738 (19 ) Non-cash lease expense 262 152 Change in fair value of preferred stock purchase right liability 40,163 (1,318 ) Change in fair value of derivative liability — (858 ) Non-cash loss from extinguishment of debt — 752 Non-cash interest expense — 473 Others (14 ) — Changes in operating assets and liabilities: Prepaid expenses and other assets (3,645 ) (463 ) Accounts payable and accrued and other liabilities 2,817 2,642 Net cash used in operating activities (43,506 ) (18,367 ) Cash flows from investing activities: Purchases of available-for-sale securities (222,570 ) (16,367 ) Proceeds from maturities of available-for-sale securities 20,000 — Purchase of property and equipment (7,511 ) (1,928 ) Net cash used in investing activities (210,081 ) (18,295 ) Cash flows from financing activities: Proceeds from issuance of convertible preferred stock, net of issuance costs 64,321 43,548 Proceeds from initial public offering, net of issuance costs 265,096 — Proceeds from stock option exercises 387 3 Proceeds from early exercise of stock options 13 44 Proceeds from issuance of convertible notes, net of issuance costs — 5,986 Net cash provided by financing activities 329,817 49,581 Net increase in cash and cash equivalents 76,230 12,919 Cash, cash equivalents and restricted cash at beginning of year 20,875 7,956 Cash, cash equivalents and restricted cash at end of year $ 97,105 $ 20,875 Reconciliation of cash, cash equivalents and restricted cash to the balance sheets: Cash and cash equivalents $ 96,692 $ 20,607 Restricted cash 413 268 Total cash, cash equivalents and restricted cash $ 97,105 $ 20,875 Supplemental disclosures of non-cash investing and financing activities: Acquisitions of property and equipment $ 455 $ 265 Deferred offering costs included in accrued and other current liabilities $ — $ 104 See accompanying notes to the financial statements. 112 NKARTA, INC. Notes to the Financial Statements 1. Description of Business Description of the Business Nkarta, Inc. (“Nkarta” or the “Company”) was incorporated in the State of Delaware in July 2015. The Company is a biopharmaceutical company developing engineered natural killer (“NK”) cells to fight cancer. The Company is focused on leveraging the natural potent power of NK cells to identify and kill abnormal cells and recruit adaptive immune effectors to generate responses that are specific and durable. Nkarta is combining its NK expansion platform technology with proprietary cell engineering technologies to generate an abundant supply of NK cells, engineer enhanced NK cell recognition of tumor targets, and improve persistence for sustained activity in the body for the treatment of cancer. Nkarta’s goal is to develop off-the-shelf NK cell therapy product candidates to improve outcomes for patients. The Company’s operations are based in South San Francisco, California and it operates in one segment. Initial Public Offering On July 14, 2020, the Company completed its initial public offering (“IPO”). The Company’s Registration Statement on Form S-1 (File No. 333-239301) relating to the IPO was declared effective by the Securities and Exchange Commission (“SEC”) on July 9, 2020. The shares began trading on the Nasdaq Global Select Market on July 10, 2020. The Company issued 16,100,000 shares of its common stock, including 2,100,000 shares associated with the full exercise of the underwriters’ option to purchase additional shares, at an offering price of $18.00 per share. Immediately prior to the closing of the Company’s IPO on July 14, 2020, all outstanding shares of the Company’s convertible preferred stock were converted into 14,689,215 shares of the Company’s common stock. In aggregate, the shares issued in the IPO generated approximately $265.1 million in net proceeds after deducting underwriting discounts and commissions and other offering costs. Liquidity and Management Plans The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. Since inception, the Company has devoted substantially all of its efforts to organizing and staffing, business planning, raising capital, conducting preclinical studies and initiating clinical studies, and has not realized substantial revenues from its planned principal operations. In addition, the Company has a limited operating history, has incurred operating losses since inception and expects that it will continue to incur net losses into the foreseeable future as it continues its research and development activities. As of December 31, 2020, the Company had an accumulated deficit of $118.0 million and cash, cash equivalents, restricted cash and short-term investments of $315.3 million. Management plans to continue to incur substantial costs in order to conduct research and development activities and additional capital will be needed to undertake these activities. The Company intends to raise such capital through d ebt or equity financings or other arrangements to fund operations. Management believes that the Company’s current cash, cash equivalents, restricted cash and short-term investments, including the net proceeds of approximately $265.1 million from the closing of its IPO in July 2020 as described above, together with the aggregate gross proceeds of $64.4 million from the issuance of 27,066,206 shares of the Series B preferred stock upon the closing of the Series B Milestone Closing (defined below) on July 1, 2020, will provide sufficient funds to enable the Company to meet its obligations for at least twelve months from the filing date of this report. 2. Basis of Presentation and Significant Accounting Policies Basis of Presentation The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principle (“U.S. GAAP”). 113 Certain prior period amounts reported in the Company’s financial statements have been reclassified to conform to the current period presentation, with no impact on previously reported operating results or financial position. Reverse Stock Split On July 1, 2020, the Company effected a 1-for-3.7 reverse stock split (the “Reverse Stock Split”) of its issued and outstanding common stock. Accordingly, the conversion ratio for the Company’s outstanding convertible preferred stock was proportionately adjusted such that the common stock issuable upon conversion of such preferred stock was decreased in proportion to the Reverse Stock Split. The par value of the common stock was not adjusted as a result of the Reverse Stock Split. All references to common stock, options to purchase common stock, early exercised options, share data, per share data, convertible preferred stock (to the extent presented on an as-converted to common stock basis) and related information contained in these financial statements have been retrospectively adjusted to reflect the effect of the Reverse Stock Split for all periods presented. COVID-19 Pandemic On March 11, 2020, the World Health Organization declared the outbreak of a novel strain of coronavirus, COVID-19, as a global pandemic, which continued to spread throughout the United States and around the world in the fourth quarter of 2020. Multiple variants of the virus that causes COVID-19 are also circulating globally. The COVID-19 pandemic is contributing to a general slowdown in the global economy and may affect the Company’s business, results of operations, financial condition, and future strategic plans. The extent of the impact of the COVID-19 pandemic on the Company’s operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, the effectiveness of actions taken in the United States and other countries to contain, vaccinate against, and treat the disease, and its impact on the Company’s planned preclinical studies and clinical trials, employees and vendors, all of which are uncertain and cannot be predicted. The Company has taken certain precautionary measures to minimize exposure of the Company’s employees to the virus and to comply with directives from public health officials. This includes work from home policies for employees as well as enhanced safety measures for scientists who are in labs and manufacturing facility. Some of the third-party vendors that the Company uses have experienced disruptions during this pandemic. However, COVID-19 did not materially impact the timelines the Company previously announced for the filing of the NKX101 IND or the dosing of the first patient in the NKX101 clinical trial, and the Company does not expect COVID-19 to have a material impact on the current timeline for the filing of the NKX019 IND. At this time, the extent to which the COVID-19 pandemic may impact the Company’s financial condition or results of operations is uncertain and these precautionary measures may negatively impact productivity, and cause disruptions or delays to the Company’s activities and timelines. In response to the pandemic, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020. The CARES Act, among other things, includes tax provisions relating to refundable payroll tax credits, deferment of employer’s social security payments, net operating loss utilization and carryback periods, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The CARES Act had no impact on the Company’s income tax provision for the year ended December 31, 2020. The Company continues to evaluate the impact of the CARES Act on its financial position, results of operations and cash flows. The Company currently does not expect to apply for loans or grants under the CARES Act. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates, including those related to preclinical studies, fair value of assets and liabilities, convertible preferred stock, share-based compensation and income taxes. Management bases its estimates on historical experience, knowledge of current events and actions it may undertake in the future that management believes to be reasonable under the circumstances. Actual results may differ from these estimates and assumptions. 114 Concentration of Credit Risk Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash, cash equivalents and short-term investments. The Company maintains cash, cash equivalents and short-term investments with various high credit quality and are invested through banks and other financial institutions in the United States. Such deposits may be in excess of federally insured limits. Management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held. The Company has not experienced any losses on deposits since inception. Comprehensive Loss Comprehensive loss consists of net loss and unrealized gains or losses on available-for-sale investments. The Company displays comprehensive loss and its components as part of the statements of operations and comprehensive loss. Fair Value of Financial Instruments 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 nonrecurring 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; and 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 prepaid expenses and other current assets, accounts payable, accrued liabilities and other current liabilities are reasonable estimates of their fair value due to the short-term nature of these accounts. Cash, Cash Equivalents, Short-term Investments and Restricted Cash Cash and Cash Equivalents The Company considers all highly liquid investments with insignificant interest rate risk and an original maturity of three months or less at the date of purchase to be cash equivalents. Cash includes demand deposits held in readily available checking accounts at a federally insured financial institution. Cash equivalents consist of money market funds. Short-term Investments Short-term investments consist of commercial debt securities, commercial paper and U.S. Government securities, classified as available-for-sale securities and have maturities of greater than three months but less than one year. The Company has classified all of its available-for-sale investment securities as current assets on the balance sheets because these are considered highly liquid securities and are available for use in current operations. The Company carries these securities at fair value, and reports unrealized gains and losses as a separate component of accumulated other comprehensive loss. The cost of debt securities is adjusted for amortization of purchase premiums and accretion of discounts to maturity. Such amortization and accretion is included in interest income in the statements of operations and comprehensive loss. Realized gains and losses on sales of securities are determined using the specific identification method and recorded in other income (expense), net in the statement of operations and comprehensive loss. 115 Restricted Cash The Company is required to maintain a letter of credit related to its office and lab space lease. This cash is the collateral for that letter of credit and per the terms of the lease must remain in place until two months after the termination of the lease. As the remaining term of the lease as of December 31, 2020 is greater than one year, the related restricted cash has been classified as non-current. Property and Equipment, Net Property and equipment, which consist of leasehold improvements, furniture and fixtures, research equipment, computers and software and construction-in-progress are stated at cost less accumulated depreciation. Depreciation and amortization is calculated using the straight-line method over the estimated useful lives of the assets, which ranges from three to five years. Leasehold improvements are amortized over the remaining life of the lease for leasehold improvements at the time the asset is placed into service. Impairment of Long-Lived Assets The carrying value of long-lived assets, including property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the asset may not be recoverable. An impairment loss is recognized when the total of estimated future undiscounted cash flows, expected to result from the use of the asset and its eventual disposition, are less than its carrying amount. Impairment, if any, would be assessed using discounted cash flows or other appropriate measures of fair value. Through December 31, 2020, there has been no such impairment losses recorded by the Company. Deferred Offering Costs Deferred offering costs that consisted of legal, accounting, printing and other fees and costs directly attributable to the IPO were capitalized. Upon the completion of the IPO in July 2020, the total deferred offering costs of $4.4 million were offset against the proceeds from the IPO and reclassified to additional paid-in capital on the balance sheets. Preferred Stock Purchase Right Liability The Company at times enters into convertible preferred stock financings where, in addition to the initial closing, investors agree to buy, and the Company agrees to sell, additional shares of that convertible preferred stock at a fixed price in the event that certain agreed upon milestones are achieved or at the election of investors. The Company evaluates this purchase right and assesses whether it meets the definition of a freestanding instrument and, if so, determines the fair value of the purchase right liability and records it on the balance sheets with the remainder of the proceeds raised being allocated to convertible preferred stock. The preferred stock purchase right liability is revalued at each reporting period with changes in the fair value of the liability recorded as change in fair value of preferred stock purchase right in the statements of operations and comprehensive loss. A final revaluation adjustment of preferred stock purchase right liability was recorded at settlement in July 2020 and the resultant fair value was then reclassified to convertible preferred stock at that time. Convertible Preferred Stock The Company recorded all shares of convertible preferred stock at their respective issuance price less issuance costs on the dates of issuance. Convertible preferred stock was previously classified outside of stockholders’ equity (deficit) on the balance sheets as events triggering redemption were not solely within the Company’s control because the preferred stockholders had the ability to effect a liquidation event, as they have majority of the Company’s Board seats. Immediately prior to the closing of the Company’s IPO in July 2020, all outstanding shares of the Company’s convertible preferred stock converted into the Company’s common stock. There were no outstanding shares of the Company’s convertible preferred stock as of December 31, 2020. 