ARS Pharmaceuticals, Inc. 10-Q

Item 1. Financial Statements (Unaudited) Silverback Therapeutics, Inc. Condensed Balance Sheets (in thousands, except share and par value data) March 31, December 31, 2021 2020 (unaudited) Assets Current assets: Cash and cash equivalents $ 374,205 $ 386,569 Prepaid expenses and other current assets 4,141 4,087 Total current assets 378,346 390,656 Property and equipment, net 1,603 1,618 Restricted cash 350 350 Right-of-use asset 1,900 2,180 Total assets $ 382,199 $ 394,804 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 4,374 $ 2,583 Accrued expenses 5,799 5,278 Term loan payable, net 495 844 Current portion of lease liability 927 896 Total current liabilities 11,595 9,601 Lease liability, net of current portion 2,055 2,326 Total liabilities 13,650 11,927 Commitments and contingencies (Note 1 0 ) Stockholders’ equity: Preferred Stock, $ 0.0001 par value per share; 10,000,000 shares authorized at March 31, 2021 and December 31, 2020; no shares issued and outstanding at March 31, 2021 and December 31, 2020 — — Common stock, $ 0.0001 par value per share; 200,000,000 shares authorized at March 31, 2021 and December 31, 2020, 34,903,497 and 34,801,537 shares issued, and 34,827,204 and 34,701,274 shares outstanding at March 31, 2021 and December 31, 2020, respectively 3 3 Additional paid-in capital 484,147 479,608 Accumulated deficit ( 115,601 ) ( 96,734 ) Total stockholders’ equity 368,549 382,877 Total liabilities, and stockholders’ equity $ 382,199 $ 394,804 The accompanying notes are an integral part of these unaudited condensed financial statements. 7 Table of Contents Silverback Therapeutics, Inc. Condensed Statements of Operations and Comprehensive Loss (in thousands, except share and per share data) (unaudited) Three Months Ended March 31, 2021 2020 Operating expenses: Research and development $ 12,239 $ 4,414 General and administrative 6,646 828 Total operating expenses 18,885 5,242 Loss from operations ( 18,885 ) ( 5,242 ) Interest income (expense), net 18 ( 37 ) Net loss and comprehensive loss $ ( 18,867 ) $ ( 5,279 ) Net loss per share applicable to common stockholders, basic and diluted $ ( 0.54 ) $ ( 7.89 ) Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted 34,773,950 669,033 The accompanying notes are an integral part of these unaudited condensed financial statements. 8 Table of Contents Silverback Therapeutics, Inc. Condensed Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) (in thousands, except share data) (unaudited) Redeemable Convertible Preferred Stock Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity Shares Amount Shares Amount Balance as of December 31, 2020 — $ — 34,701,274 $ 3 $ 479,608 $ ( 96,734 ) $ 382,877 Exercise of common stock options and vesting of early exercised common stock options — — 125,930 — 254 — 254 Stock-based compensation — — — — 4,285 — 4,285 Net loss and comprehensive loss — — — — — ( 18,867 ) ( 18,867 ) Balance as of March 31, 2021 — $ — 34,827,204 $ 3 $ 484,147 $ ( 115,601 ) $ 368,549 Redeemable Convertible Preferred Stock Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity (Deficit) Shares Amount Shares Amount Balance as of December 31, 2019 15,714,283 $ 53,174 664,431 $ — $ 5,010 $ ( 63,787 ) $ ( 58,777 ) Issuance of Series B redeemable convertible preferred stock for cash, net of $ 76 in issuance costs 10,027,666 21,458 — — — — — Issuance of Series B redeemable convertible preferred stock upon conversion of convertible notes 4,673,388 10,095 — — — — — Exercise of common stock options and vesting of early exercised common stock options — — 5,350 — 6 — 6 Stock-based compensation — — — — 47 — 47 Net loss and comprehensive loss — — — — — ( 5,279 ) ( 5,279 ) Balance as of March 31, 2020 30,415,337 $ 84,727 669,781 $ — $ 5,063 $ ( 69,066 ) $ ( 64,003 ) The accompanying notes are an integral part of these unaudited condensed financial statements 9 Table of Contents Silverback Therapeutics, Inc. Condensed Statements of Cash Flows (in thousands) (unaudited) Three Months Ended March 31, 2021 2020 Cash flows from operating activities: Net loss $ ( 18,867 ) $ ( 5,279 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 186 139 Amortization of debt issuance costs 1 20 Stock-based compensation expense 4,285 47 Non-cash lease expense 280 262 Changes in operating assets and liabilities: Prepaid expenses and other current assets ( 54 ) 92 Accounts payable and accrued expenses 2,208 ( 2,697 ) Lease liability ( 240 ) ( 212 ) Net cash used in operating activities ( 12,201 ) ( 7,628 ) Cash flows from investing activities: Purchase of property and equipment ( 35 ) ( 33 ) Net cash used in investing activities ( 35 ) ( 33 ) Cash flows from financing activities: Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs — 21,659 Principal payments on term loan payable ( 350 ) ( 350 ) Proceeds from exercise of common stock options 222 6 Net cash (used in) provided by financing activities ( 128 ) 21,315 Change in cash, cash equivalents, and restricted cash ( 12,364 ) 13,654 Cash, cash equivalents, and restricted cash at beginning of period 386,919 10,526 Cash, cash equivalents, and restricted cash at end of period $ 374,555 $ 24,180 Supplemental disclosure of cash flow information: Purchases of property and equipment included in accounts payable and accrued expenses $ 136 $ — Change in early exercise liability included in accounts payable and accrued expenses $ 32 $ — Issuance of Series B redeemable convertible preferred stock upon conversion of convertible notes $ — $ 10,095 Unpaid issuance costs and amounts payable to investors for redeemable converteible preferred stock included in accounts payable and accrued liabilities $ — $ 201 The accompanying notes are an integral part of these unaudited condensed financial statements. 