SUTRO BIOPHARMA, INC. 10-K

Item 9A. Controls and Procedures Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures As of December 31, 2021, management, with the participation of our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal accounting officer), performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2021, the design and operation of our disclosure controls and procedures were effective at a reasonable assurance level. Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer and effected by our board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Our internal control over financial reporting includes those policies and procedures that: • pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets; • provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and • provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. 158 Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its 2013 Internal Control – Integrated Framework. Based on our assessment, our management has concluded that, as of December 31, 2021, our internal control over financial reporting is effective based on those criteria. The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included in this Item 9A of this Annual Report on Form 10-K. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. 159 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Sutro Biopharma, Inc. Opinion on Internal Control Over Financial Reporting We have audited Sutro Biopharma, Inc.’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Sutro Biopharma, Inc.’s (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the balance sheets of Sutro Biopharma, Inc. (the Company) as of December 31, 2021 and 2020, the related statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and our report dated February 28, 2022 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Redwood City, California February 28, 2022 160 Item 9B. Other Information None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections None. 161 PART III Item 10. Directors, Executive Of ficers and Corporate Governance The information required by this Item will be set forth in our proxy statement with respect to our 2022 Annual Meeting of Stockholders, or Proxy Statement, to be filed with the Securities and Exchange Commission within 120 days after our fiscal year end and is incorporated herein by reference. Item 11. Executi ve Compensation The information required by this Item will be set forth in the Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after our fiscal year end and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Ow ners and Management and Related Stockholder Matters The information required by this Item will be set forth in the Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after our fiscal year end and is incorporated herein by reference. Item 13. Certain Relationships and Relate d Transactions and Director Independence The information required by this Item will be set forth in the Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after our fiscal year end and is incorporated herein by reference. Item 14. Principal Accou ntant Fees and Services The information required by this item will be set forth in the Proxy Statement to be filled with the Securities and Exchange Commission within 120 days after our fiscal year end and is incorporated herein by reference. 162 PAR T IV Item 15. Exhibits and Fina ncial Statement Schedules (1) Financial Statements: The financial statements required by Item 15(a) are filed as part of this Annual Report on Form 10-K under Item 8 “Financial Statements and Supplementary Data.” (2) Financial Statement Schedules The financial statement schedules required by Item 15(a) are omitted because they are not applicable, not required or the required information is included in the financial statements or notes thereto as filed in Item 8 of this Annual Report on Form 10-K. (3) Exhibits. Incorporated by Reference Exhibit Number Exhibit Description Form Number Exhibit Date Filed Herewith 3.1 Amended and Restated Certificate of Incorporation of Sutro Biopharma, Inc. 10-Q 001-38662 3.1 11/14/2018 3.2 Amended and Restated Bylaws of Sutro Biopharma, Inc. 10-Q 001-38662 3.2 11/14/2018 4.1 Third Amended and Restated Investors’ Rights Agreement, dated May 24, 2018, by and among the Registrant and certain of its stockholders. S-1 333-227103 4.2a 8/29/2018 4.2 Omnibus Amendment Agreement, dated July 26, 2018, by and among the Registrant and certain of its stockholders. S-1 333-227103 4.2b 8/29/2018 4.3 Form of Warrant to Purchase Shares of Common Stock. S-1 333-227103 4.3 8/29/2018 4.5 Description of Registrant’s Securities 10-K 001-38662 4.5 3/16/2020 10.1 Form of Indemnity Agreement by and between the Registrant and its directors and officers S-1/A 333-227103 10.1 9/17/2018 10.2‡ 2018 Equity Incentive Plan and form of award agreements thereunder S-1/A 333-227103 10.4 9/17/2018 10.3‡ Amended Form of Restricted Stock Unit Agreement under the 2018 Equity Incentive Plan. 10-Q 001-38662 10.1 11/8/2019 10.4‡ Amended Form of Performance Stock Unit Agreement under the 2018 Equity Incentive Plan. 10-Q 001-38662 10.2 11/8/2019 10.5 Sales Agreement, dated October 4, 2019, by and between the Registrant and Cowen and Company, LLC S-3 333-234101 1.2 10/4/2019 163 10.6‡ 2018 Employee Stock Purchase Plan and form of award agreements thereunder S-1/A 333-227103 10.5 9/17/2018 10.7‡ 2004 Stock Plan, as amended, and forms of award agreements. S-1 333-227103 10.2 8/29/2018 10.8‡ 2017 Call Option Plan and forms of award agreements. S-1 333-227103 10.3 8/29/2018 10.9† Exclusive Patent License and Research Collaboration Agreement, dated July 23, 2018, by and between the Registrant and Merck Sharp & Dohme Corp., a subsidiary of