116 Revenue Recognition Revenue is recognized in accordance with ASC 606 when a customer obtains control of promised goods or services. The Company applies the following five steps to recognize revenue: (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 performance obligations in the contract; and (v) determine the recognition period. The Company evaluates its performance obligations to determine whether each item represents a good or service that is distinct or has the same pattern of transfer as other deliverables. A deliverable is considered distinct if the customer can benefit from the good or service independently of other goods/services either in the contract or that can be obtained elsewhere, and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contact. If the deliverable is not considered distinct, the Company combines such deliverables and accounts for them as a single performance obligation. The Company allocates the consideration to each deliverable at the inception of the arrangement based on the transaction price. In April 2017, the Company entered into the Collaboration and License Agreement (the “Collaboration Agreement”) with GlaxoSmithKline Intellectual Property Development Limited and Glaxo Group Limited (together, “GSK”) to research and develop therapeutics using Engineered NK Cells as carriers for target programs. On December 10, 2018, the Collaboration Agreement with GSK was terminated. Nominal revenue of $0.1 million was recognized for the year ended December 31, 2019 in connection with the wind-down activities through the termination of the Collaboration Agreement in December 2018. There was no revenue recorded for the year ended December 31, 2020. Research and Development Costs Research and development costs are expensed as incurred. Research and development costs consist primarily of salaries and other benefits of research and development personnel, including associated share-based compensation, costs related to research activities, preclinical studies, clinical trial, drug manufacturing and allocated overhead and facility-related expenses. The Company accounts for non-refundable advance payments for goods or services that will be used in future research and development activities as expenses when the goods have been received or when the service has been performed rather than when the payment is made. Clinical trial costs are a component of research and development expenses. The Company expenses costs for its clinical trial activities performed by third parties, including clinical research organizations and other service providers, as they are incurred, based upon estimates of the work completed over the life of the individual study in accordance with associated agreements. The Company uses information it receives from internal personnel and outside service providers to estimate the clinical trial costs incurred. Commitments The Company recognizes a liability with regard to loss contingencies when it believes it is probable a liability has occurred and the amount can be reasonably estimated. If some amount within a range of loss appears at the time to be a better estimate than any other amount within the range, the Company accrues that amount. When no amount within the range is a better estimate than any other amount the Company accrues the minimum amount in the range. There has been no such liabilities recorded by the Company as of December 31, 2020. Leases At the commencement date of a lease, the Company recognizes lease liabilities which represent its obligation to make lease payments, and right-of-use assets (“ROU assets”) which represent its right to use the underlying asset during the lease term. The lease liability is measured at the present value of lease payments over the lease term. As the Company’s leases typically do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the lease commencement date. The ROU asset is measured at cost, which includes the initial measurement of the lease liability and initial direct costs incurred by the Company and excludes lease incentives. ROU assets are recorded in operating lease ROU assets and lease liabilities are recorded in operating lease liabilities, current and noncurrent in the balance sheets. 117 Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term. Lease agreements that contain both lease and non-lease components are generally accounted for separately. The Company does not recognize lease liabilities and ROU assets for short-term leases with terms of twelve months or less. Share-Based Compensation Share-based compensation expense represents the cost of the grant-date fair value of employee, officer, director, and non-employee stock option grants, estimated in accordance with the applicable accounting guidance, recognized using the straight-line method over the vesting period for service-based options and using the graded vesting method for performance-based options. The vesting period generally approximates the expected service period of the awards. Forfeitures are recognized and accounted for as they occur. The fair value of stock options is estimated using a Black-Scholes option pricing model on the date of grant. This method requires certain assumptions be used as inputs, such as the fair value of the underlying common stock, expected term of the option before exercise, expected volatility of the Company’s common stock, expected dividend yield, and a risk-free interest rate. Options granted during the year have a maximum contractual term of ten years. The Company has limited historical stock option activity and therefore estimates the expected term of stock options granted using the simplified method, which represents the average of the contractual term of the stock option and its weighted-average vesting period. The expected volatility of stock options is based upon the historical volatility of a number of publicly traded companies in similar stages of clinical development. The Company has historically not declared or paid any dividends and does not currently expect to do so in the foreseeable future. The risk-free interest rates used are based on the U.S. Department of Treasury (“U.S. Treasury”) yield in effect at the time of grant for zero-coupon U.S. Treasury notes with maturities approximately equal to the expected term of the stock options. Income Taxes Income taxes have been accounted for using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates applicable to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance against deferred tax assets is recorded if, based upon the weight of all available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Segment Reporting The Company’s chief operating decision maker, its President and Chief Executive Officer, manages its operations and business as one operating segment for the purposes of allocating resources, makes operating decisions and evaluates financial performance. No product revenue has been generated since inception and all assets are held in the United States. Net Loss Per Share Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period, without consideration of potential dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the sum of the weighted average number of common shares plus the potential dilutive effects of potential dilutive securities outstanding during the period. Potential dilutive securities are excluded from diluted earnings or loss per share if the effect of such inclusion is antidilutive. The Company’s potentially dilutive securities, which include convertible preferred stock prior to the conversion of such shares to common stock, unvested common stock, and outstanding stock options under the Company’s equity incentive plan, have been excluded from the computation of diluted net loss per share as they would be anti-dilutive to the net loss per share. For all periods presented, there is 118 no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position. Recent Accounting Pronouncements Adopted Accounting Pronouncements Financial Instruments. In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including available-for-sale debt securities. The Company adopted this standard in the first quarter of 2020. The adoption of this standard did not have a material impact on the Company’s financial statements. Fair Value Measurements. In August 2018, the FASB issued ASU 2018-13—Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement , which eliminates, adds and modifies certain disclosure requirements for fair value measurement. The amendments in ASU 2018-13 that relate to changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments in ASU 2018-13 should be applied retrospectively to all periods presented upon their effective date. The Company adopted this standard in the first quarter of 2020. The adoption of this standard did not have a material impact on the Company’s disclosures. Accounting Pronouncements Not Yet Adopted Income Taxes. In December 2019, the FASB issued ASU 2019-12—Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Topic 740 related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates. This standard is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company will adopt this standard in the first quarter of 2021 and the adoption is not expected to have a material impact on the Company’s financial statements. There were no other significant updates to the recently issued accounting standards other than as disclosed herewith. Although there are several other new accounting pronouncements issued or proposed by the FASB, the Company does not believe any of those accounting pronouncements have had or will have a material impact on its financial position or operating results. 