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Item 7. Management’s Discussion and Analysis

2022-03-02 compared with 2021-03-31 · 117 added, 114 removed, 210 unchanged (52% 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 moderate-to-severe asthma and an immuno-oncology (IO) bispecific targeting 4-1BB and HER2.

Our clinical pipeline includes an inhaled IL-4Rα antagonist Anticalin protein to treat uncontrolled asthma, an immuno-oncology, or IO, bispecific targeting HER2 and 4-1BB, and an IO bispecific targeting PD-L1 and 4-1BB.

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 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.

In particular, we have alliances with AstraZeneca and Genentech to treat respiratory diseases, with Genentech also in ophthalmology and with Servier, Seagen, and Boston Pharmaceuticals in IO.

Our discovery and development programs are in varying stages and include:

• PRS-060/AZD1402 , our lead respiratory program partnered with AstraZeneca for the treatment of asthma, is a drug candidate that antagonizes IL-4Rα, thereby inhibiting the downstream action of 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.

◦ PRS-060/AZD1402 was tested in a nebulized formulation and an IV arm for pharmacokinetic, or PK, assessment 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 single inhaled or intravenous doses to healthy volunteers and there was systemic target engagement (as measured by pSTAT6 inhibition).

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).

◦ The phase 2a asthma study is ongoing in multiple sites globally.

This 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.

In part 1a (1 mg and 3 mg dose safety) of the study, 31 asthma patients, controlled on standard of care (medium dose inhaled corticosteroids (ICS) with long-acting beta agonists (LABA)), received PRS-060/AZD1402 twice daily over four weeks to establish the safety profile and pharmacokinetics of the dry powder formulation of PRS-060/AZD1402.

A safety review following completion of part 1a included an evaluation, compared to placebo, of the incidence of adverse events, changes in laboratory markers (immuno-biomarkers, clinical chemistry, and hematology), and forced expiratory volume in one second (FEV1).

AstraZeneca began enrollment of part 2a (1 mg and 3 mg dose efficacy) of the study to evaluate efficacy, safety, and pharmacokinetics of PRS-060/AZD1402 administered twice daily to asthma patients, uncontrolled on medium dose ICS LABA, that have a blood eosinophil count of ≥ 150 cells/μL and FeNO ≥ 25 ppb in the 1 mg and 3 mg arms and a placebo arm.

Following a four-week run-in period, patients will be dosed and monitored over four weeks.

FEV1 improvement compared to placebo will be the primary endpoint in this portion of the study.

AstraZeneca began enrollment of part 1b (10 mg dose safety) of the study to evaluate the safety of the10 mg dose in asthma patients controlled on standard of care who will receive PRS-060/AZD1402 twice daily over four weeks.

We expect to announce topline data from the phase 2a study this year, although we are actively evaluating the feasibility of study timelines in the current geopolitical environment and will update guidance in the orderly course of business, if needed.

Upon receipt of the topline data and notice from AstraZeneca, including a product development plan and budget, the Company will have 30 days to opt into co-development of the program with AstraZeneca.

The Company also retains a separate option to co-commercialize PRS-060/AZD1402 with AstraZeneca in the United States.

• Four discovery-stage respiratory programs were included in the AstraZeneca alliance beyond PRS-060/AZD1402, the targets and disease areas of which are undisclosed.

In January2022, the Company and AstraZeneca jointly discontinued one of the four discovery-stage programs in the collaboration beyond PRS-060/AZD1402, for which they were not able to validate an exploratory target.

Pieris retains co-development and co-commercialization options for two of the three remaining active discovery programs.

• Our lead fully proprietary respiratory asset, PRS-220, an oral inhaled Anticalin protein targeting connective tissue growth factor, or CTGF, is being developed as a local treatment for idiopathic pulmonary fibrosis, or IPF, and has passed the drug candidate nomination stage.

We received a €14.2 million grant from the Bavarian Ministry of Economic Affairs, Regional Development and Energy supporting research and development of the program for post-acute sequelae of SARS-CoV-2 infection (PASC) pulmonary fibrosis, or PASC-PF, also known as post-COVID-19 syndrome pulmonary fibrosis, or “long COVID”.

◦ PRS-220 is currently in the IND-enabling stage.