10 Table of Contents Silverback Therapeutics, Inc. Notes to Unaudited Condensed Financial Statements 1. Nature of Business Silverback Therapeutics, Inc. (“Silverback” or “the Company”) is a clinical-stage biopharmaceutical company focused on leveraging its proprietary ImmunoTAC technology platform to develop systemically delivered and tissue targeted therapeutics for the treatment of cancer, chronic viral infections, and other serious diseases. The Company’s platform enables us to strategically pair proprietary linker-payloads that modulate key disease-modifying pathways with monoclonal antibodies directed at specific disease sites. The Company was formed in Seattle, Washington and incorporated in the state of Delaware on January 4, 2016. Initial Public Offering and Related Transaction On December 3, 2020, the Company’s registration statement on Form S-1 (File No. 333-250009) for its initial public offering of common stock (“IPO”) was declared effective by the Securities and Exchange Commission (“SEC”). On December 8, 2020, the Company issued and sold 13,225,000 shares of common stock in the IPO at a public offering price of $ 21.00 per share, resulting in net proceeds of $ 255.3 million after deducting underwriting discounts and commissions and offering expenses paid by the Company. In connection with the IPO, all 77,074,884 shares of redeemable convertible preferred stock outstanding at the time of the IPO converted into 20,758,098 shares of the Company’s common stock. Risks and Uncertainties The Company is subject to a number of inherent risks which include, but are not limited to, the need to obtain adequate additional funding, possible failure of clinical trials or other events demonstrating a lack of clinical safety or efficacy of its product candidates, dependence on key personnel, reliance on third-party service providers for manufacturing drug product and conducting clinical trials, the ability to successfully secure its proprietary technology, and risks related to the regulatory approval and commercialization of a product candidate. Additionally, the development and commercialization of new drug products is highly competitive. Products or technologies developed by competitors may diminish or render obsolete the Company’s existing products under development. Liquidity and Capital Resources The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred net operating losses since its inception and had an accumulated deficit of $ 115.6 million as of March 31, 2021. The Company had cash and cash equivalents of $ 374.2 million as of March 31, 2021 and has not generated positive cash flows from operations. To date, the Company has funded its operations primarily through the issuance of redeemable convertible preferred stock, convertible notes, and the sale of common stock in connection with the IPO. The Company’s currently available cash and cash equivalents as of March 31, 2021 are sufficient to meet its anticipated cash requirements for the 12 months following the date the financial statements are issued. Management considers that there are no conditions or events, in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern for a period of at least 12 months from the date the financial statements are issued. Management expects operating losses to continue for the foreseeable future. There can be no assurance that the Company will ever earn revenues or achieve profitability, or if achieved, that they will be sustained on a continuing basis. In addition, the manufacturing, clinical and preclinical development activities as well as the commercialization of the Company’s products, if approved, will require significant additional financing. The Company may be unable to secure such financing when needed, or if available, such financings may be under terms that are unfavorable to the Company or the current stockholders. If the Company is unable to raise additional funds when needed, it may be required to delay, reduce the scope of, or eliminate development programs, which may adversely affect its business and operations. 11 Table of Contents 2. Summary of Significant Accounting Policies Basis of Presentation The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”), and Accounting Standards Update (“ASU”), of the Financial Accounting Standards Board (“FASB”). Unaudited Interim Condensed Financial Statements The accompanying condensed balance sheet as of March 31, 2021, and condensed statements of operations and comprehensive loss, condensed statements of cash flows, and condensed statements of redeemable convertible preferred stock and stockholders’ equity (deficit) for the three months ended March 31, 2021 and 2020, are unaudited. The balance sheet as of December 31, 2020 was derived from the audited financial statements as of and for the year ended December 31, 2020. The unaudited interim condensed financial statements have been prepared on a basis consistent with the audited annual financial statements as of and for the year ended December 31, 2020, and, in the opinion of management, reflect all adjustments, consisting solely of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of March 31, 2021, and the condensed results of its operations and its cash flows for the three months ended March 31, 2021 and 2020. The financial data and other information disclosed in these notes related to the three months ended March 31, 2021 and 2020 are also unaudited. The condensed results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the full year ending December 31, 2021 or any other period. Use of Estimates The preparation of the Company’s financial statements requires it to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses in the Company’s financial statements and accompanying notes. The most significant estimates in the Company’s financial statements relate to accruals for research and development expenses, valuation of equity awards, and valuation allowances for deferred tax assets. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. The full extent to which the coron a virus (“COVID-19”) pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including expenses, clinical trials and research and development costs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international markets. The Company has considered potential impacts arising from the COVID-19 pandemic and is not presently aware of any events or circumstances that would require the Company to update its estimates, judgments or revise the carrying value of its assets or liabilities. Fair Value of Financial Instruments Cash and cash equivalents, and restricted cash are carried at fair value. Financial instruments, including accounts payable and accrued expenses are carried at cost, which approximates fair value given their short-term nature. Term loan payable is carried at cost, which approximates fair value as its effective interest rate approximates current market rates. 1 2 Table of Contents Cash and Cash Equivalents Cash equivalents are comprised of short-term, highly-liquid investments with maturities of 90 days or less at the date of purchase. At March 31, 2021 and December 31, 2021, the Company’s cash equivalents consisted of money market funds. Restricted Cash Restricted cash consists of a deposit securing a collateral letter of credit issued in connection with the Company’s facility operating lease. The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed balance sheets that sum to the amounts shown in the condensed statements of cash flows (in thousands): March 31, 202 1 December 31, 2020 Cash and cash equivalents $ 374,205 $ 386,569 Restricted cash 350 350 Total cash and cash equivalents and restricted cash $ 374,555 $ 386,919 Concentrations of Credit Risk The Company is subject to credit risk from holding its cash and cash equivalents at one commercial bank. The Company limits its exposure to credit losses by investing in money market funds through a U.S. bank with high credit ratings. Cash may consist of deposits held with banks that may at times exceed federally insured limits, however, exposure to credit risk in the event of default by the financial institution is limited to the extent of amounts recorded on the balance sheets. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held. Leases Leases consist of the Company’s operating lease. In accordance with ASC 842, Leases, the Company determines if an arrangement is a lease at inception and evaluates each lease agreement to determine whether the lease is an operating or finance lease. For leases where the Company is the lessee, right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any prepaid lease payments, lease incentives received, and costs which will be incurred in exiting a lease. The Company’s lease includes options to extend or terminate the lease. Periods covered by an option to extend the lease are included in the lease term when it is reasonably certain that the Company will exercise that option. Periods covered by an option to terminate the lease are included in the lease term when it is reasonably certain that the Company will not exercise that option. At the inception of the lease and as of March 31, 2021, the Company was not reasonably certain that it will exercise its option to extend the lease and was not reasonably certain that it will not exercise its option to terminate the lease, therefore, the periods covered by the options are not included within the lease term. Short-term leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company does not have material short-term lease costs. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. For real estate leases, the Company does not separate lease and non-lease components. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. 13 Table of Contents Research and Development Expenses All research and development costs are expensed in the period incurred. Research and development expenses consist primarily of direct and indirect costs incurred in connection with the development of the Company’s ImmunoTAC technology platform, discovery efforts, and preclinical study and clinical trial activities related to the Company’s program pipeline, including the Company’s lead product candidate, SBT6050, and other pipeline programs, including SBT6290 and SBT8230. Direct costs include expenses incurred under agreements with contract research organizations (“CROs”) and other vendors that conduct the Company’s preclinical and clinical activities, expenses associated with manufacturing the Company’s product candidates including under agreements with contract development and manufacturing organizations (“CDMOs”) and other vendors, and consulting fees. Indirect costs include personnel-related