119 3. Net Loss Per Share The following tables summarize the computation of the basic and diluted net loss per share (in thousands except share and per share data): Year Ended December 31, 2020 2019 Numerator: Net loss $ (91,361 ) $ (21,076 ) Denominator: Weighted average common shares outstanding 16,918,664 1,712,639 Less: weighted average unvested common stock issued upon early exercise of common stock options (112,402 ) (165,589 ) Less: weighted average unvested founder shares of common stock — (84,539 ) Weighted average shares used to compute net loss per share, basic and diluted 16,806,262 1,462,511 Net loss per share, basic and diluted $ (5.44 ) $ (14.41 ) The following table summarizes the outstanding potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because their inclusion would be anti-dilutive: December 31, 2020 2019 Common stock options 3,640,715 2,329,516 Unvested common stock upon early exercise of common stock options 77,393 132,249 Convertible preferred stock — 7,374,034 3,718,108 9,835,799 4. Fair Value of Financial Instruments The following tables summarize the fair value of the Company’s financial instruments (in thousands): Fair Value Measurements Using December 31, 2020 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Cash equivalents: Money market funds $ 94,631 $ 94,631 $ — $ — Short-term investments: Corporate debt securities $ 48,614 $ — $ 48,614 $ — Commercial paper 63,445 — 63,445 — U.S. Government securities 106,162 — 106,162 — Total short-term investments $ 218,221 $ — $ 218,221 $ — Total $ 312,852 $ 94,631 $ 218,221 $ — 120 Fair Value Measurements Using December 31, 2019 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Cash equivalents: Commercial paper $ 2,395 $ — $ 2,395 $ — Short-term investments: Corporate debt securities $ 6,027 $ — $ 6,027 $ — Commercial paper 10,357 — 10,357 — Total short-term investments 16,384 — 16,384 — Total $ 18,779 $ — $ 18,779 $ — Liabilities: Preferred stock purchase right liability $ 1,478 $ — $ — $ 1,478 Cash Equivalents and Short-Term Investments Financial assets measured at fair value on a recurring basis consist of the Company’s cash equivalents and short-term investments. Cash equivalents consisted of money market funds and short-term investments consisted of commercial paper, corporate debt securities and U.S. Government securities. The Company obtains pricing information from its investment manager and generally determines the fair value of investment securities using standard observable inputs, including reported trades, broker/dealer quotes, and bids and/or offers. Investments are classified as Level 1 within the fair value hierarchy if their quoted prices are available in active markets for identical securities. Investments in money market funds of $94.6 million included in cash equivalents as of December 31, 2020 were classified as Level 1 instruments. Investments in corporate debt securities, commercial paper and U.S. Government securities included in short-term investments are valued using Level 2 inputs. Level 2 securities are initially valued at the transaction price and subsequently valued and reported upon utilizing inputs other than quoted prices that are observable either directly or indirectly, such as quotes from third-party pricing vendors. Fair values determined by Level 2 inputs, which utilize data points that are observable such as quoted prices, interest rates and yield curves, require the exercise of judgment and use of estimates, that if changed, could significantly affect the Company’s financial position and results of operations. The following tables summarize the Company’s short-term investments as of December 31, 2020 and December 31, 2019 (in thousands): December 31, 2020 Maturity (in years) Amortized Cost Unrealized Losses Unrealized Gains Estimated Fair Value Corporate debt securities 1 year or less $ 48,616 $ (6 ) $ 4 $ 48,614 Commercial paper 1 year or less 63,445 — — 63,445 U.S. Government securities 1 year or less 106,157 (7 ) 12 106,162 Total $ 218,218 $ (13 ) $ 16 $ 218,221 December 31, 2019 Maturity (in years) Amortized Cost Unrealized Losses Unrealized Gains Estimated Fair Value Corporate debt securities 1 year or less $ 6,029 $ (2 ) $ — $ 6,027 Commercial paper 1 year or less 10,357 — — 10,357 Total $ 16,386 $ (2 ) $ — $ 16,384 121 Prior to 2020, the Company followed the guidance in ASC 320 Investments—Debt and Equity Securities in determining whether unrealized losses were other than temporary. The Company adopted Topic 326 on January 1, 2020, and now considers whether unrealized losses have resulted from a credit loss or other factors. The unrealized losses on the Company’s available-for-sale securities as of December 31 , 2020 and December 31, 2019 were caused by fluctuations in market value and interest rates as a result of the economic environment. The Company concluded that an allowance for credit losses was unnecessary as of December 31 , 2020 and that there were no impairments as of December 31, 2019 considered as other-than-temporary because the decline in the market value was attributable to changes in market conditions and not credit quality, and that it is neither management’s intention to sell nor is it more likely than not that the Company will be required to sell these investments prior to recovery of their cost basis or recovery of fair value. There was no realized gain or loss on available-for-sale securities in the periods presented. The Company elected the practical expedient to exclude accrued interest from both the fair value and the amortized cost basis of the available-for-sale debt securities for the purposes of identifying and measuring an impairment and to not measure an allowance for expected credit losses for accrued interest receivables. Accrued interest receivable is written off through net realized investment gains (losses) at the time the issuer of the bond defaults or is expected to default on payment. The Company made an accounting policy election to present the accrued interest receivable balance as part of prepaid expenses and other current assets in the balance sheets. Accrued interest receivable related to short-term investments was $1.1 million and $41,000 as of December 31, 2020 and 2019, respectively. Preferred Stock Purchase Right Liability In August 2019, the Company entered into a Series B Preferred Stock Purchase Agreement (see Note 10) that contained future purchase rights that were required to be accounted for as liabilities and remeasured to fair value at each reporting date, with any change in the fair value reported as a component of other expense, net. On July 1, 2020, the Company completed the Series B Milestone Closing and issued 27,066,206 shares of its Series B convertible preferred stock for aggregate gross proceeds of $64.4 million. Upon the exercise of the preferred stock purchase right on July 1, 2020, the preferred stock purchase right liability was revalued at an estimated fair value of $41.6 million and was reclassified to additional paid-in capital in the balance sheets. See Note 10 for further details on preferred stock purchase right liability. The estimated fair value of the preferred stock purchase right liability at July 1, 2020 and December 31, 2019 was determined using a valuation model that incorporated the probability of the occurrence of the Series B Milestone Closing in addition to the factors considered at issuance. To determine the fair value of preferred stock purchase right as of July 1, 2020, an intrinsic value model was used. The assumptions used to determine the fair value of the preferred stock purchase right liability as of December 31, 2019 and upon its issuance in August 2019 included an estimated probability of occurrence of the Series B Milestone Closing of 90%, an assumed discount rates of 1.6% and 1.8%, respectively, and an estimated time period the preferred stock purchase right liability would be outstanding of 0.8 years and 1.1 years, respectively. As certain of these inputs are not observable in the market, the preferred stock purchase right liability is classified as a Level 3 instrument. The following table provides the change in preferred stock purchase right liability for the year ended December 31, 2020 (in thousands): Preferred Stock Purchase Right Liability Balance, December 31, 2019 $ 1,478 Change in fair value of preferred stock purchase right 40,163 Reclassification of preferred stock purchase right liability to equity upon issuance of convertible preferred stock (41,641 ) Balance, December 31, 2020 $ — 122 5. Balance Sheet Components Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets are comprised of the following (in thousands): December 31, 2020 2019 Prepaid expenses $ 2,586 407 Other current assets 1,336 67 Total prepaid expenses and other current assets $ 3,922 $ 474 Property and Equipment, Net Property and equipment, net is comprised of the following (in thousands): December 31, 2020 2019 Leasehold improvements $ 1,984 $ 287 Furniture and fixtures 322 265 Research equipment 4,892 2,929 Computers and software 124 61 Construction-in-progress 3,459 183 Total property and equipment 10,781 3,725 Less accumulated depreciation and amortization (1,431 ) (645 ) Total property and equipment, net $ 9,350 $ 3,080 Depreciation and amortization expense were $0.8 million and $0.4 million for the years ended December 31, 2020 and 2019, respectively. Accrued and Other Current Liabilities Accrued and other current liabilities are comprised of the following (in thousands): December 31, 2020 2019 Accrued compensation $ 3,534 $ 1,678 Accrued research and development costs 1,675 702 Accrued property and equipment 117 214 Deferred offering costs — 104 Other accrued and current liabilities 927 591 Total accrued and other liabilities $ 6,253 $ 3,289 6. Leases The Company has operating leases for its corporate office, laboratory space and dedicated space in a vivarium in South San Francisco, California. 