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Item 7. Management’s Discussion and Analysis

2022-03-31 compared with 2021-03-23 · 174 added, 141 removed, 192 unchanged (62% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The purpose of this Management's Discussion and Analysis is to better allow our investors to understand and view our company from management's perspective.

We are providing an overview of our business and strategy including a discussion of our financial condition and results of operations.

You should read the following discussion in conjunction with the consolidated financial statements and the notes to the consolidated financial statements included elsewhere in this annual report on Form 10-K.

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Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contained in such forward-looking statements, including those discussed in the section “Risk Factors” in Part I — Item 1A of this annual report on Form 10-K.

Please see Part I, Item 1 “Business— Strategic Collaboration and License Agreements” and Note 5 to our audited consolidated financial statements appearing elsewhere in this annual report on Form 10-K for more information relating to such arrangements.

We are a late-stage clinical biopharmaceutical company focused on developing novel cancer immunotherapeutics for a broad range of cancer indications.

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Based on its mechanism of action as a directly immunizing agent, GPS has potential as a monotherapy or in combination with other immunotherapeutic agents to address a broad spectrum of hematologic, or blood, cancers and solid tumor indications.

In January 2020, we commenced a Phase 3 trial, the REGAL study, for GPS monotherapy in patients with acute myeloid leukemia, or AML, in the maintenance setting after achievement of second complete remission, or CRem2, following successful completion of second-line antileukemic therapy.

In January 2020, we commenced a Phase 3 trial, the REGAL study, for GPS monotherapy in patients with acute myeloid leukemia, or AML, in the maintenance setting after achievement of second complete remission, or CR2, following successful completion of second-line antileukemic therapy.

We expect this study will be used as the basis for submission of a Biologics License Application, or BLA, subject to a statistically significant and clinically meaningful data outcome and agreement with the U.S.

Food & Drug Administration, or the FDA.

We expect to enroll approximately 116 patients at up to approximately 135 clinical sites primarily in the United States and Europe with a planned interim safety and futility analysis after 80 events (deaths).

The REGAL study is expected to enroll approximately 116 patients at up to approximately 85 clinical sites primarily in the United States, Europe, and Asia with a planned interim safety and futility analysis after 80 events (deaths).

At the request of several investigators, we are planning to institute an Expanded Access Program that would allow qualified physicians who desire so to treat with GPS AML patients who do not meet currently required study entry criteria for the ongoing REGAL trial.

The access will be provided on a case by case basis to patients in the U.S.

and, potentially, Germany.

Patients treated under the Expanded Access Program will not be considered participants in the REGAL study.

We expect the program to commence in the second quarter of 2022.

In December 2018, we initiated a Phase 1/2 multi-arm "basket" type clinical study of GPS in combination with Merck & Co., Inc.’s anti-PD-1 therapy, Keytruda® (pembrolizumab).

The tumor type currently being studied is ovarian cancer (second or third line).

In February 2022, we announced that we had completed enrollment of 17 evaluable patients in this Phase 1/2 clinical trial.

Data from 15 patients is expected to be examined by mid-2022, with final data analysis of all 17 evaluable patients in the study by the end of 2022.

In February 2020, a Phase I open-label investigator-sponsored clinical trial of GPS, in combination with Bristol-Myers Squibb’s anti-PD-1 therapy, nivolumab (Opdivo®), in patients with malignant pleural mesothelioma, or MPM, who harbor relapsed or refractory disease after having received frontline standard of care multimodality therapy was commenced at MSK.

Completion of enrollment of a target total of 10 evaluable patients is expected during the second half of 2022.

GPS was granted Orphan Drug Product Designations from the FDA, as well as Orphan Medicinal Product Designations from the European Medicines Agency, or EMA, for GPS in AML, malignant pleural mesothelioma, or MPM, and multiple myeloma, or MM, as well as Fast Track Designation for AML, MPM, and MM from the FDA.

Nelipepimut-S or NPS

Nelipepimut-S, or NPS, is a cancer immunotherapy targeting the human epidermal growth factor receptor 2, or HER2, expressing cancers.

Data presented in 2018 from a Phase 2b clinical trial of the combination of trastuzumab (Herceptin®) plus NPS in HER2 low expressing (1+ or 2+ per immunohistochemistry, or IHC) breast cancer patients in the adjuvant setting to prevent recurrences showed a clinically and statistically significant improvement in the disease-free survival, or DFS, rate for the triple negative breast cancer, or TNBC, cohort at 24 months for patients treated with NPS plus trastuzumab of 92.6% compared to 70.2% for those treated with trastuzumab alone.

Following ongoing discussions with the FDA and based upon written feedback from the FDA and on the totality of clinical, safety and translational NPS data to date, we have finalized the design and plan for a Phase 3 registration-enabling study of NPS in combination with trastuzumab for the treatment of patients with TNBC in the adjuvant setting after standard treatment.

If successful, we believe this study may be considered as the basis for a BLA submission to the FDA.

We are seeking out-licensing opportunities to fund and conduct the future clinical development of NPS in order to maximize the potential of the program and we do not plan to conduct and fund a Phase 3 program for NPS on our own.