Merck & Co., Inc., Kenilworth, NJ. S-1/A 333-227103 10.15 9/17/2018 10.11‡ Offer Letter, dated December 11, 2012, by and between the Registrant and Edward C. Albini. X 10.12‡ Offer Letter, dated December 29, 2008, by and between the Registrant and William J. Newell, as amended. S-1 333-227103 10.6 8/29/2018 10.14‡ Offer Letter, dated November 12, 2010, by and between the Registrant and Trevor Hallam, as amended. S-1 333-227103 10.8 8/29/2018 10.16 Standard Industrial/Commercial Multi-Tenant Lease-Net, dated May 18, 2011, by and between the Registrant and Lydia Tseng and/or Alemany Plaza LLC, as amended. S-1 333-227103 10.10 8/29/2018 10.17† Amended and Restated Collaboration and License Agreement, dated August 2, 2017, by and among Celgene Corporation, Celgene Alpine Investment Company II, LLC, and the Registrant, as amended. S-1/A 333-227103 10.11 9/17/2018 10.18† L icense Agreement, dated September 16, 2014, by and between Merck KGaA, Darmstadt, Germany (operating in the United States and Canada under the name “EMD Serono”) and the Registrant, as amended. S-1 333-227103 10.12 8/29/2018 10.19† Amended and Restated Exclusive Agreement, dated October 3, 2007, between The Board of Trustees of The Leland Stanford Junior University and Fundamental Applied Biology, Inc., as amended. S-1/A 333-227103 10.13 9/17/2018 10.20 Loan and Security Agreement, dated February 28, 2020, among Oxford Finance LLC, Silicon Valley Bank, and the Registrant. 10-K 001-38662 10.20 3/16/2020 164 10.21 Form of Warrant to Oxford Finance LLC pursuant to the Loan and Security Agreement. 10-K 001-38662 10.21 3/16/2020 10.22 Form of Warrant to Silicon Valley Bank pursuant to the Loan and Security Agreement. 10-K 001-38662 10.22 3/16/2020 10.23 Sublease Agreement, dated September 3, 2020, by and between the Company and Five Prime Therapeutics, Inc. 10-Q 001-38662 10.1 11/5/2020 10.24‡ Severance and Change in Control Plan of the Company 10-K 001-38662 10.24 3/18/2021 10.25 Third Amendment to Lease 888-894 Industrial Road, San Carlos, CA 10-Q 001-38662 10.2 8/9/2021 10.26‡ 2021 Equity Inducement Plan Document S-8 333-258603 99.1 8/9/2021 10.27 Second Amendment to the Exclusive Patent License and Research Collaboration Agreement 10-Q 001-38662 10.2 11/10/2021 10.28 Option Agreement, dated October 9, 2021, by and between the Registrant and BioNova Pharmaceuticals Limited. X 10.29 License Agreement, dated December 24, 2021. by and between the Registrant and Tasly Biopharmaceuticals Co., Ltd. X 10.30 Offer Letter, dated May 23, 2021, by and between the Registrant and Jane Chung. X 10.31 Offer Letter, dated December 11, 2015, by and between the Registrant and Arturo Molina. X 21.1 Subsidiaries of the Registrant. S-1 333-227103 21.1 8/29/2018 23.1 Consent of independent registered public accounting firm. X 24.1 Power of Attorney. Reference is made to the signature page hereto. X 165 31.1 Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X 31.2 Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X 32.1** Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. X 32.2** Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. X 101.INS Inline XBRL Instance Document X 101.SCH Inline XBRL Taxonomy Extension Schema Document X 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document X 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document X 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document X 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document X 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) X ** This certification is deemed not filed for purposes of section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act. ‡ Indicates management contract or compensatory plan. † Confidential treatment has been granted for portions of this exhibit pursuant to Rule 406 of the Securities Act, or Rule 24b-2 of the Exchange Act. The Registrant has omitted and filed separately with the SEC the confidential portions of this exhibit. 166 Item 16. Form 10-K Summary . Registrants may voluntarily include a summary of information required by Form 10-K under Item 16. We have elected not to include such summary. 167 SIGNA TURES Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized. SUTRO BIOPHARMA, INC. Date: February 28, 2022 By: /s/ William J. Newell Name: William J. Newell Title: Chief Executive Officer Date: February 28, 2022 By: /s/ Edward C. Albini Name: Edward C. Albini Title: Chief Financial Officer 168 POWER OF ATTORNEY Each person whose individual signature appears below hereby authorizes and appoints William J. Newell and Edward C. Albini and each of them, with full power of substitution and resubstitution, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agents full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorney-in-fact and agents or his substitute or substitutes may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ William J. Newell President, Chief Executive Officer and Director February 28, 2022 William J. Newell (Principal Executive Officer) /s/ Edward C. Albini Chief Financial Officer and Corporate Secretary February 28, 2022 Edward C. Albini (Principal Financial and Accounting Officer) /s/ Michael Dybbs, Ph.D. Director February 28, 2022 Michael Dybbs, Ph.D. /s/ John G. Freund, M.D. Director February 28, 2022 John G. Freund, M.D. /s/ Joseph M. Lobacki Director February 28, 2022 Joseph M. Lobacki /s/ Connie Matsui Director February 28, 2022 Connie Matsui /s/ James Panek Director February 28, 2022 James Panek /s/ Daniel H. Petree Director February 28, 2022 Daniel H. Petree /s/ Shalini Sharp Director February 28, 2022 Shalini Sharp /s/ Jon M. Wigginton, M.D. Director February 28, 2022 Jon M. Wigginton, M.D. /s/ Heidi Hunter Director February 28, 2022 Heidi Hunter 169