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Item 7. Management’s Discussion and Analysis

2021-03-31 compared with 2020-03-13 · 128 added, 102 removed, 196 unchanged (54% of the section changed)

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We are a clinical-stage biotechnology company that discovers and develops Anticalin-based drugs to target validated disease pathways in unique and transformative ways.

Our clinical pipeline includes an inhaled IL-4Rα antagonist Anticalin protein to treat uncontrolled asthma, and an immuno-oncology (IO) bispecific targeting HER2 and 4-1BB.

Our clinical pipeline includes an inhaled IL-4Rα antagonist Anticalin protein to treat moderate-to-severe asthma and an immuno-oncology (IO) bispecific targeting 4-1BB and HER2.

Proprietary to us, Anticalin proteins are a novel class of therapeutics validated in the clinic and through partnerships with leading pharmaceutical companies.

Our core Anticalin technology and platform were developed in Germany, and we have collaborations with major multi-national pharmaceutical companies.

In particular, we have an alliance with AstraZeneca to treat respiratory diseases and partnerships with Servier and Seagen, both in IO.

Our development programs include:

• PRS-060/AZD1402 , our lead respiratory program partnered with AstraZeneca, a drug candidate that antagonizes IL-4Rα, thereby inhibiting IL-4 and IL-13, two cytokines known to be key mediators in the inflammatory cascade that drive the pathogenesis of asthma and other inflammatory diseases.

We are sponsoring the phase 1 studies of PRS-060/AZD1402 with and AstraZeneca is funding the costs.

AstraZeneca will conduct and fund the phase 2a study of the drug candidate, after which we will have separate options to co-develop and co-commercialize PRS-060/AZD1402 in the United States.

We are developing additional respiratory drug candidates beyond PRS-060/AZD1402, within and outside of the AstraZeneca alliance.

We have initiated three discovery-stage respiratory programs in our alliance with AstraZeneca, the targets and disease areas for which are undisclosed.

AstraZeneca may initiate one additional program within the alliance, for a total of four programs beyond PRS-060/AZD1402.

We retain co-development and co-commercialization rights to two out of the four programs beyond PRS-060/AZ1402.

We also continue to advance several discovery-stage respiratory programs outside of the AstraZeneca collaboration.

PRS-343, our lead IO program, is a fusion protein, comprising a HER2-targeting antibody genetically linked to 4-1BB-targeting Anticalin proteins.

PRS-343 is designed to drive tumor localized T-cell activation through tumor-targeted drug clustering mediated by HER2 expressed on tumor cells.

• We continue to research and develop additional respiratory drug candidates beyond PRS-060/AZD1402, both within and outside of the AstraZeneca alliance.

In addition to PRS-060/AZD1402, the AstraZeneca alliance includes four respiratory programs, the targets and disease areas of which are undisclosed.

We retain co-development and co-

commercialization rights to two out of the four programs beyond PRS-060/AZ1402.

Our portfolio also includes several respiratory programs outside of the AstraZeneca collaboration.

• Cinrebafusp alfa, our lead IO program, is a fusion protein, comprising a HER2-targeting antibody genetically linked to 4-1BB-targeting Anticalin proteins.

Cinrebafusp alfa is designed to drive tumor localized T cell activation through tumor-targeted drug clustering mediated by HER2 expressed on tumor cells.

This program was the first bispecific T cell co-stimulatory agonist to enter clinical development.

We are also developing additional IO drug candidates that are multispecific Anticalin-based fusion proteins designed to engage immunomodulatory targets, comprising a variety of multifunctional biotherapeutics, including PRS-344, a bispecific antibody-Anticalin fusion protein comprising an PD-L1-targeting antibody genetically fused to Anticalin proteins specific for 4-1BB.

• Additional IO drug candidates beyond cinrebafusp alfa that are multispecific Anticalin-based fusion proteins designed to engage immunomodulatory targets, comprising a variety of multifunctional biotherapeutics, including PRS-344, a bispecific antibody-Anticalin fusion protein comprising an PD-L1-targeting antibody genetically fused to Anticalin proteins specific for 4-1BB.

PRS-344 is being developed as part of our IO collaboration with Servier.

Other IO drug candidates are being developed as part of our collaboration with Servier and Seagen.

Our programs are in varying stages:

• PRS-060/AZD1402 was tested in a nebulized formulation in 54 healthy volunteers at nominal dose levels ranging from 0.25 mg to 400 mg in a phase 1 SAD study.