FBP-targeting bivalent vaccine (GALE-301/-302)

In order to prioritize development of our core assets, we determined to cease development of GALE-301 and GALE-302, cancer immunotherapies that target the E39 peptide derived from the folate binding protein, or FBP, which were licensed in from The Henry M.

Jackson Foundation, or HJF, and the MD Anderson Cancer Center, or MDACC and entered into a Termination Agreement with HJF and MDACC in February 2021.

Nelipepimut-S, or NPS, is a cancer immunotherapy that targets human epidermal growth factor receptor 2, or HER2, expressing cancers.

We have presented data from Phase 2 studies of NPS in different types of breast cancers, which we considered to be the lead indication for NPS;

however, we do not currently plan to conduct or fund a Phase 3 program for NPS.

Following extensive efforts over the past four years to out-license NPS for further development in breast cancer, we have concluded that continued effort to seek a licensee for NPS for breast cancer will not result in a transaction which would provide value for the asset to us or our shareholders.

We are reviewing our options for NPS.

Financial Position

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We anticipate that our expenses will increase as we:

• complete our Phase 3 clinical trial and our Phase 1/2 basket study;

• complete our ongoing and planned clinical trials, including the REGAL study;

• continue the research, development and scale-up of manufacturing capabilities to optimize products and dose forms for which we may obtain regulatory approval;

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We intend to use our existing cash and cash equivalents for working capital and to fund the research and development of our product candidates.

We believe that our existing cash and cash equivalents as of December 31, 2020 will enable us to fund our operating expenses for at least the next 12 months following the issuance of our financial statements.

We believe that our existing cash and cash equivalents as of December 31, 2021 will not be sufficient to fund our current planned operating expenses for at least the next twelve months from the date of issuance of these financial statements.

Impact of COVID-19

On March 11, 2020, the World Health Organization declared the outbreak of a new coronavirus to be a “pandemic”.

The COVID-19 pandemic continues to present substantial public health and economic challenges around the world which have impacted, and will continue to impact, millions of individuals and business worldwide.

Efforts to contain the spread of the coronavirus since March 2020 have led to travel bans and restrictions, quarantines, shelter-in-place orders and shutdowns.

As we have historically functioned operationally as a semi-virtual company, the transition to “work-from-home” for our employees has not materially altered our business operations.

We have implemented a return-to-work policy in compliance with federal, state and local requirements and guidance which provides for a hybrid of remote and in-office work, and we expect to operate on such a semi-virtual basis for at least the first half of 2021.

The ongoing global COVID-19 pandemic, including the surges of cases from the Delta and Omicron variants, continues to disrupt our business operations and those of our contractors, contract research organizations, or CROs, suppliers, clinical sites, contract manufacturing organizations, or CMOs, and other partners.

The COVID-19 pandemic could affect the health and availability of our workforce and that of the third-parties we rely on, such as our CROs, clinical sites, CMOs, and other contractors as well as the governmental agencies, such as the FDA and health authorities in other countries which could delay or otherwise adversely impact the ability of such parties to fulfill their obligations.

We have implemented a return-to-work policy in compliance with federal, state and local requirements and guidance, which provides for a hybrid of remote and in-office work, and we operated on such a semi-virtual basis in 2021.

We are continuously monitoring the impact of the pandemic on our clinical development programs.

Our Phase 3 REGAL study is progressing, with the necessary work to activate additional sites in the United States and Europe continuing.

Throughout 2020 and early 2021, we initiated additional sites as planned.

However, we have observed that clinical site initiations and patient enrollment may be delayed due to prioritization of hospital resources towards the COVID-19 pandemic.

Clinicians and patients may not be able to comply with clinical trial protocols if quarantines impede patient movement or interrupt operations at sites.

Accordingly, we are uncertain at this time the extent to which these newly initiated sites will be fully operational, which we believe could have an impact on the projected timing of the REGAL study.

Additionally, several European Union countries in which we plan to initiate clinical sites, including Germany, France, and Italy, continue to impose restrictions in response to the continued surge in coronavirus cases throughout the European Union.

We believe that the COVID-19 pandemic has not materially impacted our efforts to out-license NPS.

The full extent to which the COVID-19 pandemic directly or indirectly impacts our business, results of operations and financial condition will depend on future developments that are highly uncertain, subject to change and cannot be predicted with confidence, including the actions taken to contain or treat COVID-19, the overall duration of the outbreak, the availability, effectiveness and uptake of vaccines for COVID-19, the emergence of new variants of COVID-19 and whether existing vaccines are effective with respect to such variants, and the emergence of new geographic hotspots where the coronavirus is spreading more rapidly.

In particular, the continued spread of the coronavirus globally could adversely impact our clinical trial operations and could have an adverse impact on our business and the financial results.

However, since the onset of the COVID-19 pandemic, we have observed that, at certain times and in certain instances, clinical site initiations, patient screening and patient enrollment have been delayed.

These delays are likely due to many reasons, which have been changing and evolving as the COVID-19 pandemic itself has evolved, including the prioritization of hospital resources towards the care of patients with COVID-19, delays in reviews and approvals by independent institutional review boards, or IRBs, and/or ethics committees at clinical sites, the challenges for clinicians and patients to comply with clinical trial protocols due to quarantines impeding patient movement or interrupting operations at sites, restrictions on travel and, most recently, inadequate staffing at clinical sites, supply chain-related delays, and materials shortages.