123 The components of lease expense were as follows (in thousands): Year Ended December 31, 2020 2019 Operating lease expense $ 1,856 1,315 Variable lease expense (1) 178 126 Short-term lease expense 14 — Total lease expense $ 2,048 $ 1,441 (1) Variable lease expense for the periods presented primarily included common area maintenance charges. Supplemental information related to operating leases were as follows (in thousands): Year Ended December 31, 2020 2019 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows used for operating leases $ 1,705 $ 1,180 Lease liabilities arising from obtaining right-of-use assets Operating leases $ 2,401 $ 5,107 The weighted-average remaining lease term was 8.1 years for the corporate office and laboratory space leases and 0.3 years for the vivarium lease as of December 31, 2020. The corporate office lease includes an option to renew for an additional seven years. However, the renewal option was not included in the lease term for calculating the lease liability, as the renewal option allow the Company to maintain operational flexibility, and the Company was not reasonably certain that it would exercise the renewal option at the time of the lease commencement. The weighted-average discount rate was 10% as of December 31, 2020. Maturities of operating lease liabilities under existing operating leases as of December 31, 2020 were as follows (in thousands): Year ending December 31, Amount 2021 $ 1,461 2022 1,452 2023 1,503 2024 1,556 2025 1,610 2026 and thereafter 5,371 Total future minimum lease payments 12,953 Less imputed interest (4,034 ) Present value of net minimum lease payments $ 8,919 Operating lease liabilities: Current 1,402 Non-current 7,517 Total lease liability $ 8,919 In May 2020, the Company signed a second amendment to its corporate office and laboratory facilities lease. The amended lease provides for an eight-year non-cancelable lease of additional office and laboratory space in the same building. The lease for additional office and laboratory space provides for abatement of rent during the first three months of the lease and contains rent escalations during the term of the lease. The lease for this additional space is expected to commence in the first quarter of 2021 and expires in 2029. The lease amendment also includes an extension of the lease term for the existing office and laboratory space beginning on May 1, 2020 through the first quarter of 2029. The lease agreement includes an option to extend the lease for an additional seven-year term. 124 Subsequently, in January 2021, the Company signed a third amendment to its corporate office and laboratory facilities lease which provides for lease of additional space in the same building. The lease of this additional space is expected to commence in the second quarter of 2021 and expires in March 2024 . The other terms of the existing lease remain unchanged. Total minimum lease payments of $4.5 million and $0.7 million related to the lease of additional space under the second and third amendment, respectively, were excluded from the table above as the lease agreement had not yet commenced as of December 31, 2020. 7. Commitments and Contingencies Guarantee Agreement The Company has agreements whereby it indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a director and officer insurance policy that limits its exposure and enables the Company to recover a portion of any future amounts under certain circumstances and subject to deductibles and exclusions. The Company had no liabilities recorded for these agreements as of December 31, 2020 and 2019. Letters of Credit The Company has a $0.4 million letter of credit agreement with a financial institution that is used as collateral for the Company’s corporate headquarters’ operating lease. The letter of credit automatically renews annually without amendment unless cancelled by the financial institutions within 30 days of the annual expiration date. 8. University of Singapore and St. Jude Children’s License Agreement In August 2016, the National University of Singapore (“NUS”) and St. Jude Children’s Research Hospital (“St. Jude”) and the Company entered into a license agreement under which NUS and St. Jude (the “Licensors”) granted the Company an exclusive, royalty-bearing, worldwide license to its patent rights related to a method for expanding natural killer cells; a chimeric receptor with NKG2D specificity; and a method for supporting autonomous natural killer cell function (“License Agreement”). The License Agreement provides the Company with the rights to grant and authorize sublicenses to make, have made, use, sell, offer for sale and import products and otherwise exploit the patent rights. As consideration for the license, the Company made an upfront payment of $31,800 and issued NUS 250,000 shares of the Company’s common stock. The Company determined that the upfront payment (SGD 42,750) and value of the common stock issued ($2,500 based on fair value at time of issuance) as part of the license agreement would be expensed upon execution of the contract as the license was acquired for research and development purposes which does not have alternative future uses, and the underlying technology has not reached technological feasibility, hence the Company expensed these costs during 2016. In addition, the Company is required to pay an annual license maintenance fee of SGD 25,000, increasing to SGD 50,000 after year two of the agreement. Further, the Company could be required to make milestone payments to the Licensors upon completion of certain regulatory and commercial milestones related to the clinical development and commercialization of certain of the Company’s product candidates. The aggregate potential milestone payments are approximately SGD 5 million. The Company has also agreed to pay the Licensors royalties of 2.5% of net sales of products sold by the Company or through a sublicense. Additionally, the Company agreed to pay the Licensors a tiered percentage of sublicensing income (ranging from 7.5% to 20%) based on the timing of capital raised and stage of clinical trials. The License Agreement also includes certain performance objectives which obligate the Company to meet various milestones related to the clinical development and commercialization of certain of the Company’s product candidates over time for up to 120 months after the effective date of the License Agreement. 125 The Company recorded $ 3 7,000 license maintenance fees included as part of research and development expenses for each of the years ended December 31, 2020 and 2019 . In 2020, t he Company also recorded a $ 0.1 million milestone payments upon completion of a regulatory milestone related to the clinical development of the Company’s product candidate, included as part of research and development expenses . 9. Employee Benefits On January 1, 2018, the Company adopted a defined contribution 401(k) plan that is available to eligible employees. Under the terms of the plan, employees may make voluntary contributions as a percent of compensation, limited to the maximum amount allowable under federal tax regulations. As part of the plan, the Company elected to make non-matching contributions via mandatory 3% of compensation safe harbor nonelective contributions. The Company recognized $0.3 million and $0.2 million for expense related to the nonelective 401(k) contributions for the years ended December 31, 2020 and 2019, respectively. 