Data from that study were presented at the American Thoracic Society International Conference in May 2019 showing that PRS-060/AZD1402 was well tolerated when given as a single inhaled or intravenous doses to healthy volunteers and there was systemic target engagement (as measured by pSTAT6 inhibition).

We presented interim data from the ongoing PRS-060/AZD1402 phase 1 MAD study at the European Respiratory Society International Congress in October 2019 and reported that PRS-060/AZD1402 was safe and well-tolerated at all doses, led to a statistically significant reduction in FeNO, a validated biomarker for eosinophilic airway inflammation, and showed dose-dependent systemic target engagement in patients with mild asthma and elevated levels of FeNO (≥ 35ppb).

Data from that study were presented at the American Thoracic Society International Conference in May 2019 showing that PRS-060/AZD1402 was well tolerated when given as single inhaled or intravenous doses to healthy volunteers and there was systemic target engagement (as measured by pSTAT6 inhibition).

We presented interim data from the PRS-060/AZD1402 phase 1 MAD study at the European Respiratory Society International Congress in October 2019 and reported that PRS-060/AZD1402 was safe and well tolerated at all doses, led to a statistically significant reduction in FeNO, a validated biomarker for eosinophilic airway inflammation, and showed dose-dependent systemic target engagement in patients with mild asthma and elevated levels of FeNO (≥ 35ppb).

In that study, during the treatment period, 30 patients were randomized to receive delivered doses of PRS-060/AZD1402 ranging from 2 mg to 60 mg (5 mg to 150 mg administered through a nebulizer (nominal dose)) twice daily for nine consecutive days and one final dose on the 10th day, and 12 patients were randomized to receive placebo at the same intervals.

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No systemic target engagement and minimal systemic exposure was observed at the 2 mg dose, suggesting that local target engagement by the drug may be sufficient to reduce airway inflammation, as evidenced by FeNO reduction at that 2 mg dose level.

Following these reported results, we and AstraZeneca are preparing to move into a phase 2a study in moderate-to-severe asthmatics in the second half of 2020.

We presented interim data from our phase 1 dose escalation study at the SITC annual meeting on November 9, 2019.

We reported that PRS-343 was well tolerated and had a favorable safety profile at all doses and schedules tested, demonstrated anti-tumor activity in a heavily pre-treated patient population across multiple tumor types and showed a potent increase in CD8+ T-cell numbers in the tumor microenvironment of responders, indicative of 4-1BB agonism on T-cells.

Pieris continues to enroll patients in that study at higher dose cohorts and plans to initiate the next stage of clinical development in gastric cancer this year.

We also continue to enroll the dose-escalation phase 1 study of PRS-343 in combination with atezolizumab and reported initial data from the study at our R&D day on November 19, 2019 in New York.

For our other IO drug candidates and programs, we are conducting activities relating to candidate identification, optimization and preclinical evaluation.

We achieved two preclinical milestones in connection with the PRS-344 program, one in December 2018 and another in February 2019, triggering two milestone payments from Servier, and intend to file an IND for the drug candidate in the first half of 2020.

We also executed our option to opt-into co-development and United States commercialization of PRS-344 during the first quarter of 2019.

In September 2019, Servier notified us of its decision to discontinue co-development of PRS-332, a PD-1-LAG-3 bispecific for strategic reasons.

We do not presently intend to continue development of PRS-332 but retain full rights to advance the development and commercialization of the product on a world-wide basis.

Servier’s termination of the co-development of the PRS-332 program does not impact the remainder of the Pieris-Servier alliance and the parties continue to advance PRS-344 through IND-enabling activities.

The Pieris-Servier alliance includes three additional programs beyond PRS-344, all of which are in active preclinical development.

Our core Anticalin technology and platform were developed in Germany and we have collaborations with major multi-national pharmaceutical companies.

In particular, we have an alliance with AstraZeneca to treat respiratory diseases and partnerships with Servier and Seattle Genetics, both in IO.

In order to further investigate the safety and efficacy profile of PRS-060/AZD1402, the phase 1 MAD study recruited additional cohorts in 2020.

The study has now completed, and we are currently planning to disclose data from these additional cohorts in 2021.

• In addition to Ukrainian regulatory approval, AstraZeneca has also recently received ethics approval and regulatory acknowledgement for the phase 2a study of PRS-060/AZD1402 in Australia Patient screening has begun following a COVID-19-related inventory challenge that has been successfully managed.

We expect the first patient to be dosed in the second quarter of 2021.

The phase 2a study is a two-part, multi-center, placebo-controlled clinical study of PRS-060/AZD1402 that will evaluate PRS-060/AZD1402 at up to three dose levels using a dry powder formulation administered twice daily.