Throughout the United States, Europe and Asia, newly initiated sites have taken longer than expected to become fully operational and begin enrolling patients.

We have taken several steps to mitigate these actual and potential delays, including increasing the number of clinical sites from 50 to up to approximately 85, increasing the number of additional countries, both in Europe and Asia, in which sites were or will be initiated, allocating additional resources, including additional CROs and internal personnel, to the REGAL study, and making certain changes to the protocol for the study.

We are continuing to monitor each clinical site through our CROs as well as conducting direct outreach to investigators and study staff through site visits investigator meetings and other modes of communication.

Accordingly, due to the accumulation of these delays over the past two years, we have adjusted the projected timing of the REGAL study.

The full extent to which the COVID-19 pandemic will continue to directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain, subject to change and cannot be predicted with confidence, including the duration of the outbreak, the continued availability and efficacy of vaccines, new information which may emerge concerning the severity of COVID-19, the emergence of new variants of COVID-19, and the actions to contain COVID-19 or treat its impact, among others.

Components of Results of Operations

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License revenue consists of revenue recognized pursuant to our Exclusive License Agreement with 3D Medicines Inc., or 3DMed, dated December 7, 2020, or the 3DMed Agreement.

In the future, we may generate revenue from a combination of reimbursements, up-front payments, milestone payments and royalties in connection with the 3DMed Agreement.

In the future, we may generate revenue from a combination of regulatory, development, and sales milestone payments and royalties in connection with the 3DMed Agreement.

Research and Development

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In-Process Research and Development Impairment Charge

The impairment charge recognized during the year ended December 31, 2019 was in connection with the abandonment of future development of GALE-301 and GALE-302 in-process research and development, or IPR&D, assets.

Intangible assets are comprised of identifiable in-process research and development assets, or IPR&D, and are considered indefinite-lived assets and are assessed for impairment annually or more frequently if impairment indicators are present.

Our indefinite-lived intangible asset consisted of IPR&D of NPS that was acquired as part of the merger with Galena Biopharma, Inc.

in 2017, or the Merger.

The impairment charge recognized during the year ended December 31, 2021 was a result of the determination that the carrying amount of the IPR&D was not recoverable and was measured by the amount the carrying value exceeded its fair value.

Non-Operating Income (Expense), Net

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Results of Operations for the Years Ended December 31, 2021 and 2020

The following table summarizes our results of operations for the years ended December 31, 2020 and 2019:

(dollars in thousands) Year ended December 31,

The following table summarizes our results of operations for the years ended December 31, 2021 and 2020 (amounts in thousands):

Year ended December 31,

2021 2020 Change

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Operating expenses:

Cost of license revenue 200 — 200

Research and development 15,674 9,282 6,392

General and administrative 11,320 9,600 1,720

In-process research and development impairment charge — 2,833 (2,833)

In-process research and development charge 5,700 — 5,700

Total operating expenses 32,894 18,882 (14,012)

Loss from operations (25,294) (16,982) 8,312

Non-operating income 208 668 (460)

Non-operating income, net 4,358 208 4,150

Loss before income taxes (20,936) (16,774) 4,162

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For the year ended December 31, 2021, our net loss was $20.7 million compared with a net loss of $16.8 million for the year ended December 31, 2020 .

The decrease of $2.5 million in net loss was primarily attributable to a decrease in operating loss of $3.1 million, primarily driven by a $1.9 million increase in license revenue, a $0.3 million decrease in general and administrative expenses, and a $2.8 million decrease in non-cash charges for impairments of IPR&D, partially offset by an increase of $2.0 million in research and development expenses, a decrease in non-operating income of $0.5 million and a decrease in income tax benefit of $0.1 million.

The increase of $3.9 million in net loss was primarily attributable to an increase in operating expenses of $14.0 million, driven by a $6.4 million increase in research and development expenses, a $5.7 million non-cash impairment charge of IPR&D, a $1.7 million increase in general and administrative expenses, and a $0.2 million increase in costs of license revenue.

These increases in operating expenses were partially offset by a $5.7 million increase in licensing revenue, a $4.2 million increase in non-operating income, and a $0.2 million increase in income tax benefit.

Further analysis of the changes and trends in our operating results are discussed below.

License Revenue

License revenue for the year ended December 31, 2020 was $1.9 million and related to the out-licensing of intellectual property rights and transfer of technical know-how associated with the 3DMed Agreement for the development and commercialization of GPS in China, Hong Kong, Macau, and Taiwan.

There was no license revenue for the year ended December 31, 2019.

License revenue for the year ended December 31, 2021 was $7.6 million compared to $1.9 million for the year ended December 31, 2020 and related to the out-licensing of intellectual property rights and transfer of technical know-how associated with the 3DMed Agreement for the development and commercialization of GPS in China, Hong Kong, Macau, and Taiwan.

Cost of License Revenue

We incurred $0.2 million of sublicensing fees payable under our license from MSK in connection with the 3DMed Agreement during year ended December 31, 2021.

There was no cost of license revenue during the year ended December 31, 2020.