expenses, consisting of employee salaries, bonuses, benefits, and stock-based compensation expense and recruiting costs for personnel engaged in research and development activities, facility and equipment related expenses, consisting of indirect and allocated expenses for rent, depreciation, and equipment maintenance, and other unallocated research and development expenses incurred in connection with the Company’s research and development programs, including laboratory materials and supplies and license fees. Research and development expenses are charged to operating expenses as incurred when these expenditures relate to the Company’s research and development efforts and have no alternative future uses. The Company is obligated to make upfront payments upon execution of certain research and development agreements. Advance payments, including nonrefundable amounts, for goods or services that will be used or rendered for future research and development activities are capitalized until such goods are delivered or the related services are performed, or such time when the Company does not expect the goods to be delivered or services to be performed. The Company estimates the period over which such services will be performed and the level of effort to be expended in each period. If actual timing of performance or the level of effort varies from the estimate, the Company will adjust the amounts recorded accordingly. Since inception, the Company has not experienced any material differences between accrued or prepaid costs and actual costs. Stock-Based Compensation The cost of employee services received in exchange for an award of an equity instrument is measured at the grant date based on the award’s estimated fair value using the Black-Scholes option pricing model. The estimated fair value of the awards is recognized into expense on a straight-line basis over the requisite service period. Stock-based compensation expense for an award with a performance condition is recognized when the achievement of such performance condition is determined to be probable. If the outcome of such performance condition is not determined to be probable or is not met, no compensation expense is recognized, and any previously recognized compensation expense is reversed. Management evaluates when the achievement of a performance condition is probable based on the expected satisfaction of the performance condition at each reporting date. Forfeitures are recognized as a reduction of stock-based compensation expense as they occur. The option plan permits, but does not require, the inclusion of early exercise provisions in individual awards. Proceeds from early option exercises are recorded as a liability until the underlying restricted shares vest. While the restricted shares have voting rights, they are not considered outstanding for accounting purposes. Comprehensive Loss Comprehensive loss is defined as a change in equity during a period from transactions and other events and circumstances from non-owner sources. The Company’s comprehensive loss was equal to net loss for the three months ended March 31, 2021 and 2020. Net Loss Per Share Attributable to Common Stockholders Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period, without consideration of potentially dilutive securities. Diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders since the effect of potentially dilutive securities is anti-dilutive given the net loss of the Company. For purposes of this calculation, redeemable convertible preferred stock, stock options, employee stock purchase rights, and unvested common stock subject to repurchase are considered to be common stock equivalents but are not included in the calculations of diluted net loss per share for the periods presented as their effect would be antidilutive. 14 Table of Contents Emerging Growth Company Status The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with certain new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it is (1) no longer an emerging growth company or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. Recently Issued Accounting Pronouncements Not Yet Adopted In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . The objective of the standard is to provide information about expected credit losses on financial instruments at each reporting date and to change how other-than temporary impairments on investment securities are recorded. The guidance is effective for the Company beginning on January 1, 2023, with early adoption permitted. The Company is currently evaluating the impact the standard may have on its financial statements and related disclosures. 3. Fair Value Measurements The Company follows authoritative accounting guidance, which among other things, defines fair value, establishes a consistent framework for measuring fair value, and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (at exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The three levels of inputs that may be used to measure fair value include: Level 1: Quoted prices in active markets for identical assets or liabilities. The Company’s Level 1 assets consist of money market funds. Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3: Unobservable inputs that are supported by little or no market activity. The following table identifies the Company’s assets and liabilities that were measured at fair value on a recurring basis (in thousands): March 31, 2021 Level 1 Level 2 Level 3 Assets: Money market funds $ 374,205 $ — $ — December 31, 2020 Level 1 Level 2 Level 3 Assets: Money market funds $ 386,369 $ — $ — There were no transfers between the Level 1 and Level 2 categories or into or out of the Level 3 category during the periods presented. 