The first part of the study will assess the safety and pharmacokinetics of the dry powder formulation in approximately 45 moderate controlled asthmatics.

The second part of the study will assess the efficacy, safety and pharmacokinetics of PRS-060/AZD1402 in approximately 360 moderate uncontrolled asthmatics with blood eosinophil count of ≥ 150 cells/μL and FeNO ≥ 25 ppb at screening over four weeks with FEV1 improvement as the primary endpoint.

This study of PRS-060/AZD1402, which is being developed for the treatment of moderate-to-severe asthma, is being sponsored, funded and delivered by AstraZeneca.

Upon completion of that study, Pieris will have the options to co-develop and, subsequently, co-commercialize PRS-060/AZD1402 in the United States.

• Our additional respiratory programs within and outside of the AstraZeneca alliance are in the discovery stage.

AstraZeneca has taken full advantage of all available potential new project starts envisioned in the alliance and all four respiratory programs are ongoing.

We retain co-development and co-commercialization rights to two out of the four programs beyond PRS-060/AZD1402.

Outside of the AstraZeneca collaboration, Pieris continues to advance several proprietary respiratory programs, which are in the discovery stage.

• We presented additional interim data from the phase 1 monotherapy study and atezolizumab combination study of cinrebafusp alfa in an oral presentation session at the ESMO Virtual Congress in September 2020.

As of the July 2020 cutoff date, 74 patients had been enrolled in the monotherapy study, including 21 additional patients enrolled in the active dose cohorts (≥2.5 mg/kg) since the data were presented at the Society for Immunotherapy of Cancer 2019 Annual Meeting, and 41 patients had been enrolled in the atezolizumab combination therapy study.

In the monotherapy study, out of 33 response-evaluable patients at the time of the data cutoff of July 27, 2020, according to RECIST 1.1, one patient with stage 4 rectal adenocarcinoma achieved a confirmed complete response at the 18 mg/kg Q2W dose (cohort 13b), three patients achieved a partial response at the 8 mg/kg Q2W dose (cohort 11b), and stable

disease was observed in 13 patients as best response out of 33 evaluable patients across the predicted active dose ranges (cohorts 9-13b), translating to an ORR of 12% and a DCR of 52%.

Additionally, a significant expansion of CD8+ T cells in the tumor microenvironment of responders and a substantial increase of peripheral soluble 4-1BB were observed in the active dose cohorts, suggesting 4-1BB-mediated target engagement.

Cinrebafusp alfa also showed an acceptable safety profile at all doses and schedules tested in each clinical study.

In the atezolizumab combination trial, seven dose cohorts have been evaluated at a Q3W dosing schedule ranging from 0.05 mg/kg to 8 mg/kg in combination with a fixed 1200 mg dose of atezolizumab.

In that trial, under RECIST 1.1, four patients achieved a confirmed partial response at active dose levels.

We plan to advance cinrebafusp alfa into a phase 2 study for the treatment of HER2-positive gastric cancer in combination with ramucirumab and paclitaxel in 2021.

In July 2020, we announced that our phase 1 studies of cinrebafusp alfa were placed on partial clinical hold by the FDA while we conducted an additional in-use stability and compatibility study requested by the FDA.

Treatment of currently-enrolled patients continued, although no new patients were enrolled pending resolution of the partial hold.

The Company completed the in-use studies it deemed necessary in connection with the partial clinical hold of the cinrebafusp alfa phase 1 studies.

As part of the completed studies that supported a robust process for administration of cinrebafusp alfa in the clinical setting, we have optimized the level of an existing excipient to enhance the stability of cinrebafusp alfa under prescribed as well as stressed conditions that could occur in preparation of the drug candidate for patient administration in the real-world clinical setting.

In January 2021, FDA lifted the partial clinical hold of the phase 1 studies of cinrebafusp alfa.

In August 2020, we entered into the Lilly Agreement with Lilly, pursuant to which we and Lilly will collaborate in a phase 2 clinical study to determine the safety and efficacy of our cinrebafusp alfa in combination with the standard of care regimen for advanced or metastatic gastric cancer, ramucirumab (Cyramza®) and paclitaxel, for the treatment of HER2-positive gastric cancer.

• For our additional IO drug candidates, we are conducting activities relating to candidate identification, optimization and preclinical evaluation.

◦ We anticipate filing an IND application for PRS-344, a 4-1BB/PD-L1 bispecific in 2021.

◦ We have successfully completed non-GLP preclinical work for PRS-352 in 2020 and the program is currently under further development at Servier.