Research and Development

Research and development expenses were $15.7 million for the year ended December 31, 2021 compared to $9.3 million for the year ended December 31, 2020.

As compared to the prior period, the $2.0 million increase in research and development expenses was primarily attributable to a $0.9 million increase in clinical trial expenses primarily due to the initiation of our Phase 3 trial of GPS in AML in 2020, a $0.8 million increase in manufacturing to support our ongoing clinical programs including initiating a technology transfer to a new drug product manufacturer, a $0.5 million increase in outsourced clinical and regulatory consulting services in support of our ongoing clinical programs, a $0.4 million increase in personnel related expenses due to increased headcount, and a $0.2 million increase in other research and development expenses.

These increases were partially offset by a $0.8 million decrease in licensing fees per our license agreements.

As compared to the prior period, the $6.4 million increase in research and development expenses was primarily attributable to a $4.3 million increase in clinical trial expenses primarily related to our ongoing Phase 3 REGAL clinical trial of GPS in AML, a $1.7 million increase in manufacturing and drug supply costs due to the ramp up of the manufacture of clinical trial materials and registration batches of GPS, a technology transfer to a new contract manufacturer, and clinical drug supply purchase costs in the European Union as we prepared to open sites and enroll patients in European Union countries for our Phase 3 REGAL clinical trial for GPS in AML, and a $0.5 million increase in personnel related expenses due to increased headcount.

These increases were partially offset by a $0.1 million decrease in other research and development expenses.

We anticipate that our research and development expenses will increase in the future as we continue to advance the development of GPS, including our Phase 3 REGAL clinical trial of GPS in AML.

General and Administrative

General and administrative expenses were $11.3 million for the year ended December 31, 2021 compared to $9.6 million for the year ended December 31, 2020.

The $0.3 million decrease was primarily driven by a $1.0 million decrease in legal fees due to reduced litigation, a $0.4 million decrease in personnel related expenses due to reduced headcount, and $0.2 million decrease in other general and administrative expenses.

These decreases were partially offset by a $0.9 million increase in insurance premiums due to hardening insurance markets and a $0.4 million increase in outsourced professional services and public company costs.

The $1.7 million increase was primarily driven by a $1.1 million amortization expense of our contract asset associated with the 3DMed License Agreement and a $0.9 million increase in personnel related expenses, including a $0.3 million increase in non-cash stock-based compensation.

These increases were partially offset by a $0.3 million decrease in other general and administrative expenses.

In-Process Research and Development Impairment Charge

During the fourth quarter of 2019, we determined that the IPR&D asset associated with the GALE-301 and 302 product candidates was impaired and recorded an impairment charge of approximately $2.8 million for the year ended December 31, 2019.

Included in the asset impairment expenses are a non-cash charge of approximately $2.8 million for impairment of intangible assets recorded as IPR&D and an acceleration of a de minimis amount of prepaid expenses and other current assets.

In the fourth quarter of 2021, we performed an annual impairment analysis of our IPR&D.

The impairment charge recognized during the year ended December 31, 2021 was in connection with our determination that consummating an out-licensing transaction of NPS for further development in breast cancer was unlikely and taking into account the deferred development timelines and a lower probability of success associated with earlier stages of clinical development for the potential development of NPS in other oncology indications.

The Company determined that the carrying amount of the IPR&D associated with NPS exceeded the fair value and recorded a $5.7 million impairment charge during the year ended December 31, 2021.

Non-Operating Income, Net

Non-operating income (expense), net for the years ended December 31, 2020 and 2019, respectively, was as follows (dollars in thousands):

Non-operating income, net for the years ended December 31, 2021 and 2020, respectively, was as follows (in thousands):

Years Ended December 31,

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Change in fair value of warrant liability $ 15 $ (97) $ 112

Change in fair value of the contingent consideration 279 (586) 865

Change in fair value of contingent consideration 4,337 279 4,058

Interest income 6 26 (20)

Total non-operating income, net $ 4,358 $ 208 $ 4,150

The decrease in our net non-operating income (expense) during the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily due to a non-cash $1.2 million decrease in the gain arising from the change in the fair value of liability-classified warrants to acquire shares of our common stock and a $0.9 million increase in the change in fair value of the contingent consideration.

The change in the estimated fair value of our warrant liability during the years ended December 31, 2020 and 2019 was primarily due to the changes in our common stock price.

The change in the estimated fair value of the contingent consideration is driven by changes in discount periods and rates, changes in the timing of development milestones achieved and changes in probability assumptions with respect to the likelihood of achieving the various earnout criteria.

The increase in our net non-operating income during the year ended December 31, 2021 compared to the year ended December 31, 2020 was primarily due to a $4.1 million increase in the change in fair value of contingent consideration, and a $0.1 million increase in the change in the fair value of liability-classified warrants to acquire shares of our common stock.

The change in estimated fair value of contingent consideration is driven by changes in discount periods and rates, changes in the timing of development milestones achieved and changes in probability assumptions with respect to the likelihood of achieving the various earnout criteria.

The $4.3 million change in fair value of the contingent consideration during the year ended December 31, 2021 related to the inability to execute an out-licensing transaction of NPS for further development in breast cancer and reflected adjusted assumptions of deferred development timelines and a lower probability of success, associated with earlier stages of clinical development, for the potential development of NPS in other oncology indications.