We presented initial preclinical data for PRS-220 at the European Respiratory Society International Congress 2021, or ERS, demonstrating a more potent and durable target engagement profile compared to a clinical-stage, systemically delivered anti-CTGF antibody benchmark.

Additionally, the targeting of CTGF locally in the lung showed increased attenuation of fibrotic lung remodeling in vivo compared to the systemically delivered antibody.

This outcome correlates with superior lung tissue exposure of PRS-220 compared to that of the systemically administered antibody in head-to-head studies, where intratracheally administered PRS-220 efficiently penetrates the fibrotic, interstitial lung tissue of mice.

Clinical development for the program is expected to begin in 2022.

• We entered into a multi-program research collaboration and license agreement with Genentech, a member of the Roche Group, to discover, develop and commercialize locally delivered respiratory and ophthalmology therapies.

We have initiated joint discovery activities in each of the two committed programs.

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

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

• 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 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.

Statistically significant and pronounced inhibition of FeNO relative to placebo was observed at all doses.

When comparing the 20 mg PRS-060/AZD1402 powered cohort (n=12) to placebo, the primary statistical analysis using the Emax model demonstrated a 36% relative reduction in FeNO (p-value <0.0001).

Systemic target engagement was dose-dependent and closely aligned with systemic exposure of the drug, consistent with results of the phase 1 SAD study.

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.

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.

In January 2022, we dosed the first patient in our two-arm phase 2 study for cinrebafusp alfa in gastric cancer in the United States.

Supported by additional data we presented from the phase 1 monotherapy study of cinrebafusp alfa in an oral presentation at the American Association for Cancer Research Virtual Congress, or AACR, in April 2021, the first arm of the phase 2 study includes the combination with ramucirumab and paclitaxel in HER2-high gastric cancer, while the second arm is in combination with tucatinib in HER2-low gastric cancer.

Collaboration partners Lilly and Seagen are

supplying ramucirumab and tucatinib, respectively.

The criteria for advancement of this program will evaluate a composite of measures, including a minimum target of 50% ORR in the HER2-high arm and a minimum target of 40% ORR in the HER2-low arm, duration of response, and safety.

The Company expects to report initial data from the arm evaluating cinrebafusp alfa in combination with tucatinib in HER2-low gastric cancer in 2022 and expects to report data from the arm evaluating cinrebafusp alfa in combination with ramucirumab and paclitaxel in HER2-high gastric cancer in 2023.

In June 2021, FDA granted orphan drug designation to cinrebafusp alfa for the treatment of HER2-high and HER2-low expressing gastric cancers.

◦ The supporting data presented at AACR included an evaluation of 78 patients who had been enrolled in the monotherapy study as of the February 2021 cutoff date, including four additional patients enrolled in the active dose cohorts (≥2.5 mg/kg) since the data were presented at the ESMO Virtual Congress in September 2020.

Out of 42 response-evaluable patients at the time of the data cutoff of February 25, 2021, 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), four patients achieved a partial response (three at the 8 mg/kg Q2W dose (cohort 11b) and one at the 18 mg/kg Q2W dose (cohort 13b)), and stable disease was observed in 17 patients as best response out of 42 evaluable patients across the predicted active dose ranges (cohorts 9-13b), translating to an ORR of 12% and a DCR of 52%.

Consistent with the mechanism of action of cinrebafusp alfa, dose-dependent immune activation was demonstrated by showing an increase in CD8+, T cell, NK cells and cytotoxic activity in the tumor microenvironment and an increase of soluble 4-1BB in the blood, indicating target engagement of 4-1BB and activation of immune cells.

Cinrebafusp alfa demonstrated durable anti-tumor activity in a heavily pre-treated patient population.

Additionally, clinical benefit was observed in patients with “cold” tumors as well as those with low HER2 expression who were enrolled into the study on the basis of archived HER2-status and were later re-assessed on the basis of a pre-treatment biopsy.

Cinrebafusp alfa also showed an acceptable safety profile at all doses and schedules tested in the clinical study with no dose-limiting toxicities.

The totality of response data generated in cohorts 11b (8 mg/kg Q2W) and 13b support the recommended phase 2 dose of a two-cycle loading dose of 18 mg/kg (Q2W), following by an 8 mg/kg dose (Q2W) in subsequent cycles.

◦ The last update of the atezolizumab combination study of cinrebafusp alfa was presented at the ESMO Virtual Congress in September 2020.