PRS-352 is a preclinical-stage program within the Servier alliance addressing undisclosed targets for immuno-oncology.

◦ We achieved a key development milestone during 2020 for one of the programs in the Seagen collaboration, a bispecific tumor-targeted costimulatory agonist, triggering a $5.0 million milestone.

We also handed the program over to Seagen, which is responsible for further advancement and funding of the asset.

The program is one of up to three potential programs in the Seagen alliance, and we believe the achieved milestone further validates our approach and leadership in immuno-oncology bispecifics, complementing the encouraging clinical data seen with cinrebafusp alfa.

Since inception, we have devoted nearly all of our efforts and resources to our research and development activities and have incurred significant net losses.

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We have not generated any revenues from product sales to date and we do not expect to generate revenues from product sales for the foreseeable future.

Our revenues for the last two years have been primarily from the license and collaboration agreements with AstraZeneca, Servier, and Seattle Genetics.

The revenues from AstraZeneca, Servier, and Seattle Genetics have been comprised primarily of upfront payments, research and development services, and milestone payments.

Our revenues for the last two years have been primarily from the license and collaboration agreements with AstraZeneca, Servier and Seagen.

The revenues from AstraZeneca, Servier and Seagen have been comprised primarily of upfront payments, research and development services and milestone payments.

For additional information about our revenue recognition policy, see “Note 2-Summary of Significant Accounting Policies”.

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Our current development plans focus on the following programs:

our lead respiratory program, PRS-060/AZD1402 and our other respiratory programs, our IO programs, currently comprised of PRS-343 as well as multiple additional proprietary and partnered programs, including PRS-344.

our lead respiratory program, PRS-060/AZD1402 and our other respiratory programs, our IO programs, currently comprised of cinrebafusp alfa as well as multiple additional proprietary and partnered programs, including PRS-344.

These programs consume a large proportion of our current, as well as projected, resources.

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The following table sets forth our revenues and operating expenses for the fiscal years ended December 31, 2020 and 2019 (in thousands):

Years ended December 31,

Revenues $ 29,323 $ 46,279

Research and development expenses 46,531 54,996

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Other (expense) income , net (3,656) (26)

Loss before income taxes

Benefit for income tax

Net loss $ (37,230) $ (25,469)

The following table provides a comparison of revenues for the years ended December 31, 2020 and 2019 (in thousands):

Years ended December 31,

2020 2019 Increase/(Decrease)

Revenue from contracts with customers

$ 23,911 $ 32,065 $ (8,154)

Collaboration revenue

5,412 14,214 $ (8,802)

Total Revenue $ 29,323 $ 46,279 $ (16,956)

The $16.4 million increase in revenue from contracts with customers for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily relates to higher amounts of Servier revenue recorded upon termination of the co-development of PRS-332 by Servier for strategic reasons, higher revenue for AstraZeneca due to the termination of certain performance obligations determined at the origination of the agreement, and recognition of previously-deferred revenue for ASKA upon delivery of the final clinical report.

These increases were partially offset by lower activity levels with respect to our collaboration agreement with Seattle Genetics and revenue recognized upon termination of our agreement with Roche in 2018.

The $0.9 million increase in collaboration revenues in the year ended December 31, 2019 compared to the year ended December 31, 2018 relates to increased research and development activities under our collaboration with Servier.

• The $8.2 million decrease in revenue from contracts with customers for the year ended December 31, 2020 compared to the year ended December 31, 2019 is driven by the following:

◦ Lower net revenue on the AstraZeneca collaboration agreement in 2020 compared to 2019.

Revenue in 2019 benefited from the termination of certain performance obligations along with higher level of activities on PRS-060.

◦ Lower revenue on the ASKA arrangement due to delivery of the final clinical report and arrangement completion in 2019.

◦ Overall decrease partially offset by higher net revenue on the Servier collaboration agreement in 2020 compared to 2019.

Revenue recorded in 2020 benefited from the discontinuance of an early-stage program.

◦ Overall decrease partially offset by the achievement in 2020 of a $5.0 million milestone related to the go decision on the first program under the Seagen agreement.

• Collaboration revenue decreased by $8.8 million in the year ended December 31, 2020 compared to the year ended December 31, 2019.

Collaboration revenue recorded in 2019 benefited from the termination of the co-development of PRS-332 by Servier for strategic reasons and ongoing activities across multiple programs.

Revenue recorded in 2020 benefited, to a much lesser extent than in 2019, from the discontinuance of an early-stage program.