The change in the estimated fair value of our warrant liability was primarily due to the changes in our common stock price.

Interest income for the years ended December 31, 2021 and 2020 consists of nominal interest earned from our cash and cash equivalents.

The changes in fair value of warrant liability, changes in fair value of contingent consideration and the loss on settlement of liability-classified warrants are all non-cash in nature.

The changes in fair value of warrant liability and changes in fair value of contingent consideration are all non-cash in nature.

Income Tax Benefit

For the year ended December 31, 2021, we recognized an income tax benefit of $0.2 million, primarily related to the intangible asset impairment charge.

For the year ended December 31, 2020, we recognized a de minimis income tax benefit.

For the year ended December 31, 2019 we recognized an income tax benefit of $0.1 million primarily attributable to the IPR&D impairment charge.

There was no such charge in 2020.

Liquidity and Capital Resources

We have not generated any revenue from product sales in the years ended December 31, 2021 and 2020.

Since inception, we have incurred net losses, used net cash from our operations, and have funded substantially all of our operations through proceeds from sale of debt and equity securities.

On December 13, 2020, we entered into a Securities Purchase Agreement with certain investors, pursuant to which we issued, in a registered direct offering by us directly to the investors, or the December 2020 Registered Direct Offering, an aggregate of 2,320,000 shares of common stock at an offering price of $7.00 per share for gross proceeds of approximately $16.2 million.

The net proceeds to us from the December 2020 Registered Direct Offering, after deducting placement agent fees and related offering expenses, was approximately $15.0 million.

In December 2020, we received a one-time upfront cash payment of $7.5 million from 3DMed pursuant to the 3DMed License Agreement.

On July 31, 2020, we entered into a Securities Purchase Agreement with certain investors, pursuant to which we agreed to issue and sell, in a private placement directly to the investors, or the July 2020 PIPE Offering, 2,744,078 shares of its common stock and accompanying warrants to purchase an aggregate of up to 2,744,078 shares of common stock at a combined purchase price of $3.335 per share and accompanying warrant.

The warrants were immediately exercisable at an exercise price of $3.30 per share and will expire five years from the date of issuance.

The July 2020 PIPE Offering closed on August 4, 2020.

The net proceeds to us from the July 2020 PIPE Offering, after deducting the placement agent fee and related offering expenses, was approximately $8.5 million.

On January 9, 2020, we entered into a Securities Purchase Agreement with certain investors, pursuant to which we agreed to issue and sell, in a registered direct offering by us directly to the investors, or the January 2020 Registered Direct Offering, (i) an aggregate of 1,189,000 shares of our common stock at an offering price of $3.9825 per share and (ii) an aggregate of 448,800 pre-funded warrants exercisable for shares of our common stock, or the Pre-Funded Warrants, at an offering price of $3.9725 per Pre-Funded Warrant, for gross proceeds of approximately $6.5 million before deducting the placement agent fee and related offering expenses.

The net proceeds to us from the January 2020 Registered Direct Offering, after deducting placement agent fees and other estimated offering expenses, and excluding the exercise of any warrants, was approximately $5.9 million.

Since inception, we have incurred net losses, used net cash from our operations, and have funded substantially all of our operations through proceeds from the sale of debt and equity securities.

During the year ended December 31, 2021, we incurred a net loss of $20.7 million, used $26.0 million of cash in operations, and had an accumulated deficit of $138.6 million as of December 31, 2021.

We continue to expect to generate operating losses and negative cash flows for the next few years and we will need additional funding to support our planned operating activities through profitability.

The transition to profitability is dependent upon the successful development, approval, and commercialization of our product candidates and the achievement of a level of revenues adequate to support our cost structure.

As of December 31, 2021, we had cash and cash equivalents of $21.4 million.

We expect that our cash and cash equivalents will not be sufficient to fund our current planned operations for at least the next twelve months from the date of issuance of these financial statements.

These conditions give rise to a substantial doubt over our ability to continue as a going concern.

Our consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

We anticipate incurring additional losses until such time, if ever, that we can generate significant sales of any current or future product candidates in development.

This going concern assumption is based on management’s assessment of the sufficiency of our current and future sources of liquidity considering whether or not it is probable we will be able to meet our obligations as they become due for at least one year from the date our consolidated financial statements are available to be issued, and if not, whether our liquidation is imminent.

On April 16, 2021, the Company entered into a Controlled Equity Offering SM Sales Agreement, or the Sales Agreement, with Cantor Fitzgerald & Co., or the Agent.

From time to time during the term of the Sales Agreement, we may offer and sell shares of common stock having an aggregate offering price up to a total of $50.0 million in gross proceeds.

The Agent will collect a fee equal to 3% of the gross sales price of all shares of common stock sold.

Shares of common stock sold under the Sales Agreement are offered and sold pursuant to our registration statement on Form S-3, which was filed with the SEC on April 16, 2021 and declared effective on April 29, 2021.

During the year ended December 31, 2021, we sold 786,927 shares of common stock pursuant to the Sales Agreement at an average price of $12.04 per share for aggregate net proceeds of approximately $9.0 million.

Other than the Sales Agreement, we currently do not have any commitments to obtain additional funds.