15 Table of Contents 4. Accrued Expenses Accrued expenses consisted of the following (in thousands): March 31, December 31, 2021 2020 Research and development expenses $ 3,610 $ 2,063 Employee compensation and benefits 1,666 2,634 Professional services and other 523 581 Total accrued expenses $ 5,799 $ 5,278 5. Leases The Company leases an office and laboratory space in Seattle, Washington. The components of lease expense and related cash flows were as follows (in thousands): Three Months Ended March 31, 2021 2020 Lease expense Operating lease expense $ 347 $ 347 Variable lease expense 106 86 Total lease expense $ 453 $ 433 Operating cash outflows from operating leases $ 421 $ 397 The remaining term on the Company’s lease was 1.7 years as of March 31, 2021. To compute the present value of the lease liability, the Company used a discount rate of 8.5 %. Future minimum commitments due under the operating lease agreement as of March 31, 2021 are as follows (in thousands): Years Ending December 31, Amount 2021 (remaining 9 months) $ 824 2022 2,454 Thereafter — Total undiscounted lease payments 3,278 Present value adjustment ( 297 ) Total present value of lease payments $ 2,981 6. Term Loan Payable In November 2016, the Company entered into a loan and security agreement with Silicon Valley Bank (“SVB”) and borrowed $ 3.5 million as a term loan. The outstanding principal amount of the term loan accrues interest at an annual rate of 1.75 % per annum. At closing, the Company incurred de minimis debt issuance costs and owed a final payment fee of $ 0.3 million, both of which are amortized to interest expense over the remaining term of the debt under the effective interest method. The effective interest rate of the Company’s term loan is 5.14 %. Interest expense under the term loan totaled less than $ 0.1 million for each of the three months ended March 31, 2021 and 2020. The term loan is collateralized by the Company’s tangible and intangible assets, excluding intellectual property. The proceeds are to be used as working capital and to fund general business requirements. The agreement includes customary nonfinancial covenants and events of default that include, among other things, non-payment, inaccuracy of representations and warranties, covenant breaches, cross default to material indebtedness or material agreements, bankruptcy and insolvency, material judgments, a change of control, or any material adverse event. The Company was in compliance with all related covenants as of March 31, 2021. 16 Table of Contents The term loan’s original maturity date was November 1, 2020 . However, in April 2020, the Company amended the loan and security agreement to defer principal payments for six months and extend the maturity date to May 1, 2021 . There were no costs or additional warrant issuances in connection with this amendment. The Company accounted for the amendment as a debt modification and is amortizing the remaining debt discount over the remaining term. On May 1, 2021, the Company made its final scheduled payment to SVB under the loan and security agreement including the final payment fee. 7. Stockholders’ Equity (Deficit) Redeemable Convertible Preferred Stock Prior to its conversion to common stock in December 2020, the Company’s redeemable convertible preferred stock was classified as mezzanine equity on the Company’s balance sheets as the shares are contingently redeemable upon a deemed liquidation such as a change in control and in that event, there is no guarantee that all stockholders would be entitled to receive the same form of consideration. No accretion to redemption value was recorded during the three months ended March 31, 2020 as a deemed liquidation event was not considered probable. In March 2020, the Company issued 14,701,054 shares of its Series B redeemable convertible preferred stock, including 4,673,388 shares issued upon conversion of then outstanding convertible notes and accrued interest, and 10,027,666 shares issued for cash at a purchase price of $ 2.16 per share, resulting in gross proceeds of $21.5 million. The Series B purchase agreement provided that the Company would issue, and the Series B holders would purchase, an additional 21,732,862 shares of the Company’s Series B redeemable convertible preferred stock across two tranches for aggregate proceeds of $ 46.9 million in the event that certain agreed upon milestones were achieved or the preferred majority approved their closing. As of March 31, 2020, these future Series B tranches did not meet the definition of freestanding instruments or the definition of derivatives, therefore, they were not accounted for separately or bifurcated. Common Stock The Company has reserved shares of common stock for the following potential future issuances: March 31, December 31, 2021 2020 Shares underlying outstanding equity awards 6,308,582 6,316,569 Shares available for future equity award grants 3,152,910 1,506,806 Shares underlying early exercised equity awards 76,293 100,263 Shares underlying ESPP withholdings 19,126 4,393 Total 9,556,911 7,928,031 8. Stock-Based Compensation Stock-based compensation expense recognized for all equity awards has been reported in the statements of operations and comprehensive loss as follows (in thousands): Three