As of the July 2020 cutoff date, 41 patients had been enrolled and 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 and an acceptable safety profile was observed at all doses and schedules tested in the clinical study.

• PRS-344/S095012 , a bispecific Anticalin-antibody fusion protein comprising a PD-L1-targeting antibody genetically fused to Anticalin proteins specific for 4-1BB, is being developed as part of our IO collaboration with Servier.

The first patient was dosed in the phase 1/2 study of PRS-344/S095012, a 4-1BB/PD-L1 bispecific, in November 2021.

• We are also developing additional IO drug candidates beyond cinrebafusp alfa and PRS-344/S095012 that are multi-specific Anticalin-based fusion proteins designed to engage immunomodulatory targets, comprising a variety of multifunctional biotherapeutics.

Other IO drug candidates are being developed as part of our collaborations Servier, Seagen, and Boston Pharmaceuticals.

◦ Servier has obtained in vivo proof of concept for PRS-352, an Anticalin-based bispecific beyond 4-1BB, triggering an undisclosed milestone payment to Pieris.

Servier is responsible for further development of the program.

◦ 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.

We also handed the program over to Seagen, who 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 IO bispecifics, complementing the encouraging clinical data seen with cinrebafusp alfa.

During the third quarter of 2021, we initiated the second program within the collaboration with Seagen.

We retain a co-promotion option for one of the three programs in the Seagen collaboration in the United States.

◦ We are supporting IND-readiness for PRS-342/BOS-342, a 4-1BB/GPC3 bispecific that we have exclusively licensed to Boston Pharmaceuticals, who will oversee future development of that asset.

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

For the years ended December 31, 2020 and 2019, we reported net losses of $37.2 million and $25.5 million, respectively.

For the years ended December 31, 2021 and 2020, we reported net losses of $45.7 million and

$37.2 million, respectively.

As of December 31, 2021, we had an accumulated deficit of $257.1 million.

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All adjustments resulting from translating foreign currency financial statements into U.S.

dollars are included in accumulated other comprehensive loss.

dollars are included in accumulated other comprehensive income (loss).

Key Financial Terms and Metrics

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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 Seagen.

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

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

The revenues from AstraZeneca, Servier, Seagen, Genentech and Boston Pharmaceuticals.

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 cinrebafusp alfa as well as multiple additional proprietary and partnered programs, including PRS-344.

our lead respiratory program, PRS-060/AZD1402 and our proprietary respiratory program, PRS-220, our IO programs, currently comprised of cinrebafusp alfa as well as multiple additional proprietary and partnered programs, including PRS-344/S095012.

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

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Interest income 4 511

Grant income 3,685 —

Other (expense) income , net 2,404 (3,656)

Loss before income taxes (45,738) (37,066)

Benefit for income tax — 164

Net loss $ (45,738) $ (37,230)

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2021 2020 Increase/(Decrease)

Revenue from contracts with customers

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

Customer revenue $ 27,940 $ 23,911 $ 4,029

Collaboration revenue

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Total Revenue $ 31,418 $ 29,323 $ 2,095

• 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.

• The $4.0 million increase in customer revenue for the year ended December 31, 2021 compared to the year ended December 31, 2020 is driven by the following:

◦ Higher revenue in the current year for the phase 2a milestone ($13.0 million) recognized for PRS-060/AZD1402 under the AstraZeneca collaboration, revenue attributed to two new collaboration agreements, Genentech ($2.0 million) and Boston Pharmaceuticals ($5.7 million) and the achievement of a preclinical milestone on PRS-352.

◦ Lower Seagen revenue as there was an achievement of a $5.0 million milestone on the first collaboration program recorded in 2020 along with the impact of the execution of a contractual amendment (approximately $3.5 million) in the same year.

◦ Lower Servier revenue as the prior year included recognition of amounts for a preclinical stage product that is not being pursued under the Servier collaboration.

• Collaboration revenue decreased by $1.9 million in the year ended December 31, 2021 compared to the year ended December 31, 2020.

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.

The decrease relates to revenue recognized in the prior year on a preclinical stage product that Servier declined to pursue further, offset slightly by higher Servier cost-sharing revenue generated from higher levels of manufacturing costs incurred on PRS-344/S095012.

Research and Development Expenses

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Total $ 66,656 $ 46,531 $ 20,125

• 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.