10. Convertible Preferred Stock and Stockholders’ Equity (Deficit) Under the Amended and Restated Certificate of Incorporation dated August 26, 2019, the Company had a total of 126,270,161 shares of capital stock authorized for issuance, consisting of 71,919,982 shares of common stock, par value of $0.0001 per share, and 54,350,179 shares of convertible preferred stock, par value of $0.0001 per share. Of the 54,350,179 shares of convertible preferred stock, 6,170,349 were designated Series A convertible preferred stock and 48,179,830 were designated Series B convertible preferred stock. In connection with the Reverse Stock Split on July 1, 2020, the Company filed a certificate of amendment to its certificate of incorporation, which provided 100,000,000 authorized shares of common stock with a par value of $0.0001 per share and 54,350,179 authorized shares of preferred stock with a par value of $0.0001 per share. Series A Convertible Preferred Stock In December 2017, the Company sold and issued in a private placement 3,866,602 shares of Series A convertible preferred stock at $2.07 per share (the “Series A Financing”). Upon the closing of the Series A Financing, the convertible notes outstanding at that date were converted into 2,011,114 shares of Series A convertible preferred stock at 80% of the $2.07 price per share (the “Series A Original Issue Price”) paid by the Series A Financing investors. The GSK Convertible Note converted into 292,633 shares of Series A convertible preferred stock at 85% of the Series A Original Issue Price. In connection with the convertible notes, the Company recorded a beneficial conversion feature of $0.9 million which was recognized as a debt discount and accreted to interest expense over the term of the note using the effective interest method. Series B Convertible Promissory Notes In May 2019, the Company entered into Series B Convertible Promissory Notes (the “Convertible Notes”) whereby the Company agreed to issue and certain existing Series A investors (the “Noteholders”) agreed to purchase $6,000,000 in Convertible Notes. The Convertible Notes accrued interest at a contractual rate of 7.5% per year and had an original maturity date of one year from their issuance date. The Convertible Notes were to automatically convert into Series B convertible preferred stock at 85% or 80% of the price per share paid by other investors upon certain qualified financing events, with the percent discount based on the timing of the financing, or through a voluntary option to convert upon certain non-qualified financing events. In addition, if the maturity date were to occur prior to the conversion or repayment of the Convertible Notes, the Noteholders had the right to convert the outstanding principal amount of the Convertible Notes, and all accrued and unpaid interest, into Series A convertible preferred stock at the Series A original issuance price. As the Convertible Notes contained various settlement outcomes, the Company evaluated each scenario for accounting purposes. The settlement into Series A convertible preferred stock scenario resulted in the Company recording a beneficial conversion feature of $0.3 million upon the issuance of the Convertible Notes, as the fair value of the Series A convertible preferred stock on the date of issuance was greater than the original Series A issuance price. The conversion discounts were considered to be redemption features and were evaluated as an 126 embedded derivative and bifurcated from the Convertible Notes, due to the substantial premium to be paid upon redemption. Upon bifurcating the redemption features, the Company recorded a derivative instrument of $ 1.3 million. The derivative instrument and beneficial conversion feature were recorded as a debt discount at inception and were being amortized to interest expense using the effective interest method over the one-year term of the debt. In August 2019, in connection with the Series B convertible preferred stock financing, the Convertible Notes terms were modified so that the Noteholders received a conversion benefit equal to an annual effective interest rate of 7.5% on the outstanding principal on the Convertible Notes, rather than the originally stated 85% price. The change in the conversion benefit resulted in an adjustment to the derivative instrument of $0.9 million. In addition, as the Convertible Notes contained an embedded beneficial conversion feature and were extinguished before conversion, the Company allocated a portion of the settlement to the repurchase of the beneficial conversion feature, using the intrinsic value on the extinguishment date. This resulted in a reduction to the previously recorded beneficial conversion feature of $0.1 million. Additionally, the Company recorded a loss on extinguishment of debt of $0.8 million, representing the write-off on the unamortized debt issuance costs on the date the Convertible Notes converted into Series B convertible preferred stock. During the year ended December 31, 2019, the Company recorded $0.1 million of interest expense related to the stated interest for the Convertible Notes and $0.4 million using the effective-interest method in relation to the debt discounts described above. The annual effective-interest rates for the Convertible Notes was 30.4%. Series B Convertible Preferred Stock On August 27, 2019, the Company entered into a Series B Preferred Stock Purchase Agreement (the “Stock Purchase Agreement”). The Stock Purchase Agreement contained provisions that obligated the Company to sell, outside of its control, an additional 27,066,206 shares of Series B convertible preferred stock at the Series B Original Issue Price per share, for expected gross proceeds of $64.4 million, upon the achievement of a milestone, or by election of the holders of at least one-third of the Company’s Series B convertible preferred stock at any time prior to the completion of the Company’s initial public offering if the milestone was not achieved (the “Series B Milestone Closing”). If the shares were not purchased prior to the completion of the Company’s initial public offering, then the right to purchase these shares would have automatically expired. In the event that an Initial Series B Closing purchaser, or its affiliates or transferees, failed to purchase their required shares in the Series B Milestone Closing, then all the Series B convertible preferred stock held by such initial Series B purchaser would have been automatically converted into one share of common stock for each ten shares of Series B convertible preferred stock. On July 1, 2020, the Company completed the Series B Milestone Closing pursuant to a milestone waiver by the holders of the Series B convertible preferred stock, and issued 27,066,206 shares of Series B convertible preferred stock for gross proceeds of $64.4 million. On July 14, 2020, upon the closing of the Company’s IPO, all outstanding shares of the Company’s convertible preferred stock converted into 14,689,215 shares of the Company’s common stock. There were no outstanding shares of the Company’s convertible preferred stock as of December 31, 2020. The Company determined its obligation to issue additional shares of the Company’s Series B convertible preferred stock in the Series B Milestone Closing represented a freestanding financial instrument that required liability accounting. This freestanding preferred stock purchase right liability was initially recorded at fair value, with fair value changes recognized in the statements of operations and comprehensive loss. At the time the Stock Purchase Agreement was entered into in August 2019, the initial estimated fair value of the preferred stock purchase right liability was $2.8 million, and was revalued at $1.5 million as of December 31, 2019. On July 1, 2020, the preferred stock purchase right liability was revalued at an estimated fair value of $41.6 million and was reclassified to additional paid-in capital upon the exercise of the preferred stock purchase right. The Company recorded the change in the fair value of the Series B convertible preferred stock purchase right liability of $40.2 million as other expense and $1.3 million as other income for the years ended December 31, 2020 and 2019, respectively, in the statements of operations and comprehensive loss. 127 Common Stock In conjunction with the Company’s July 2020 IPO closing, the Company issued and sold 16,100,000 shares of its common stock, including 2,100,000 shares pursuant to the full exercise of the underwriters' option to purchase additional shares, at a public offering price of $18.00 per share, for aggregate net proceeds of $265.1 million after deducting underwriting discounts and commissions and other offering costs. In connection with this offering, all outstanding shares of the Company’s convertible preferred stock converted into 14,689,215 shares of common stock. The following is a summary of the rights and privileges of the holders of common stock as of December 31, 2020: Liquidation Preference : In the event of liquidation, dissolution or winding up, holders of