Months Ended March 31, 2021 2020 Research and development expense $ 1,925 $ 31 General and administrative expense 2,360 16 Total stock-based compensation expense $ 4,285 $ 47 17 Table of Contents As of March 31, 2021, the total unrecognized stock-based compensation expense was $ 59.6 million, which is expected to be recognized over a remaining weighted-average period of approximately 3.16 years. Stock Option Awards As of March 31, 2021, the Company’s equity incentive plans authorized a total of 9,564,798 shares, of which 3,152,910 shares are available for future grant, and 6,308,582 shares are outstanding. Not included in the outstanding option balance are 76,293 shares pursuant to stock options that were early exercised and subject to repurchase under the 2016 Plan that remain unvested as of March 31, 2021. A summary of the Company’s stock option activity for the three months ended March 31, 2021 is as follows (in thousands, except share and per share data and years): Stock Options Outstanding Shares Subject to Options Outstanding Weighted- Average Exercise Price Weighted- Average Remaining Contractual Life (Years) Aggregate Intrinsic Value Balance at December 31, 2020 6,316,569 $ 10.93 9.5 $ 223,647 Granted 93,973 $ 48.03 Exercised ( 101,960 ) $ 2.18 $ 4,227 Cance l led — $ — Balance at March 31, 2021 6,308,582 $ 11.63 9.3 $ 202,325 Vested at March 31, 2021 708,833 $ 6.97 8.7 $ 25,956 The total fair value of shares vested during the three months ended March 31, 2021 and 2020 was $ 3.6 million and less than $ 0.1 million, respectively. The aggregate intrinsic value in the table above is calculated as the difference between the exercise price of the underlying options and the estimated fair value of the Company’s common stock for all options that were in-the-money at March 31, 2021. The weighted-average grant date fair value per share of option grants for the three months ended March 31, 2021 was $ 33.32 . There were no grants during the three months ended March 31, 2020. The grant date fair value of stock options was estimated using a Black-Scholes option pricing model with the following weighted-average assumptions: Three Months Ended March 31, 2021 Expected term (in years) 6.0 Expected volatility 83 % Risk-free interest rate 0.72 % Expected dividend yield — 1 8 Table of Contents The fair value of stock options was determined using the Black-Scholes option-pricing model and the assumptions below. Each of these inputs is subjective and generally requires significant judgement. Fair Value of Common Stock. The grant date fair market value of the shares of common stock underlying stock options is determined by the Company’s board of directors. Following the closing of the Company’s IPO, the fair market value of our common stock is based on its closing price as reported on the date of grant on the primary stock exchange on which the Company’s common stock is traded. Prior to the Company’s IPO, because there was no public market for the Company’s common stock, the board of directors exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair market value, which included contemporaneous valuations performed by an independent third-party, the Company’s results of operations and financial position, including its levels of available capital resources, its stage of development and material risks related to the Company’s business, progress of the Company’s research and development activities, the Company’s business conditions and projections, the lack of marketability of the Company’s common stock and preferred stock as a private company, the prices at which the Company sold shares of its redeemable convertible preferred stock to outside investors in arms-length transactions, the rights, preferences and privileges of the Company’s redeemable convertible preferred stock relative to those of its common stock, the analysis of IPOs and the market performance of similar companies in the biopharmaceutical industry, the likelihood of achieving a liquidity event for the Company’s securityholders, such as an IPO or a sale of the company, given prevailing market conditions, the hiring of key personnel and the experience of management, trends and developments in the Company’s industry and external market conditions affecting the life sciences and biotechnology industry sectors. Expected Term. The expected term represents the period that the options granted are expected to be outstanding. The expected term of stock options issued is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term) as the Company has concluded that its stock option exercise history does not provide a reasonable basis upon which to estimate expected term. Expected Volatility. Given the Company’s limited historical stock price volatility data, the Company derived the expected volatility from the average historical volatilities over a period approximately equal to the expected term of comparable publicly traded companies within its peer group that were deemed to be representative of future stock price trends as the Company has limited trading history for its common stock. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available. Risk-free Interest Rate. The risk-free interest rate is based on the U.S. Treasury rate, with maturities similar to the expected term of the stock options. Expected Dividend Yield. The Company has never paid dividends on its common stock and does not anticipate paying any dividends in the foreseeable future. Therefore, the Company uses an expected dividend yield of zero . 