Research and Development Expenses

The following table provides a comparison of the research and development expenses for the years ended December 31, 2020 and 2019 (in thousands):

Years ended December 31,

2020 2019 Increase/(Decrease)

Immuno-oncology

$ 12,386 $ 19,669 $ (7,283)

9,677 11,634 $ (1,957)

Other R&D activities

the $6.0 million increase in our immuno-oncology program spending period-over-period is due primarily to an increase in clinical trials costs incurred for PRS-343 and drug product manufacturing for PRS-343, PRS-344 and other proprietary programs;

the $3.0 million increase for our respiratory programs period-over-period is due primarily to increases to our ongoing CMC costs incurred for phase 2a readiness for PRS-060/AZD1402 offset by slightly lower clinical costs as the phase 1 SAD study that was completed earlier in 2019.

We also incurred higher pre-clinical and lab supply expenses as we initiated and were working on more proprietary and partnered respiratory programs in 2019 as compared to 2018;

the $1.5 million decrease for our anemia program, PRS-080, period-over-period is mainly due to lower clinical costs as the phase 2a study ended in 2019 compared to being active during the same period in 2018;

the $6.0 million increase in other research and development activities expenses is mainly due to higher personnel expenses, including bonus and stock compensation, due to an overall increase in headcount;

an increase in recruiting costs;

and an increase in allocated facility costs due to higher non-cash rent charges for the new Hallbergmoos facility that we took occupancy of in February 2020.

24,468 23,693 $ 775

Total $ 46,531 $ 54,996 $ (8,465)

• the $7.3 million decrease in our immuno-oncology program spending period-over-period is due primarily to an decrease in clinical costs incurred for cinrebafusp alfa due to the partial clinical hold that was in effect for the second half of 2020 and lower drug product manufacturing costs for cinrebafusp alfa, PRS-344, and earlier stage proprietary and partnered discovery programs;

• the $2.0 million decrease for our respiratory programs period-over-period is due primarily to decreases to our ongoing CMC costs for PRS-060/AZD1402;

• the $0.8 million increase in other research and development activities expenses is mainly due to an increase in allocated facility costs and higher lap equipment service and maintenance costs due to the new Hallbergmoos facility partially offset by lower travel costs due to COVID-19 restrictions and lower clinical costs for PRS-080.

General and Administrative Expenses

General and administrative expenses were $18.4 million for both fiscal years ended December 31, 2019 and December 31, 2018 .

The period over period consistency is due to decreases in investor relations, third party legal and recruiting as we have better leveraged internal resources, offset completely by increases in audit and tax due to new accounting regulations and internal control requirements and hardware and software costs to support growth and efficiency.

General and administrative expenses was $16.7 million for the year ended December 31, 2020 as compared to $18.4 million for the year ended December 31, 2019.

The decrease is due to lower professional service costs partially related to Sarbanes-Oxley readiness activities, lower personnel costs, lower audit expense, and lower overall travel and entertainment costs due to COVID-19 restrictions.

This was partially offset by higher legal costs, higher insurance premiums, and higher overall facility costs as the Hallbergmoos site was placed into service in February 2020.

Non-operating income (expense), net

Our non-operating income was $1.7 million for the year ended December 31, 2019 as compared to a $3.8 million for the year ended December 31, 2018 .

This decrease is due to lower interest income as a result of lower invested amounts throughout 2019 and a strengthening of the U.S.

dollar against the euro for the majority of 2019.

In 2018, a larger foreign currency gain was recorded in U.S.

dollars due to a large receivable related to the Seattle Genetics collaboration.

Income tax benefit (expense)

We did not record an income tax benefit or expense for the year ended December 31, 2019 .

For the year ended December 31, 2018 we recorded an income tax benefit from continuing operations of $0.3 million related to an intraperiod tax benefit due to taxable gains in other comprehensive income.

Our non-operating expense was $3.1 million for the year ended December 31, 2020 as compared to a non-operating income of $1.7 million for the year ended December 31, 2019.

This decrease is due to a severely weakening U.S.

dollar in 2020 along with lower net interest realized as a result of lower net invested amounts throughout 2020 and a significantly lower interest rate environment.

Liquidity and Capital Resources

We are subject to risks common to companies in the biotechnology industry, including but not limited to, the need for additional capital, risks of failure of preclinical studies and clinical trials, the need to obtain marketing approval and reimbursement for any drug product candidate that we may identify and develop, the need to successfully commercialize and gain market acceptance of our product candidates, dependence on key personnel, protection of proprietary technology, compliance with government regulations, development of technological innovations by competitors, reliance on third party manufacturers and the ability to transition from pilot-scale production to large-scale manufacturing of products.