During the year ended December 31, 2021, we received $3.1 million from the exercise of warrants to acquire shares of common stock.

Subsequent to December 31, 2020, during the first quarter of 2021, we received $3.0 million from the exercise of warrants to acquire shares of common stock.

The Company regularly explores alternative means of financing its operations and seeks funding through various sources, including public and private securities offerings, collaborative arrangements with third parties and other strategic alliances and business transactions.

As of December 31, 2020, we had an accumulated deficit of $117.9 million, cash and cash equivalents of $35.3 million, and restricted cash and cash equivalents of $0.1 million.

In addition, we had accounts payable and accrued expenses and other current liabilities of $12.3 million as of December 31, 2020.

We expect our cash and cash equivalents, together with the $3.0 million received from the exercise of warrants to acquire shares of common stock in the first quarter of 2021, will be sufficient to fund current planned operations for at least the next twelve months from the date of issuance of these financial statements, though we may pursue additional capital resources through public or private equity or debt financings or by establishing additional collaborations with other companies.

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

If actual results are different from management's estimates, we may need to seek additional strategic or financing opportunities sooner than would otherwise be expected.

There is no guarantee that any of these strategic or financing opportunities will be executed or executed on favorable terms, and some could be dilutive to existing stockholders.

If we are unable to obtain additional funding on a timely basis, we may be forced to significantly curtail, delay, or discontinue one or more of our planned research and development programs or be unable to expand our operations or otherwise prepare for the potential regulatory approval and commercialization of our product candidates, assuming positive data.

During the year ended December 31, 2021, we received $2.0 million from milestones achieved pursuant to the 3DMed Agreement.

In January 2022, we announced that an IND application for a small Phase I clinical trial investigating safety of GPS in China was accepted by China's National Medical Products Administration, or the NMPA.

On March 30, 2022, the IND was approved by the NMPA triggering a $1.0 million milestone payment to the Company which is expected to be received in the second quarter of 2022.

3D Medicines expects to initiate the trial by mid-2022 and will be responsible for all expenses related to executing the trial in China.

The current clinical development plan provides for initiation of a Phase II clinical trial following receipt of satisfactory safety data from the Phase I study;

the initiation of the Phase II study will also trigger a milestone payment to us which we expect will occur in the second half of 2022.

Total remaining potential milestone payments to us under the 3DMed Agreement between total $192.5 million, not including future royalties.

We will require substantial additional financing to develop any current or future product candidates.

Alternatively, we will be required to scale back our plans and place certain activities on hold.

Other than the Sales Agreement, we currently do not have any commitments to obtain additional funds, and may be unable to obtain sufficient funding in the future on acceptable terms, if at all.

Our management continues to evaluate different strategies to obtain the required funding for future operations.

These strategies may include utilizing the Sales Agreement, public and private placements of equity and/or debt securities, payments from potential strategic research and development collaborations, and licensing and/or marketing arrangements with pharmaceutical companies.

Additionally, we continue to pursue discussions with global and regional pharmaceutical companies for licensing and/or co-development rights to our late- and early-stage pipeline candidates.

There can be no assurance that these future funding efforts will be successful.

If we cannot obtain the necessary funding, we will need to delay, scale back or eliminate some or all of our research and development programs;

consider other various strategic alternatives, including a merger or sale;

or cease operations.

Our future operations are highly dependent on a combination of factors, including (i) the timely and successful completion of additional financing, (ii) our ability to complete revenue-generating partnerships with pharmaceutical companies, (iii) the success of our research and development activities, (iv) the development of competitive therapies by other biotechnology and pharmaceutical companies, and, ultimately, (v) regulatory approval and market acceptance of our proposed future products.

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Total cash, cash equivalents, restricted cash, and restricted cash equivalents $ 21,455 $ 35,402

We maintained $0.1 million and $0.1 million as of December 31, 2020 and December 31, 2019, respectively, on hand with our financial institutions as collateral for our corporate credit cards.

The following table summarizes our cash flows from operating, investing, and financing activities for the years ended December 31, 2020 and 2019 (amounts in thousands):

Restricted cash and cash equivalents of $0.1 million as of December 31, 2021 and 2020 related to certificates of deposit maintained on hand with our financial institutions as collateral for our corporate credit cards.

The following table summarizes our cash flows from operating, investing, and financing activities for the years ended December 31, 2021 and 2020 (in thousands):

For the December 31,

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Financing activities 12,074 38,442

Net increase in cash, cash equivalents, restricted cash, and restricted cash equivalents $ 28,025 $ 1,926

Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents $ (13,947) $ 28,025

Net Cash Flow from Operating Activities

Net cash used in operating activities of $26.0 million during the year ended December 31, 2021 was primarily attributable to our net loss of $20.7 million and a change in our operating assets and liabilities of $7.6 million, which was partially offset by various net non-cash charges of $2.3 million.

The net change in our operating assets and liabilities is primarily attributable to a decrease in deferred revenue of $5.6 million, a decrease in accounts payable and accrued expenses and other current liabilities of $1.8 million, a $1.1 million increase in prepaid expenses and other assets primarily for clinical trial costs, and a $0.2 million decrease in operating lease liabilities, which were partially offset by a $1.1 million decrease in contract acquisition costs related to the out-licensing of intellectual property rights and transfer of technical know-how associated with the 3DMed License Agreement.