common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all debts and other liabilities and the satisfaction of any liquidation preference granted to the holders of any then-outstanding shares of preferred stock. Dividends : Subject to preferences that may be applicable to any then-outstanding preferred stock, holders of common stock are entitled to receive ratably those dividends, if any, as may be declared from time to time by the Board out of legally available funds. As of December 31, 2020, no cash dividends have been declared or paid. Voting Rights : Each holder of common stock is entitled to one vote for each share on all matters submitted to a vote of the stockholders, including the election of directors. Under the Company’s amended and restated certificate of incorporation and amended and restated bylaws, stockholders will not have cumulative voting rights. Because of this, the holders of a majority of the shares of common stock entitled to vote in any election of directors can elect all of the directors standing for election, if they should so choose. Rights and Preferences : Holders of common stock have no preemptive, conversion or subscription rights and there are no redemption or sinking fund provisions applicable to the common stock. The rights, preferences and privileges of the holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that the Company may designate in the future. 11. Share-Based Compensation Equity Incentive Plan 2015 Equity Incentive Plan The Company granted options under its 2015 Equity Incentive Plan (the “2015 Plan”) until July 2020 when it was terminated as to future awards, although it continues to govern the terms of options that remain outstanding under the 2015 Plan. The 2015 Plan allows for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock unit awards and other stock awards. Awards can be made to officers, directors, employees, non-employee directors, and consultants of the Company. In connection with the Board of Directors’ and stockholders’ approval of the 2020 Plan, the 2015 Plan was terminated as to future awards and a ny options or awards outstanding under the 2015 Plan remain outstanding and effective . As of December 31, 2020, there were an aggregate of 2,211,562 shares of common stock issuable upon the exercise of outstanding options under the 2015 Plan. 2020 Performance Incentive Plan The Company’s 2020 Performance Incentive Plan (the “2020 Plan”) which was adopted by the Company’s board of directors in June 2020 and approved by the Company’s stockholders in July 2020, became effective upon the consummation of the IPO. Upon the effectiveness of the 2020 Plan, no further grants may be made under the Company’s 2015 Plan. The Company’s 2020 Plan allows for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, stock bonuses, restricted stock, stock units and other forms of awards including cash awards to its officers, directors, employees, consultants and advisors. 128 A s of December 31, 2020, a total of 2,660,371 shares of the Company’s common stock w ere authorized for issuance with respect to awards granted under the 2020 Plan. The share limit will automatically increase on the first trading day in January of each year (commencing in 2021) by an amount equal to the lesser of (1) 5 % of the total number of outstanding shares of the Company’s common stock on the last trading day in December in the prior year, or (2) such lesser number as determined by the Company’s board of directors. Any shares subject to awards granted under the 2020 Plan or the 2015 Plan that are not paid, delivered or exercised before they expire or are canceled or terminated, or otherwise fail to vest, as well as shares used to pay the purchase or exercise price of such awards or related tax withholding obligations, will become available for new award grants under the 2020 Plan. A total of 1,542,532 options had been granted and 1,390,402 shares was available for issuance under the 2020 Plan for the year ended December 31 , 2020 . The following table summarizes the stock option activity during the year ended December 31, 2020 (in thousands, except number of shares, exercise prices and contractual term) : Number of shares Weighted-average exercise price Weighted-average remaining contractual term (in years) Aggregate Intrinsic Value Outstanding at December 31, 2019 2,329,516 $ 3.59 9.6 $ 668 Granted 1,782,794 19.52 Exercised (183,287 ) 2.18 Forfeited (288,308 ) 9.40 Outstanding at December 31, 2020 3,640,715 $ 11.00 9.0 $ 183,742 Exercisable at December 31, 2020 654,195 $ 5.34 8.6 $ 36,717 Vested and expected to vest at December 31, 2020 3,640,715 $ 11.00 9.0 $ 183,742 The aggregate intrinsic value represents the difference between the exercise price of stock options and the quoted market price of the Company’s common stock for all in-the-money stock options. Additional information related to the Company’s stock options is summarized below (in thousands, except per share amounts): Year Ended December 31, 2020 2019 Weighted-average grant-date fair value of stock option grants per share $ 12.84 $ 2.70 Intrinsic value of options exercised $ 1,444 $ 104 Fair value of options vested $ 2,664 $ 656 Employee Stock Purchase Plan The Company’s 2020 Employee Stock Purchase Plan (the “ESPP”), which was adopted by the Company’s board of directors in June 2020 and approved by the Company’s stockholders in July 2020, became effective upon the consummation of the IPO. A total of 295,599 shares of the Company’s common stock is initially available for issuance under the ESPP. The ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15% of their eligible compensation, subject to any plan limitations. The ESPP provides for six-month offering periods, and at the end of each offering period, employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s common stock on the first trading day of the offering period or on the last trading day of the offering period. As of December 31 , 2020, no shares had been issued under the ESPP, and the full number of shares authorized under the ESPP Plan was available for issuance purposes upon the effectiveness of the ESPP. 129 Liability for Early Exercise of Restricted Stock Options Certain individuals were granted the ability to early exercise their stock options. The shares of common stock issued from the early exercise of unvested stock options are restricted and continue to vest in accordance with the original vesting schedule. The Company has the option to repurchase any unvested shares at the original purchase price upon any voluntary or involuntary termination. The shares purchased by the employees and non-employees pursuant to the early exercise of stock options are not deemed, for accounting purposes, to be outstanding until those shares vest. The cash received in exchange for exercised and unvested shares related to stock options granted is recorded as a liability for the early exercise of stock options on the accompanying balance sheets and will be transferred into common stock and additional paid-in capital as the shares vest. Shares subject to repurchase by the Company were 77,393 shares and 132,249 shares, with the related liability of $0.1 million and $0.1 million as of December 31, 2020 and 2019, respectively, recorded under other long-term liabilities in the balance sheets. Common Stock Reserved for Future Issuance As of December 31, 2020, the Company had reserved the following shares of common stock for future issuance: December 31, 2020 Common stock options granted and outstanding 3,640,715 Reserved for future equity award grants 1,390,402 Reserved for future ESPP issuances 295,599 5,326,716 Share-Based Compensation Expense Share-based compensation expense for the years ended December 31, 2020 and 2019 were as follows (in thousands): Year Ended December 31, 2020 2019 Research and development $ 1,871 $ 376 General and administrative 4,877 571 Total share-based compensation expense $ 6,748 $ 947 The total unrecognized compensation cost related to unvested share-based awards was $22.2 million, which is expected to be recognized over a weighted-average remaining service period of 3.4 years as of December 31, 2020. In October 2020, the Company recorded share-based compensation expense of $2.3 million related to the modification of certain stock option granted to its former Chief Financial Officer, Matthew Plunkett, under a Separation and Release Agreement that was executed on October 2, 2020 (the “Termination Date”). In addition, the Company recorded severance benefits expense of $0.3 million in October 2020 that is payable within the 6 months after the Termination Date. In September and November of 2019, the Company granted options subject to both a service-based condition and a performance-based condition that require the achievement of a Series B Milestone Closing (Note 10) before the options can be eligible for service vesting conditions. The performance-based condition was achieved in the third quarter of fiscal year 2020. 