Through December 31, 2020, we have funded our operations with $451.4 million of cash that has been obtained from the following main sources:

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We have incurred losses in every period since inception including the years ended December 31, 2020 and 2019, respectively, and have a total accumulated deficit of $211.4 million as of December 31, 2020.

We have several research and development programs underway in varying stages of development and we expect they will continue to require increasing amounts of cash for development, conducting clinical trials, and testing and manufacturing of product material.

We expect cash necessary to fund operations will increase significantly over the next several years as we continue to conduct these activities necessary to pursue governmental regulatory approval of clinical-stage programs and our other product candidates.

Net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ equity and working capital.

We expect to continue to incur operating losses for at least the next several years.

The following table provides a summary of operating, investing, and financing cash flows for the years ended December 31, 2020 and 2019 respectively (in thousands):

Years ended December 31,

Net cash used in operating activities $ (45,896) $ (52,467)

Net cash provided by (used in) investing activities

Net cash provided by investing activities 39,212 9,838

Net cash provided by financing activities 10,115 32,166

Net cash used in operating activities of $52.5 million for the year ended December 31, 2019 is comprised principally of operating expenses of $65.6 million , net of non-cash items, offset by aggregate receipts of $13.7 million from AstraZeneca, Servier, and Seattle Genetics and an increase in net working capital of $0.9 million .

Net cash used in operating activities of $1.1 million for the year ended December 31, 2018 is comprised principally of operating expenses of $50.6 million , net of non-cash items, offset by aggregate receipts of $50.9 million from AstraZeneca, Servier, and Seattle Genetics and an increase in net working capital of $0.4 million .

The change in net cash provided by investing activities for the year ended December 31, 2019 compared to net cash used in the year ended December 31, 2018 is mainly attributable to less investment purchases than investment maturities in the current year compared to 2018.

Financing activities for the year ended December 31, 2019 were $32.2 million due primarily to proceeds from the 2019 private placement (described below), along with exercises of options and warrants and proceeds from the employee stock purchase plan.

Net cash provided by financing activities in 2018 consisted of $47.2 million in proceeds due to the issuance of common stock under our February 2018 underwritten public offering along with $1.3 million of proceeds from the exercise of warrants and stock options for the year ended December 31, 2018 .

In August 2019, the Company entered into a sale agreement pursuant to which the Company may offer and sell shares of its common stock, from time to time, up to an aggregate gross sales proceeds of $50.0 million through an “at the market offering” program under a shelf registration statement on Form S-3.

To date, the Company has not sold any shares under this agreement.

Net cash used in operating activities for the year ended December 31, 2020 and 2019 was $45.9 million and $52.5 million, respectively.

The change is primarily driven by a pronounced decrease in the impact to cash of deferred revenue due to cancellation of certain performance obligations in 2019 and higher collections of accounts receivable and less prepaid expense activity in the current year, offset by an $11.8 million increase in the net loss in 2020 compared to the same period in 2019 and a decrease in accounts payable and accrued expenses due to higher accruals at year-end 2019 related to the new facility.

The change in net cash provided by investing activities for the year ended December 31, 2020 compared to the same period in 2019 is mainly attributable to lower purchases and increased maturities resulting in an overall decrease in investment in the current year compared to 2019 along with an increase in purchases of property and equipment related to our move to a new R&D facility.

Financing activities for the year ended December 31, 2020 and 2019 were $10.1 million and $32.2 million, respectively.

The change is primarily driven by a decrease in proceeds from financing activities in 2020 compared to the same period in 2019.

Financing activities in 2019 benefited from the proceeds of the 2019 private placement (described below).

Financing activities in 2020 benefited from the proceeds from a strategic sale on our ATM Program to strengthen our shareholder base.

In August 2019, we entered into a sale agreement pursuant to which we may offer and sell shares of its common stock, from time to time, up to an aggregate gross sales proceeds of $50.0 million through an “at the market offering” program, or the ATM Program, under a shelf registration statement on Form S-3 (File No.

Through December 31, 2020, we have sold $10.0 million of common shares under the ATM Program.

In November 2019, we entered into a securities purchase agreement for a private placement with a select group of institutional investors.

The private placement, referred to as the PIPE, consisted of 9,014,960 units, at a price of $3.55 per unit, for gross proceeds of approximately $32.0 million, and net proceeds to the Company of approximately $31.0 million, after deducting placement agent fees and estimated offering expenses payable by us.

Each unit consists of (i) one share of our common stock or 0.001 shares of non-voting Series C convertible preferred stock, and (ii) one immediately-exercisable warrant to purchase one share of our common stock with an exercise price of $7.10.