Net cash used in operating activities of $10.4 million during the year ended December 31, 2020 was primarily attributable to our net loss of $16.8 million.

This amount was offset by a change in our operating assets and liabilities of $5.4 million and various net non-cash charges of $0.8 million These noncash charges were comprised of $0.6 million in non-cash stock-based compensation expense, and the amortization of $0.3 million in contract asset costs associated with the 3DMed License Agreement as well as a $0.1 million change in the fair market value of our warrant liability.

This amount was offset by a change in our operating assets and liabilities of $5.9 million and various net non-cash charges of $0.5 million These noncash charges were comprised of $0.6 million in non-cash stock-based compensation expense and $0.2 million in other noncash charges.

These amounts were partially offset by a gain of $0.3 million from the decrease in the fair value of our contingent consideration liability.

The net change in our operating assets and liabilities is primarily attributable to an increase in deferred revenue related to our 3DMed License Agreement.

Net cash used in operating activities of $17.6 million during the year ended December 31, 2019 was primarily attributable to our net loss of $19.3 million.

This amount was offset by various net non-cash charges of $2.8 million, which was comprised of a $2.8 million impairment of our in-process research and development, or IPR&D, asset associated with the GALE-301 and GALE-302 product candidates, a $0.6 million increase in the fair value of our contingent consideration liability, and $0.6 million in non-cash stock-based compensation expense.

These amounts were partially offset by a gain of $1.1 million from the decrease in the fair value of liability-classified warrants and a $0.1 million decrease in our deferred tax liability.

The net change in our operating assets and liabilities of $1.1 million is primarily attributable to a decrease in our accounts payable and accrued expenses.

Net Cash Flow from Financing Activities

We generated $38.4 million of net cash from financing activities for the year ended December 31, 2020, which was primarily attributable to $29.9 million in net proceeds from the sale of common stock, common stock pre-funded warrants, and common stock warrants and $8.5 million in net proceeds from the exercise of warrants to acquire shares of common stock.

We generated $12.1 million of net cash from financing activities for the year ended December 31, 2021, which was primarily attributable to $9.0 million in net proceeds from the issuance of common stock under the Sales Agreement and $3.1 million in net proceeds from the exercise of warrants to acquire shares of common stock.

Contractual Obligations

Contractual Obligations and Other Commitments

Our lease commitments reflect payments due for our lease agreement for office space at the premises that expire in December 2024 in New York, New York.

As of December 31, 2021, our contractual commitments for our lease was $1.5 million, which will be paid over the term of the lease.

The amount of lease commitments reflects payments due for additional premises under an amendment to our lease agreement that had not commenced as of December 31, 2021, and as a result, our future lease payments as of December 31, 2021 was $1.0 million.

On February 21, 2022, the Company took possession of the additional premises and the lease amendment commenced.

For additional information on our leases and timing of future payments, please read Note 8, Leases, to the consolidated financial statements included in this Form 10-K.

Other Commitments

We acquire product candidates still in development and enter into research and development arrangements with third parties that often require milestone and royalty payments to the third-party contingent upon the occurrence of certain future events linked to the success of the product candidate in development.

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however, we are unlikely to cease development if the product candidate successfully achieves clinical testing objectives.

As of December 31, 2020, we had the following noncancelable contractual commitments:

Payments due by period

(amounts in thousands) Total Less than 1 year 1-3 years 3-5 years More than 5 years

Contractual obligations

Operating lease (1)

$ 1,264 $ 302 $ 632 $ 330 $ —

(1) Operating lease obligations reflect our obligation to make payments in connection with our corporate headquarters in New York, NY.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet financing arrangements as of December 31, 2020.

We enter into contracts in the normal course of business with various third parties for clinical trials, manufacturing, and other services and products for operating purposes.

These contracts provide for termination upon notice.

Payments due upon cancellation generally consist only of payments for services provided or expenses incurred, including non-cancellable obligations of our service providers, up to the date of cancellation.

These payments have not been included separately within these contractual and other obligations disclosures.

Critical Accounting Policies and Estimates

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While our significant accounting policies are described in more detail in the notes to our audited consolidated financial statements appearing elsewhere in this annual report on Form10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

We record revenue in accordance with ASC Topic 606, Revenue From Contracts with Customers .

This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments.

Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps:

(i) identify the contract(s) with a customer;

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer.

At contract inception, once the contract is determined to be within the scope of Topic 606, we assess the goods or services promised within each contract and determine those that are performance obligations, and we assess whether each promised good or service is distinct.

We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Development, Regulatory and Sales Milestones and Other Payments

At the inception of each arrangement that includes regulatory or development milestone payments, we evaluate whether the milestones are considered probable of being achieved and estimate the amount to be included in the transaction price using the most likely amount method.

If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price.

Milestone payments that are not within the control of us or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received.

We evaluate factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone in making this assessment.

There is considerable judgment involved in determining whether it is probable that a significant revenue reversal would not occur.

At the end of each subsequent reporting period, we reevaluate the probability of achievement of all milestones subject to constraint and, if necessary, adjust our estimate of the overall transaction price.

Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.

For arrangements that include sales-based royalties, including milestone payments upon first commercial sales and milestone payments based on a level of sales, which are the result of a customer-vendor relationship and for which the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied.

To date, we have not recognized any royalty revenue resulting from any of our licensing arrangements.

Valuation of Intangible Assets

In conjunction with the completion of the business combination with Galena Biopharma, Inc.

in 2017, or the Merger, we recorded intangible assets related to IPR&D.

We had total intangible assets of $5.7 million as of December 31, 2020 and 2019, respectively.

Intangible assets are comprised of identifiable IPR&D acquired in conjunction with the completion of the Merger and are considered indefinite-lived intangible assets and are assessed for impairment annually during the fourth quarter of each fiscal year or more frequently if impairment indicators exist.

The identifiable intangible assets are measured at their respective fair values as of the acquisition date and may be subject to revision within the measurement period, which may be up to one year from the acquisition date.

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• risks related to the viability of and potential alternative treatments in any future target markets.

We believe the fair values used to record intangible assets acquired in connection with a business combination using information known and knowable and are based upon reasonable estimates and assumptions given the facts and circumstances as of the related valuation dates.

Intangible assets related to IPR&D are considered to be indefinite-lived until the completion or abandonment of the associated research and development, or R&D, efforts.

We believe that the fair values used to record intangible assets acquired in connection with a business combination use information known and knowable, and are based upon reasonable estimates and assumptions given the facts and circumstances as of the related valuation dates.

Intangible assets related to IPR&D are considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts.

If and when development is complete, which generally occurs if and when regulatory approval to market a product is obtained, the associated assets would be deemed finite-lived and would then be amortized based on their respective estimated useful lives at that point in time.

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Significant judgment is employed in determining these assumptions and changes to our assumptions could have a significant impact on our results of operations in any given period.

Intangible assets with finite useful lives are reviewed for impairment when facts or circumstances suggest that the carrying value of these assets may not be recoverable.

When performing our impairment assessment, we calculate the fair value using the same methodology as described above.

If the carrying value of our IPR&D exceeds its fair value, then the intangible asset is written down to its fair value.

Changes in estimates and assumptions used in determining the fair value of our IPR&D could result in an impairment.

Impairment charges are recorded within our consolidated statements of operations.

Based on our most recent impairment assessment we incurred a $5.7 million impairment charge for the year ended December 31, 2021, mainly related to our determination that the execution of an out-licensing transaction of NPS for further development in breast cancer was unlikely and taking into account the deferred development timelines and a lower probability of success associated with earlier stages of clinical development for the potential development of NPS in other oncology indications.

See Note 4, Goodwill and Intangible Assets , to our consolidated financial statements included in this report.

Goodwill is the excess of the cost of an acquired entity over the net amounts assigned to tangible and intangible assets acquired and liabilities assumed.

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Goodwill is evaluated for impairment using the simplified test of goodwill impairment as defined by the Financial Accounting Standards Board, or FASB, Accounting Standards Update, or ASU, No.

Under the new guidance, goodwill impairment will be measured by the amount by which the carrying value of a reporting unit exceeds its fair value, without exceeding the carrying amount of goodwill allocated to that reporting unit.

Under the guidance, goodwill impairment is measured by the amount by which the carrying value of a reporting unit exceeds its fair value, without exceeding the carrying amount of goodwill allocated to that reporting unit.

If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the implied fair value of the reporting unit’s goodwill is less than the carrying value of the reporting unit’s goodwill.

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Examples of estimated accrued research and development expenses include fees paid to:

• Vendors in connection with preclinical development activities;

• the production of preclinical and clinical trial materials;

• Vendors in connection with clinical development activities;

• the production of clinical trial materials;

• CROs in connection with clinical trials;

and investigative sites in connection with clinical trials.

We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple research institutions and CROs that conduct and manage preclinical studies and clinical trials on our behalf.

• investigative sites in connection with clinical trials.

We base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple research institutions and CROs that conduct and manage preclinical studies and clinical trials on our behalf.

The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows.

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Valuation of Contingent Consideration

Acquisitions may include contingent consideration payments based on the achievement of certain future financial performance measures of the acquired company (earnout).

Acquisitions may include contingent consideration payments based on the achievement of certain future events.

Contingent consideration is required to be recognized at fair value as of the acquisition date.

We estimate the fair value of these liabilities based on financial projections of the acquired companies and estimated probabilities of achievement.

We believe our estimates and assumptions are reasonable;

however, there is significant judgment involved.

We evaluate, on a routine, periodic basis, the estimated fair value of the contingent consideration and changes in estimated fair value, subsequent to the initial fair value estimate at the time of the acquisition, are reflected in income or expense in the consolidated statements of comprehensive loss.

Changes in the fair value of contingent consideration obligations may result from changes in discount periods and rates, changes in the timing of development milestones achieved and changes in probability assumptions with respect to the likelihood of achieving the various earnout criteria.

Any changes in the estimated fair value of contingent consideration may have a material impact on our operating results.

Revenue Recognition

We record revenue in accordance with Accounting Standards Codification, or ASC, Topic 606, Revenue From Contracts with Customers .