9. Licensing Agreement Cell Line License Agreement with WuXi Biologics (Hong Kong) Limited In October 2019, the Company entered into a cell line license agreement with WuXi Biologics (Hong Kong) Limited (“WuXi Bio”). Under the license agreement, WuXi Bio granted the Company a non-exclusive, worldwide, sublicensable, under certain of WuXi Bio’s intellectual property rights, know-how and biological materials (“WuXi Bio Licensed Technology”), to make, use, sell, offer for sale and import a product developed through the use of the WuXi Bio Licensed Technology (“WuXi Bio Licensed Product”). The WuXi Bio Licensed Technology is currently used to manufacture a component of the Company’s lead product, SBT6050. The Company has paid an aggregate of $ 150,000 in license fees that were recorded in research and development expense when incurred. In the event the Company manufactures its commercial supplies of a product produced by the Licensed Cell Line using a manufacturer other than WuXi Bio or its affiliates, the Company will become obligated to pay WuXi Bio aggregate milestone payments, upon achievement of certain sales milestones, of up to $ 10.8 million. The Company has the right to terminate the license by giving at least six months prior written notice to WuXi Bio and paying all amounts due to them through the termination date. In the event the Company fails to pay all amounts due to WuXi Bio under the license agreement, and fails to pay the amounts within 30 days after receiving written notice of such failure, WuXi Bio may terminate the license with 45 days written notice to the Company. 19 Table of Contents In the event either party commits a material breach under the license and fails to cure the breach within 30 days after receiving written notice from the other party of such breach, either party may terminate the license immediately upon written notice to the other party. 10. Commitments and Contingencies Legal Proceedings From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made and can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. Indemnifications In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, the Company may indemnify, hold harmless, and defend an indemnified party for losses suffered or incurred by the indemnified party. Some of the provisions will limit losses to those arising from third party actions. In some cases, the indemnification will continue after the termination of the agreement. The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable. The Company has never incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. The Company has entered into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers to the fullest extent permitted by Delaware corporate law. The Company currently has directors’ and officers’ insurance coverage that reduces its exposure and enables the Company to recover a portion of any future amounts paid. The Company believes the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal. COVID-19 The global COVID-19 pandemic continues to rapidly evolve, and management continue to monitor the situation closely. The extent of the impact of COVID-19 on the Company’s business, operations and clinical development timelines and plans remains uncertain, and will depend on certain developments, including the duration and spread of the outbreak and its impact on the Company’s clinical trial enrollment, trial sites, CROs, third-party manufacturers, and other third parties with whom the Company does business, as well as its impact on regulatory authorities and the Company’s key scientific and management personnel. The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. To the extent possible, management is conducting business as usual, with necessary or advisable modifications to employee travel and most of the Company’s non-lab based employees working remotely. Management will continue to actively monitor the rapidly evolving situation related to COVID-19 and may take further actions that alter Company operations, including those that may be required by federal, state or local authorities, or that management determines are in the best interests of the Company’s employees and other third parties with whom the Company does business. At this point, the extent to which the COVID-19 pandemic may affect the Company’s business, operations and clinical development timelines and plans, including the resulting impact on Company expenditures and capital needs, remains uncertain and is subject to change. 1 1 . Employee Benefit Plans The Company maintains a retirement plan, which is qualified under section 401(k) of the Internal Revenue Code of 1986, as amended, for the Company’s U.S. employees. The plan allows eligible employees to defer, at the employee’s discretion, pretax compensation up to the IRS annual limits. The Company does not match contributions made by employees. 20 Table of Contents 12. Net Loss Per Share Attributable to Common Stockholders The following outstanding shares of potentially dilutive securities were excluded from the computation of the diluted net loss per share attributable to common stockholders for the periods presented because their effect would have been anti-dilutive: Three Months Ended March 31, 2021 2020 Redeemable convertible preferred stock — 8,191,580 Common stock options 6,308,582 550,176 Unvested common stock 76,293 5,095 Common stock warrants — 9,154 ESPP withholdings 19,126 — Total potentially dilutive shares 6,404,001 8,756,005