130 Fair Value Disclosures The fair value of stock options was estimated on the date of grant using the Black-Scholes option pricing model with the following range of assumptions: Year Ended December 31, 2020 2019 Common stock fair value $4.29 - $61.47 $3.40 - $4.77 Risk-free interest rate 0.4% - 0.5% 1.5% - 2.3% Expected volatility 74.8% - 81.4% 80.2% - 81.9% Expected term (in years) 5.5 - 6.1 5.6 - 6.1 Expected dividend yield — — The Company recognizes compensation costs related to stock options granted to employees and nonemployees based on the estimated fair value of the awards on the date of grant, net of forfeitures. The Company generally recognizes grant-date fair value of stock options granted to employees and non-employee service providers on a straight-line basis over the requisite service period, which is generally the vesting term of the respective awards. The Company determines the fair value of stock options with a service and performance condition, or performance-based options, based on the fair value of the Company’s common stock on the date of grant. The Company accounts for the impact of forfeitures as they occur. For purposes of calculating share-based compensation, the Company estimates the fair value of stock options issued using a Black-Scholes option-pricing model. The determination of the fair value of share-based payment awards utilizing the Black-Scholes option-pricing model is affected by the Company’s stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. Expected term. The Company opted to use the “simplified method” for estimating the expected term of employee options, whereby the expected term equals the average of the vesting term and the original contractual term of the option (generally 10 years). Expected volatility. Due to the Company’s limited operating history and a lack of company specific historical and implied volatility data, the Company based its estimate of expected volatility on the historical volatilities of the common stock of comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants. The comparable companies were chosen based on their similar size, stage in the life cycle, and financial leverage to the Company. Risk-free interest rate. The risk-free rate assumption is based on the U.S. Treasury instruments with maturities similar to the expected term of the stock options. Expected dividend yield. The Company has not issued any dividends and do not expect to issue dividends over the life of the options, as a result the estimated dividend yield is zero. 12. Income Taxes Due to the Company’s net losses for the years ended December 31, 2020 and 2019, and since the Company has a full valuation allowance against deferred tax assets, there was no tax provision or benefit for income taxes recorded in the years presented other than minimum amounts required for state tax purposes. 131 A reconciliation on income taxes to the amount computed by applying the statutory federal income tax rate to the net loss is summarized as follows (in thousands) : Year Ended December 31, 2020 2019 Income tax benefit at statutory rates $ (19,186 ) $ (4,426 ) State income tax, net of federal benefit (3,929 ) (1,959 ) Permanent items 749 245 Research and development credits (1,264 ) (627 ) Other 231 2 Change in valuation allowance 14,965 7,287 Change in fair value of derivative liabilities 8,434 (522 ) Income tax expense $ — $ — Significant components of the Company’s deferred tax assets are shown below (in thousands): December 31, 2020 2019 Deferred tax assets: Net operating loss carry forwards $ 17,674 $ 6,897 Depreciation and amortization 265 200 Research and development credits 3,986 1,316 Accrued expenses 983 459 Lease liability 2,496 2,042 Other, net 891 3 Total deferred tax assets 26,295 10,917 Valuation allowance for deferred tax assets (23,696 ) (8,731 ) Deferred tax assets, net of valuation allowance 2,599 2,186 Deferred tax liabilities: Right-of-use asset (2,382 ) (2,036 ) Depreciation and amortization (217 ) (150 ) Net deferred tax assets $ — $ — The Company has a net operating loss and has provided a valuation allowance against net deferred tax assets due to uncertainties regarding the Company’s ability to realize these assets. The valuation allowance increased by $15.0 million and $7.3 million as of December 31, 2020 and 2019, respectively. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences representing net future deductible amounts become deductible. Due to the Company’s history of losses, and lack of other positive evidence, the Company has determined that it is more likely than not that its net deferred tax assets will not be realized, and therefore, the net deferred tax assets are substantially offset by a valuation allowance at December 31, 2020 and 2019. The $2.6 million net deferred tax asset is realizable as a result of utilizing the deferred tax liabilities associated with the Company’s leases as a source of income. The deferred tax assets were primarily comprised of federal and state tax net operating losses and tax credit carryforwards. As of December 31, 2020, the Company had net operating loss (“NOL”) carryforwards of approximately $63.3 million and $62.7 million, available to reduce future taxable income, if any, for federal and California state income tax purposes, respectively. Of the $63.3 million federal NOL carryforwards, $0.2 million and $3.0 will begin expiring in 2035 and 2036, respectively, if not utilized, while $60.1 million can be carried forward indefinitely. The state NOL carryforwards will begin expiring in 2036, if not utilized. 132 The Company also had federal and state research and development credit carry forwards of approximately $ 3.2 million and $ 1.9 million , respectively, at December 31, 20 20 . The federal credits will begin expir ing in 2035 if not utilized. The California credits have no expiration date . Utilization of the NOL and research and development credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), as well as similar state provisions. The future utilization of the Company’s NOL and tax credit carryforwards to offset future taxable income may be subject to a substantial annual limitation as a result of changes in ownership by stockholders that hold 5% or more of the Company’s common stock. An assessment of such ownership changes under Section 382 was not completed through December 31, 2019. To the extent that an assessment is completed in the future, the Company’s ability to utilize tax attributes could be restricted on a year-by-year basis and certain attributes could expire before they are utilized. The Company will examine the impact of any potential ownership changes in the future. The Company has not been audited by the Internal Revenue Service or any state income or franchise tax agency. As of December 31, 2020, its federal and state returns for the years ended 2015 through the current period are still open to examination. In addition, all of the net operating losses and research and development credit carryforwards that may be used in future years are still subject to inquiry given that the statute of limitation for these items would begin in the year of the utilization. The balance of gross unrecognized tax benefits as of December 31, 2020 and 2019 was approximately $0.8 million and $0.3 million, respectively, all of which would affect the Company’s income tax expense if recognized, before consideration of the Company’s valuation allowance. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months. The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. There was no interest and penalties for the years ended December 31, 2020 and 2019. The Company files income tax returns in the United States federal jurisdiction and the State of California and is not currently under examination by any taxing authority for any open tax year. Due to net operating loss carryforwards, all years remain open for income tax examination. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the IRS or state tax authorities to the extent utilized in a future period. No federal or state tax audits are currently in process. The following table summarizes the changes in the Company’s gross unrecognized tax benefits (in thousands): December 31, 2020 2019 Balance at the beginning of the year $ 270 $ 73 Additions for tax positions taken in prior years 14 5 Additions for tax positions taken in current year 493 192 Balance at the end of the year $ 777 $ 270 133 Item 9. Changes in and Disagreements w ith Accountants on Accounting and Financial Disclosure. None.