• The $10.8 million increase in our immuno-oncology program spending period-over-period is due primarily to an increase in clinical and manufacturing costs for cinrebafusp alfa and higher manufacturing costs for PRS-344/S095012, all partially offset by lower preclinical costs across a number of programs.

• The $7.5 million increase for our respiratory programs period-over-period is due to higher manufacturing costs for PRS-220, increased preclinical work on a number of early stage programs as well as higher license fees, offset partially by lower clinical and manufacturing costs with respect to activities for PRS-060/AZD1402.

• The $1.8 million increase in other research and development activities expenses is mainly due primarily to higher personnel and recruiting costs due to higher headcount, higher external consulting and higher license fees, offset slightly by lower lab consumable costs and lower facility costs due to the move to the new R&D facility in Hallbergmoos, Germany in the prior year.

General and Administrative Expenses

General and administrative expenses was $16.6 million for the year ended December 31, 2021 as compared to $16.7 million for the year ended December 31, 2020.

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 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.

The period-over-period decrease is due primarily to lower legal, accounting and project management costs, along with lower one-time office and building equipment costs related to the move to the new R&D facility in Hallbergmoos, Germany in the prior year.

These reductions in cost were offset by higher fixed and variable compensation and higher insurance costs.

Other income (expense), net

Our other income was $6.1 million for the year ended December 31, 2021 as compared to a other expense of $3.1 million for the year ended December 31, 2020.

This period-over-period increase was primarily due to $3.7 million of grant income recorded on PRS-220 as well as foreign exchange realized gains due to a strengthening U.S.

dollar compared to the same period in the prior year.

Liquidity and Capital Resources

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$14.8 million from government grants and $6.5 million from loans.

As of December 31, 2020, we had a total of $70.4 million in cash, cash equivalents and investments.

As of December 31, 2021, we had a total of $117.8 million in cash and cash equivalents.

We have incurred losses in every period since inception including the years ended December 31, 2021 and 2020, respectively, and have a total accumulated deficit of $257.1 million as of December 31, 2021.

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Net cash used in operating activities $ (7,660) $ (45,896)

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

Net cash (used in) provided by investing activities (949) 39,212

Net cash provided by financing activities 59,127 10,115

Net cash used in operating activities for the year ended December 31, 2021 and 2020 was $7.7 million and $45.9 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 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.

Lower operating cash used in 2021 was benefited by higher deferred revenue, primarily driven by the new collaboration agreement with Genentech, and higher accounts payable and accrued expenses, offset partially by higher accounts receivables and prepaid expenses.

This compares to the impact of lower accounts payable, accrued expenses and deferred revenue, primarily driven by revenue recognized for the discontinued Servier programs and the satisfaction of a performance obligation under the Seagen agreements, for the year ended December 31, 2020.

Offsetting the impact from changes in operating assets and liabilities was an increase in the net loss in 2021 compared to the same timeframe in 2020.

The change in net cash used in investing activities for the year ended December 31, 2021 compared to net cash provided by investing activities the same period in 2020 is mainly attributable to the impact of net investments changes (purchases and maturities of available-for-sale securities) for which there is no activity in the comparable current year period.

Additionally, purchases of property and equipment were lower as the 2020 purchases primarily related to our move to a new R&D facility.

Financing activities for the year ended December 31, 2021 and 2020 provided cash of $59.1 million and $10.1 million, respectively.

The increase in 2021 compared to 2020 is driven by equity investments from both Seagen and AstraZeneca (see Note 3), higher sales activity under our ATM programs and higher proceeds received from warrant and option exercises.

There was limited option exercise activity for the same period in 2020.

In August 2019, we entered into a sales 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 2019 ATM Program, under a shelf registration statement on Form S-3 (File No.

In August 2021, the 2019 ATM Program expired.

In August 2021, we established a second ATM offering program, or the 2021 ATM Program, under the existing sales agreement with Jefferies LLC, pursuant to which the Company may offer and sell shares of its common stock, from time to time, up to an aggregate amount of gross sales proceeds of $50.0 million.

The 2021 ATM Program is offered under a shelf registration statement on Form S-3 that was filed with and declared effective by the SEC in August 2021.

For the year ended December 31, 2021, we sold 8.2 million shares for gross proceeds of $39.7 million under both ATM programs at an average stock price of $4.85.