We expect that our existing cash, cash equivalents, and investments will enable us to fund our operational and capital expenditure requirements for at least twelve months from the issuance date of these financial statements.

The private placement, referred to as the PIPE, consisted of 9,014,960 units, at a price of $3.55 per unit, for gross proceeds of approximately $32.0 million, and net proceeds to us of approximately $31.0 million, after deducting placement agent fees and estimated offering expenses payable by us.

Each unit consists of (i) one share of our common stock or 0.001

shares of non-voting Series C convertible preferred stock, and (ii) one immediately-exercisable warrant to purchase one share of our common stock with an exercise price of $7.10.

In March 2021, we amended our strategic collaboration agreement with Seagen which resulted in their purchase of $13.0 million of our common stock (See Note 3).

In March 2021, we also earned a $13.0 million milestone from AstraZeneca related to the initiation of the phase 2a study for PRS-060/AZD1402 and AstraZeneca agreed to purchase $10.0 million of our common stock (See Note 3).

Our future success is dependent on our ability to identify and develop our product candidates, expand our corporate infrastructure and ultimately upon our ability to attain profitable operations.

We have devoted substantially all of our financial resources and efforts to research and development and general and administrative expenses to support such research and development.

We have several research and development programs underway in varying stages of development and we expect that these programs will continue to require increasing amounts of cash for development, conducting clinical trials, and testing and manufacturing of product material.

Cash necessary to fund operations will increase significantly over the next several years as we continue to conduct these activities necessary to pursue governmental regulatory approval of clinical-stage programs and other product candidates.

Any requirements for additional capital will depend on many factors, including the following:

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• the extent to which we acquire or invest in businesses, products or technologies, although we currently have no commitments or agreements relating to any of these types of transactions;

Due to the often-volatile nature of the financial markets, equity and debt financing(s) may be difficult to obtain.

In addition, any unfavorable development or delay in the progress of our core clinical-stage programs including PRS-343 and PRS-060/AZD1402 could have a material adverse impact on our ability to raise additional capital.

We may seek to raise any necessary additional capital through a combination of private or public equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements.

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

If we raise additional capital through private or public equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights.

If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

Contractual Obligations

We lease office space in Boston, Massachusetts.

In August 2015, we entered into a sublease to lease approximately 3,950 square feet.

The sublease expires on February 27, 2022 or such earlier date pursuant to the termination provisions of the sublease.

We also lease approximately 19,000 square feet of office and laboratory space in Freising, Germany under four agreements, the Freising Leases, including three leases for space on three floors of the same building and a letter agreement for additional conference room space within the building.

The Freising Leases all terminate on March 31, 2020.

In October 2018, Pieris GmbH entered into a new lease for office and laboratory space located in Hallbergmoos, Germany, or the Hallbergmoos Lease.

Pieris GmbH moved its operations, formerly conducted in Freising, Germany, to the Hallbergmoos facility in February 2020.

Under the Hallbergmoos Lease, Pieris GmbH will rent approximately 105,000 square feet, of which approximately 96,400 square feet were delivered by the lessor in February 2020 and approximately 8,600 square feet is expected to be delivered by the lessor by May 2020.

An additional approximately 22,300 square feet is expected to be delivered by the lessor by October 2024.

Pieris GmbH has a first right of refusal to lease an additional approximate 13,400 square feet.

The Hallbergmoos Lease provides for an initial rental term of 12.5 years which commenced on February 2020.

Pieris GmbH also has an option to extend the Hallbergmoos Lease for two additional 60 -month periods.

We are not reasonably certain to exercise the option to extend the lease expiration beyond its current expiration date.

Pieris GmbH may sublease space within the leased property with lessor’s consent, which may not be unreasonably withheld.

Monthly base rent for the initial 105,000 square feet of the leased property, including parking spaces, will total approximately $0.2 million per month, which amount shall be adjusted starting on the second anniversary of the commencement date by an amount equal to the German consumer price index.

In addition to the base rent, Pieris GmbH is also responsible for certain administrative and operational costs in accordance with the Hallbergmoos Lease.

Pieris GmbH provided a security deposit of $0.8 million as of December 31, 2018.

The Company will serve as a guarantor for the Hallbergmoos Lease.

Pieris GmbH and the lessor are each entitled to terminate the Hallbergmoos Lease for due cause.

Specifically, the lessor may terminate for Pieris GmbH’s default on rent payments beyond certain amounts, noncompliance with major obligations under the Hallbergmoos Lease, and certain bankruptcy and insolvency events.