For the year ended December 31, 2020, we sold 3.6 million shares at a price of $2.80 per share resulting in gross proceeds of $10.0 million under the 2019 ATM Program only.

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).

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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.

We plan to raise additional capital to fulfill our operating and capital requirements through public or private equity financings, utilization of our 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.

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The preparation of these financial statements requires management to make estimates and judgments that affect reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses for the periods presented.

Management makes estimates and exercises judgment in revenue recognition, share-based payments and income taxes.

Management makes estimates and exercises judgment in revenue recognition, accrued and prepaid clinical trial expenses, share-based payments and income taxes.

Judgments must also be made about the disclosure of contingent liabilities, and these estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

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Revenue Recognition

Effective January 1, 2019, we adopted ASC 606.

The standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that we expect to receive for those goods or services.

The standard allows for two transition methods -- full retrospective, in which the standard is applied to each prior reporting period presented, or modified retrospective, in which the cumulative effect of initially applying the standard is recognized at the date of initial adoption.

We elected the modified retrospective approach and applied it to contracts not completed at the date of adoption.

Therefore, comparative prior periods have not been adjusted.

The reported results for 2019 reflect the application of ASC 606 guidance while the reported results for 2018 were prepared under the guidance of FASB ASC Topic 605, Revenue Recognition, or ASC 605.

Furthermore, we adopted the contract modification practical expedient set forth in ASC 606 and will reflect the aggregate effect of all modifications that occurred before January 1, 2019 when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price to the satisfied and unsatisfied performance obligations.

Pieris has entered into several licensing agreements with collaboration partners for the development of Anticalin therapeutics against a variety of targets.

The terms of these agreements provide for the transfer of multiple goods or services which may include:

(i) licenses, or options to obtain licenses, to Pieris’ Anticalin technology and/or specific programs and (ii) research and development activities to be performed on behalf of or with a collaborative partner.

Payments to Pieris under these agreements may include upfront fees (which include license and option fees), payments for research and development activities, payments

based upon the achievement of certain milestones, and royalties on product sales.

There are no performance, cancellation, termination or refund provisions in any of the arrangements that could result in material financial consequences to Pieris.

The Company accounts for revenue recognition pursuant to FASB ASC Topic 606, Revenue Recognition, or ASC 606.

The standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services.

Collaborative Arrangements

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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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If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation.

Contracts that contain multiple performance obligations require an allocation of the transaction price among the performance obligations on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct good or service that forms part of a single performance obligation.

Contracts that contain multiple performance obligations require an allocation of the transaction price among the performance obligations on a relative standalone selling price basis unless a portion of the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct good or service that forms part of a single performance obligation.

We allocate the transaction price based on the estimated standalone selling price of the underlying performance obligations or in the case of certain variable consideration to one or more performance obligations.

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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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We evaluate, on a quarterly basis, developments in legal proceedings and other matters that could cause an increase or decrease in the amount of the liability that has been accrued previously.

Considering facts known at the time of the assessment, we determine whether potential losses are considered reasonably possible or probable and whether they are estimable.

Considering facts known at the time of the assessment, we determine whether potential losses are considered reasonably possible or probable and whether

they are estimable.

Based upon this assessment, we carry out an evaluation of disclosure requirements and consider possible accruals in the financial statements.

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Research and development costs are charged to expense as incurred in performing research and development activities.

Nonrefundable advance payments for research and development goods or services to be received in the future are deferred and capitalized.

The capitalized amounts are expensed as the related goods are delivered or the services are performed.

Research and development expenses are comprised of costs incurred in performing research and development activities, including salaries and benefits, facilities costs, pre-clinical and clinical costs, contract services, consulting, depreciation and amortization expense, and other related costs.

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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.

Based on the level of historical operating results and projections for the taxable income for the future, we have determined that it is more likely than not that our net deferred tax assets will not be realized.

Accordingly, we have recorded a full valuation allowance to reduce our net deferred tax assets.

We evaluate the realizability of our net deferred tax assets, including considering the level of historical operating results and projections of taxable income for the future.

We record a full valuation allowance to reduce our net deferred tax assets when it is determined that it is more likely than not that our net deferred tax assets will not be realized.

We recognize, measure, present and disclose in our financial statements any uncertain tax positions that we have taken or expect to take on a tax return.

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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