The maturities of our operating lease liabilities and minimum lease payments as of December 31, 2019 were as follows (in thousands):

Total undiscounted lease payments

present value adjustment

Present value of lease liabilities

• the effects of the COVID-19 pandemic and the cost and timing of actions taken to contain it.

In addition, any unfavorable development or delay in the progress of our core clinical-stage programs including cinrebafusp alfa and PRS-060/AZD1402 could have a material adverse impact on our ability to raise additional capital.

We plan to raise additional capital to fulfill our operating and capital requirements through public or private equity financings, utilization of our current ATM program, strategic collaborations, licensing arrangements, and/or the achievement of milestones under our collaborative agreements.

The funding requirements of our operating plans, however, are based on estimates that are subject to risks and uncertainties and may change as a result of many factors currently unknown.

Although we continue to pursue these funding plans, there is no assurance that we will be successful in obtaining sufficient funding on terms acceptable to us to fund continuing operations, if at all.

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

The terms of any future financing may adversely affect the holdings or the rights of our existing stockholders.

We believe that our currently available funds will be sufficient to fund our operations through at least the next twelve months from the issuance of this Annual Report on Form 10-K.

Our belief with respect to our ability to fund operations is based on estimates that are subject to risks and uncertainties.

If actual results are different from our estimates, we may need to seek additional funding.

If we are unable to obtain additional funding on acceptable terms when needed, we may be required to defer or limit some or all of our research, development, and/or clinical projects

Off-Balance Sheet Arrangements

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Collaborative Arrangements

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

If we are an active participant and are exposed to the significant risks and rewards with respect to the arrangement, we account for these arrangements pursuant to ASC 808, Collaborative Arrangements , or ASC 808, and apply a systematic and rational approach to recognize revenue.

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If the license is considered not to be distinct, the license would then be combined with other promised goods or services as a combined performance obligation.

If we are involved in a governance committee, we assess whether our involvement constitutes a separate performance obligation.

If we are involved in a governance committee,

we assess whether our involvement constitutes a separate performance obligation.

When governance committee services are determined to be separate performance obligations, we determine the fair value to be allocated to this promised service.

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Certain variable consideration is allocated specifically to one or more performance obligations in a contract when the terms of the variable consideration relate to the satisfaction of the performance obligation and the resulting amounts allocated to each performance obligation are consistent with the amount we would expect to receive for each performance obligation.

When a performance obligation is satisfied, revenue is recognized for the amount of the transaction price, excluding estimates of variable consideration that are constrained, that is allocated to that performance obligation on a relative standalone selling price

Significant management judgment is required in determining the level of effort required under an arrangement and the period over which we are expected to complete its performance obligations under an arrangement.

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There is uncertainty that the events to obtain the research and development milestones will be achieved given the nature of clinical development and the stage of our technology.

We have thus determined that all research and development milestones will be constrained until it is deemed probable that a significant revenue reversal will not occur.

We have thus determined that all research and development milestones

will be constrained until it is deemed probable that a significant revenue reversal will not occur.

For revenues from research and development milestones, payments will be recognized consistent with the recognition pattern of the performance obligation to which they relate.

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Currently, we qualify as a smaller reporting company.

As a smaller reporting company, we are eligible and have taken advantage of certain exemptions from various reporting requirements that are not available to public reporting companies that do not qualify for this classification, including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic and annual reports, including without limitation exemption from the requirement to provide a compensation discussion and analysis describing compensation practices and procedures, and reduced financial statement disclosure in registration statements and in annual reports on Form 10-K, which only requires two years of audited financial statements rather than the three years of audited financial statements that are required for other public companies.

For as long as we continue to be a smaller reporting company, we expect that we will take advantage of the reduced disclosure obligations available to us as a result of this classification.

• An opportunity for reduced disclosure obligations regarding executive compensation in our periodic and annual reports, including without limitation exemption from the requirement to provide a compensation discussion and analysis describing compensation practices and procedures,

• An opportunity for reduced financial statement disclosure in registration statements and in annual reports on Form 10-K, which only requires two years of audited financial statements rather than the three years of audited financial statements that are required for other public companies,

• An opportunity for reduced audit and other compliance expenses as we are not subject to the requirement to obtain an auditor’s report on internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act of 2002, and

• An opportunity to utilize the non-accelerated filer time-line requirements beginning with our annual report for the year ending December 31, 2020 and quarterly filings thereafter.

For as long as we continue to be a smaller reporting company, we expect that we will take advantage of both the reduced internal control audit requirements and the disclosure obligations available to us as a result of this classification.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis