What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2023-03-30 compared with 2022-02-28 · 432 added, 372 removed, 1007 unchanged (44% of the section changed)

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Holders of Record

As of February 24, 2022, there were approximately 77 stockholders of record of our common stock.

As of March 27, 2023, there were approximately 72 stockholders of record of our common stock.

The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees.

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Dividend Policy

We currently intend to retain future earnings, if any, for use in operation of our business and to fund future growth.

We currently intend to retain future earnings, if any, for use in the operation of our business and to fund future growth.

We have never declared or paid any cash dividends on our capital stock and do not anticipate paying any cash dividends in the foreseeable future.

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Unregistered Sales of Equity Securities

On November 18, 2021, we issued 9,308 shares of our common stock upon the cashless exercise of a warrant to purchase up to an aggregate of 25,453 shares of common stock.

The warrant was exercised as to all 25,453 then-vested and exercisable shares.

In lieu of a cash payment, the holder of the warrant surrendered 16,145 shares of common stock to cover the exercise price in accordance with the terms of the warrant.

The offer, sale, and issuance of these securities was deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act.

The recipient of the securities was an accredited or sophisticated person and had adequate access, through business or other relationships, to information about us.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

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We undertake no obligation to update forward-looking statements, which reflect events or circumstances occurring after the date of this Form 10-K.

We are a clinical stage drug discovery, development and manufacturing company focused on deploying our proprietary integrated cell-free protein synthesis platform, XpressCF ®, and our site specific conjugation platform, XpressCF+ ®TM , to create a broad variety of optimally designed, next-generation protein therapeutics, initially for cancer.

We aim to design therapeutics using the most relevant and potent modalities, including cytokine-based therapeutics, immuno-oncology, or I/O agents, antibody-drug conjugates, or ADCs, immunostimulatory ADCs, or iADCs, and bispecific antibodies that are directed primarily against clinically validated targets where the current standard of care is suboptimal.

We believe our platform allows us to accelerate the discovery and development of potential first-in-class and best-in-class molecules by enabling the rapid and systematic evaluation of protein structure-activity relationships to create optimized homogeneous product candidates.

Our mission is to transform the lives of patients by using our XpressCF ® platform to create medicines with improved therapeutic profiles for areas of unmet need.

Once identified, production of protein drug candidates can be rapidly and predictably scaled in our current Good Manufacturing Practices compliant manufacturing facility.

We have the ability to manufacture our cell-free extract that supports our production of proteins on a large scale using a semi-continuous fermentation process.

Our two most advanced product candidates are wholly owned:

STRO-002, an ADC directed against folate receptor-alpha, or FolRα, for patients with FolRα-expressing cancers, such as ovarian and endometrial cancers, and STRO-001, an ADC directed against CD74, for patients with B-cell malignancies, such as multiple myeloma and non-Hodgkin lymphoma, or NHL.

STRO-002 was designed and optimized for an improved therapeutic index by placing a precise number of linker-warheads at four specific locations within the antibody using our proprietary XpressCF+ ®TM platform.

Our first Phase 1 trial for STRO-002 is an open-label study evaluating STRO-002 as a monotherapy for patients with ovarian and endometrial cancers.

We are a clinical-stage oncology company developing site-specific and novel-format antibody drug conjugates, or ADCs, enabled by our proprietary integrated cell-free protein synthesis platform, XpressCF ® , and our site specific conjugation platform, XpressCF+ ® .

We aim to design and develop therapeutics using the most relevant and potent modalities, including ADCs, bispecific ADCs, immunostimulatory ADCs, or iADCs, dual conjugate ADCs, or ADC 2 s, and cytokine derivatives.

Our molecules are directed primarily against clinically validated targets where the current standard of care is suboptimal.

We believe that our platform allows us to accelerate the discovery and development of potential first-in-class and/or best-in-class molecules by enabling the rapid and systematic evaluation of protein structure-activity relationships to create optimized homogeneous product candidates.

Our mission is to transform the lives of patients by creating medicines with improved therapeutic profiles for areas of unmet need.

Once identified, production of protein drug candidates can be rapidly and predictably scaled in our current Good Manufacturing Practices, or cGMP, compliant manufacturing facility.

We have the ability to manufacture our proprietary cell-free extract that supports our production of proteins on a large scale using a semi-continuous fermentation process.

Our most advanced product candidate is STRO-002, or luveltamab tazevibulin, or luvelta, an ADC directed against folate receptor-alpha, or FolRα, for patients with FolRα-expressing cancers, including ovarian cancer.

Luvelta was designed and optimized for an improved therapeutic index by placing a precise number of linker-warheads at four specific locations within the antibody using our proprietary XpressCF+ ® platform.

Our first Phase 1 trial for luvelta is an open-label study evaluating luvelta as a monotherapy for patients with ovarian and endometrial cancers.

This trial is being conducted in two-parts, dose escalation and dose expansion.

The primary objectives of the STRO-002 clinical trial are to determine the safety and tolerability profile, to define the recommended Phase 2 dose level and interval and to evaluate preliminary anti-tumor activity.

The primary objectives of the clinical trial are to determine the safety and tolerability profile, to define the recommended Phase 2 dose level and interval and to evaluate preliminary anti-tumor activity.

Our secondary objectives are to characterize the human pharmacokinetics and additional safety, tolerability and efficacy measures.

We are developing STRO-001, an optimally designed ADC directed against the cancer target CD74, for multiple myeloma and NHL.

Our next most advanced product candidate is STRO-001, an optimally designed ADC directed against the cancer target CD74, for multiple myeloma and NHL.

STRO-001 was designed and optimized for maximal therapeutic index by placing linker-warheads at specific locations within the antibody using our proprietary XpressCF+ ® platform.

The Phase 1 trial for STRO-001 is an open-label study that is evaluating STRO-001 as a monotherapy for patients with multiple myeloma and NHL.

The Phase 1 trial for STRO-001 is an open-label study evaluating STRO-001 as a monotherapy for patients with multiple myeloma and NHL.

The trial is being conducted in two parts:

dose escalation and dose expansion.

The primary objectives of the trial are to determine the safety and tolerability profile of STRO-001, determine the recommended Phase 2 dose and interval and evaluate preliminary anti-tumor activity.

The secondary objectives are to characterize the human pharmacokinetics of STRO-001 and additional safety, tolerability and efficacy measures.

In March 2019, STRO-002 began enrolling patients in a Phase 1 trial focused on ovarian and endometrial cancers.

The dose escalation portion of the STRO-002 Phase 1 trial has been completed and the dose expansion portion of the trial is ongoing to assess the efficacy, safety and tolerability of STRO-002 at dose levels of 4.3 and 5.2 mg/kg.

In May 2021, we reported data from the dose-escalation cohort.

Based on such reported data, STRO-002 exhibited a manageable safety profile and promising preliminary efficacy data, as discussed in more detail in Item 1 of Part I “Business”

of this document.

In January 2022, we released initial results of the dose expansion

portion of the STRO-002 Phase 1 trial.

These data suggested that STRO-002 exhibited a manageable safety profile together with promising preliminary efficacy data in the tested patient population, as discussed in more detail in Item 1 of Part I “Business”

of this document.

In August 2021, we were granted Fast Track designation for STRO-002 by the FDA for the treatment of patients with platinum-resistant epithelial ovarian, fallopian tube, or primary peritoneal cancer who have received one to three prior lines of systemic therapy.

In December 2021, we entered into a licensing agreement with Tasly Biopharmaceuticals Co., Ltd, or Tasly, to grant Tasly an exclusive license to develop and commercialize STRO-002 in China, Hong Kong, Macau and Taiwan, referred to as Greater China, or the Tasly License Agreement.

Our second candidate, STRO-001, is currently enrolling patients in a Phase 1 trial, with updated data reported in December 2020, as discussed in more detail in Item 1 of Part I “Business”

of this document.

Based on such reported data, STRO-001 has been generally well-tolerated and, unlike certain other ADCs, no ocular toxicity signals have been observed, with no patients receiving prophylactic corticosteroid eye drops.

Dose escalation in the STRO-001 Phase 1 trial is continuing, and the maximum tolerated dose has not yet been reached.

In October 2018, we were granted Orphan Drug Designation by the FDA for STRO-001 for the treatment of multiple myeloma.

In October 2021, we granted BioNova Pharmaceuticals Limited, or BioNova, an option to exclusively license the right to develop and commercialize STRO-001 in Greater China, or the BioNova Option Agreement.

Based on our proprietary XpressCF ® and XpressCF+ ®TM platforms, we have also entered into multi-target, product-focused collaborations with leaders in the field of oncology, including a cytokine derivatives collaboration with Merck Sharp & Dohme Corp., a subsidiary of Merck & Co., Inc., Kenilworth, NJ, or Merck;

a B Cell Maturation Antigen, or BCMA, ADC collaboration with Celgene Corporation, or Celgene, a wholly owned subsidiary of Bristol-Myers Squibb Company, New York, NY, or BMS;

a MUC1-EGFR ADC collaboration with Merck KGaA, Darmstadt Germany (operating in the United States and Canada under the name “EMD Serono”);

and license agreement to develop and commercialize STRO-002 in Greater China with Tasly.

Our XpressCF ® and XpressCF+ ®TM platforms have also supported a spin-out company, Vaxcyte Inc., or Vaxcyte, focused on discovery and development of vaccines for the treatment and prophylaxis of infectious disease.

The primary objectives of the trial are to determine the safety and tolerability profile of STRO-001, to determine the recommended Phase 2 dose level and interval and to evaluate preliminary anti-tumor activity.

Our secondary objectives are to characterize the human pharmacokinetics of STRO-001 and additional safety, tolerability and efficacy measures.

In 2019, we began enrolling patients in a Phase 1 trial of luvelta that focused on ovarian and endometrial cancers.

The dose escalation portion of the luvelta Phase 1 trial has been completed and the dose expansion portion of the trial to assess the efficacy, safety and tolerability of luvelta is ongoing.

In January 2023, we reported preliminary final results from the dose-expansion cohort.

The data from the dose-escalation and dose expansion cohorts suggested that luvelta exhibited a manageable safety profile together with promising preliminary efficacy data in the tested patient population.

In August 2021, Luvelta was granted Fast Track designation by the U.S.

Food and Drug Administration, or FDA, for the treatment of patients with platinum-resistant epithelial ovarian, fallopian tube, or primary peritoneal cancer who have received one to three prior lines of systemic therapy.

In mid-2022, we discussed with the FDA appropriate trial designs for a registration-directed trial of luvelta to potentially

support accelerated approval.

We expect to begin a registration-directed trial of luvelta for platinum-resistant ovarian cancer in the first half of 2023.

In addition, we have been offering compassionate use of luvelta to treat pediatric patients with relapsed/refractory CBF/GLIS AML, commonly known as RAM phenotype AML.

Compassionate use data showed anti-leukemic activity of luvelta in pediatric patients with relapsed/refractory CBF/GLIS AML and was presented at the 64th American Society of Hematology Annual Meeting and Exposition (ASH 2022).

The data showed that luvelta was well tolerated as a monotherapy agent and in combination with standard cancer therapies.

Luvelta was granted Orphan Drug Designation by the FDA in December 2022 in this pediatric patient population.

We have completed enrollment for STRO-001 dose escalation in a Phase 1 trial for multiple myeloma and NHL.

STRO-001 has been generally well-tolerated and no ocular toxicity signals have been observed, with no patients receiving prophylactic corticosteroid eye drops.

We have completed dose escalation in the STRO-001 Phase 1 trial following identification of the maximum tolerated dose.

In October 2021, we granted BioNova, an option to exclusively license the right to develop and commercialize STRO-001 in Greater China, or the BioNova Option Agreement.

In February 2023, BioNova announced that the first patient had been dosed in the Phase 1 clinical trial of STRO-001.

We also have a preclinical product candidate - STRO-003, which is a single homogeneous ADC directed against an anti-Receptor tyrosine kinase-like orphan receptor 1, or ROR1, which we intend to develop for the treatment of solid tumors.

Preparations are underway for IND enabling studies for STRO-003, which we expect will be completed in the first quarter of 2024.

We expect to begin Phase 1 safety studies of STRO-003 in 2024.

Enabled through our proprietary XpressCF ® and XpressCF+ ® platforms, we have entered into multi-target, product-focused collaborations with leading pharmaceutical and biotechnology companies in the field of oncology, including an immunostimulatory antibody-drug conjugates collaboration with Astellas, a cytokine derivatives collaboration with Merck;

a B Cell Maturation Antigen, or BCMA, ADC collaboration with BMS;

a MUC1-EGFR ADC collaboration with EMD Serono;

Our XpressCF ® and XpressCF+ ® platforms have also supported Vaxcyte, focused on discovery and development of vaccines for the treatment and prophylaxis of infectious disease.

In the fourth quarter of 2022, Vaxcyte announced positive topline data from a Phase 1/2 clinical proof-of-concept study of its lead product candidate, VAX-24, its 24-valent pneumococcal conjugate vaccine candidate, under investigation for the prevention of invasive pneumococcal disease in adults aged 18-64.

Also in the fourth quarter of 2022, we entered into an agreement with Vaxcyte, granting it an option to access expanded rights to develop and manufacture cell-free extract for use in development and manufacture of its vaccine products, among certain other rights.

Since the commencement of our operations, we have devoted substantially all of our resources to performing research and development and manufacturing activities in support of our own product development efforts and those of our collaborators, raising capital to support and expand such activities and providing general and administrative support for these operations.

We have funded our operations to date primarily from upfront, milestone and other payments under our collaboration agreements with BMS, Merck and EMD Serono, the issuance and sale of redeemable convertible preferred stock, our initial public offering, or IPO, follow-on public offerings of common stock and debt proceeds.

We have funded our operations to date primarily from upfront, milestone and other payments under our collaboration agreements with BMS, Merck, Astellas, EMD Serono, Vaxcyte, BioNova, and Tasly, the issuance and sale of redeemable convertible preferred stock, our initial public offering, or IPO, follow-on public offerings of common stock, sales of our common stock through our ATM Facility, and debt proceeds.

We do not have any products approved for commercial sale and have not generated any revenue from commercial product sales.

We had a loss from operations of $98.5 million and a net loss of $105.5 million for the year ended December 31, 2021, which net loss included the non-operating, unrealized loss of $4.5 million related to our holdings of Vaxcyte common stock.

We had a loss from operations of $71.1 million and net loss of $32.1 million, due principally to an unrealized gain of $41.5 million related to our holdings of Vaxcyte common stock, for the year ended December 31, 2020.

We had a loss from operations of $128.9 million and a net loss of $119.2 million for the year ended December 31, 2022, which net loss included the non-operating, unrealized gain of $12.1 million related to our holdings of Vaxcyte common stock.

We had a loss from operations of $98.5 million and net loss of $105.5 million, which net loss included the non-operating, unrealized loss of $4.5 million related to our holdings of Vaxcyte common stock, for the year ended December 31, 2021.

Substantially all of our losses have resulted from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations.

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We do not expect to generate any revenue from commercial product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years.

If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution.

If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, access, marketing, manufacturing and distribution.

We expect our operating expenses to significantly increase as we continue to develop, and seek regulatory approvals for, our product candidates, engage in other research and development activities, expand our pipeline of product candidates, continue to develop our manufacturing facility and capabilities, maintain and expand our intellectual property portfolio, seek regulatory and marketing approval for any product candidates that we may develop, acquire or in-license other assets or technologies, ultimately establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval, and operate as a public company.

Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials, our expenditures on other research and development activities and the timing of achievement and receipt of upfront, milestones and other collaboration agreement payments.

Impacts of the COVID-19 Pandemic

The extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and spread of the pandemic, impacts on our clinical studies, employee or industry events, and effects on our collaboration partners, suppliers, service providers and manufacturers, all of which are uncertain and cannot be predicted.

The COVID-19 pandemic and its adverse effects have become more prevalent in the locations where we, our CROs, suppliers or third-party business partners conduct business.

We are experiencing the impact of the COVID-19 pandemic on our business through increased cost and delays in the availability of materials routinely used in biologic therapeutic development and manufacturing, which has the potential to cause delays in our research, development and/or manufacturing activities, but overall patient enrollment and treatment remains on track.

Additionally, the COVID-19 pandemic has had, and is expected to continue to have, an adverse impact on our operations, particularly as a result of preventive and precautionary measures that we, other businesses, and governments are taking.

We may experience more pronounced and significant disruptions in our operations, liquidity, supply chain, facilities, and clinical trials in the future as well.

With respect to our clinical trials, we have experienced minor delays in enrollment and occasional delays in data entry by trial sites, but overall enrollment and treatment remains on track.

We may in the future experience more significant delays in enrollment, participant dosing, distribution of clinical trial materials, study monitoring and data analysis that could materially adversely impact our business, results of operations, revenue earned from our collaboration partners, and overall financial performance in future periods.

Specifically, we may experience impact from changes in how we and companies worldwide conduct business due to the COVID-19 pandemic, including but not limited to restrictions on travel and in-person meetings, the speed and breadth of mass vaccinations for COVID-19 and the efficacy of such vaccines, delays in site activations and enrollment of clinical trials, prioritization of hospital resources toward pandemic effort, delays in review by the FDA and comparable foreign regulatory agencies, limitations on employee resources that would otherwise be focused on the conduct of our research, preclinical studies, clinical trials and manufacturing operations, including because of sickness of employees or their families, the desire of employees to avoid contact with large groups of people, an increased reliance on working from home or mass transit disruptions, and disruptions in our supply chain for our product candidates.

Additionally, increased reliance on remote work by our employees as a result of the COVID-19 pandemic poses incremental increased cybersecurity risks as our employees’

home networks are inherently less secure than our corporate networks.

As of the filing date of this Form 10-K, the extent to which the COVID-19 pandemic may impact our financial condition, results of operations or guidance is uncertain.

The effect of the COVID-19 pandemic will not be fully reflected in our results of operations and overall financial performance until future periods.

See the section titled “Risk Factors”

for further discussion of the possible impact of the ongoing COVID-19 pandemic on our business.

A discussion and analysis of our financial condition, results of operations, and cash flows for the year ended December 31, 2020 is included in Item 7 of Part II “Management’s Discussion and Analysis of Financial Condition and Results of Operations”

in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 18, 2021.

in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 28, 2022.

Financial Operations Overview

We do not have any products approved for commercial sale and have not generated any revenue from commercial product sales.

Our total revenue to date has been generated principally from our collaboration and license agreements with BMS, Merck, and EMD Serono, and to a lesser extent, from manufacturing, supply and services and materials we provide to the above collaborators and to Vaxcyte.

Our total revenue to date has been generated principally from our collaboration and license agreements with BMS, Merck, Astellas, EMD Serono, Vaxcyte, BioNova and Tasly, and to a lesser extent, from manufacturing, supply and services and materials we provide to the above collaborators.

We derive revenue from collaboration arrangements, under which we may grant licenses to our collaboration partners to further develop and commercialize our proprietary product candidates.

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In instances where SSP is not directly observable, we develop assumptions that require judgment to determine the SSP for each performance obligation identified in the contract.

These key assumptions may include full-time equivalent, or FTE, personnel effort, estimated costs, discount rates and probabilities of clinical development and regulatory success.

These key assumptions may include

full-time equivalent, or FTE, personnel effort, estimated costs, discount rates and probabilities of clinical development and regulatory success.

Please see further discussion on the revenue recognition treatment of performance obligations under Critical Accounting Policies and Estimates.

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We expense both internal and external research and development costs as they are incurred.

Non-refundable advance payments for services that will be used or rendered for future research and development activities are recorded as prepaid expenses and recognized as expenses as the related services are performed.

Nonrefundable advance payments for services that will be used or rendered for future research and development activities are recorded as prepaid expenses and recognized as expenses as the related services are performed.

We expect our research and development expenses to increase in the future as we advance our product candidates into and through preclinical studies and clinical trials, pursue regulatory approval of our product candidates, expand our pipeline of product candidates and continue to develop our manufacturing facility and capabilities.

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We may never succeed in achieving regulatory approval for any of our product candidates.

As a result of the uncertainties discussed above, we are

unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of our product candidates.

As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of our product candidates.

The following table summarizes our research and development expenses incurred during the periods indicated.

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We expect to incur additional expenses operating as a public company, including expenses related to compliance with the rules and regulations of the SEC and listing standards applicable to companies listed on the Nasdaq Global Market, additional insurance expenses, investor relations activities and other administrative and professional services.

We also expect to increase the size of our administrative function and our general and administrative expenses to support the anticipated growth of our business, as we continue to advance our product candidates into and through the clinic.

We also expect to increase the size of our administrative function and our general and administrative expenses to support the anticipated growth of our business, and as we continue to advance our product candidates into and through the clinic.

Interest Income

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Unrealized gain (loss) on equity securities consists of the remeasurement of our investment in Vaxcyte common stock.

Interest and Other Expense, Net

Interest expense includes interest incurred on our debt and amortization of debt issuance costs including accretion of final payment.

Additionally, the Company identified a financing component under the Merck 2018 Agreement and recorded interest expense associated with the upfront payment.

Other income (expense) includes changes in values attributable to the arrangement with the Call Option Plan as defined in the notes to our financial statements included elsewhere in this report.

Interest and Other Income (Expense), Net

Interest expense includes interest incurred on our debt and amortization of debt issuance costs, including accretion of the final payment.

Additionally, we identified a financing component under the Astellas Agreement and recorded interest expense associated with the upfront payment.

Other income (expense) includes changes in values attributable to the arrangement with our Call Option Plan whereby we granted certain employee options to purchase shares of Vaxcyte common stock, and realized gain (loss) on the equity securities.

We recorded a foreign income tax charge of $2.5 million due to a withholding tax in China on an upfront license fee payment received from Tasly for the year ended December 31, 2022.

All other income tax charges and benefits during the years ended December 31, 2022 and 2021 have been immaterial, primarily due to the net loss in each year.

Our deferred assets continue to be subject to full valuation allowance for the tax years ended December 31, 2022 and 2021.

A valuation allowance is recorded when it is more likely than not that all or some portion of the deferred income tax assets will not be realized.

We regularly assess the need for a valuation allowance against our deferred income tax assets by considering both positive and negative evidence related to whether it is more likely than not that our deferred income tax assets will be realized.

In evaluating our ability to recover our deferred income tax assets within the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred income tax liabilities, future tax rates, projected future taxable income, tax-planning strategies, and results of recent operations.

Comparison of the Years Ended December 31, 2022 and 2021

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Interest income

Unrealized (loss) gain on equity securities

Interest and other expense, net

We have recognized revenue as follows during the periods indicated:

Unrealized gain (loss) on equity securities

Interest and other income (expense), net

Loss before provision for income taxes

Provision for income taxes

*Percentage not meaningful

We have recognized revenue as follows during the indicated periods:

Year Ended December 31,

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Merck Sharp & Dohme Corporation ("Merck")

Merck KGaA, Darmstadt, Germany (operating in the United States and Canada under the name "EMD Serono")

Merck KGaA, Darmstadt, Germany (operating in the

United States and Canada under the name "EMD Serono")

Astellas Pharma Inc.

(“Astellas”)

BioNova Pharmaceuticals, Ltd.

(“BioNova”)

Tasly Biopharmaceuticals Co., Ltd.

(“Tasly”)

Total revenue

(1) Merck was a related party until the closing of our public offering on May 14, 2020.

(2) Vaxcyte was a related party until the closing of its initial public offering on June 16, 2020.

*Percentage not meaningful

Total revenue increased by $5.9 million, or 10%, during the year ended December 31, 2022 as compared to the year ended December 31, 2021.

This was due primarily to $16.7 million from Merck, primarily related to increased revenue from performance obligations, with full recognition of revenue associated with the contingent third program upon the determination that the related performance obligation had terminated during the first quarter of 2021, and a cumulative catch-up in revenue as a result of the change in transaction price, due to a $15.0 million contingent payment earned in the second quarter of 2021 for the initiation of the first IND-enabling toxicology study under the first program in the collaboration.

There was also a $4.1 million increase in contract research and manufacturing activities supporting materials supply.

The Merck revenue increases noted above were partially offset by a $2.8 million decrease in research and development services and a $1.2 million decrease related to the financing component associated with the upfront payment.

Revenue from Vaxcyte under our supply agreement increased by $2.8 million, partially offset by an overall $0.5 million decrease in revenue from EMD Serono.

This was primarily due to an earned $25.0 million upfront payment under the Tasly License Agreement, revenue from Astellas of $10.9 million, of which $3.9 million was from the ongoing performance related to partially unsatisfied performance obligations, $5.1 million was from the financing component related to the Astellas Agreement, and $1.9 million was from research and development services, revenue from BioNova of $4.0 million from the satisfaction of the performance obligation under the BioNova Option Agreement, and a $0.8 million increase in Vaxcyte revenue.

These increases were partially offset by a $31.2 million decrease from Merck, related to a $13.3 million decrease from the 2021 completion of the performance obligations associated with the first and second target programs under the 2018 Merck Agreement, full recognition of $6.0 million of revenue earned in the first quarter of 2021 associated with the contingent third target program upon the termination of the related performance obligation, recognition of a $15.0 million contingent payment earned in the second quarter of 2021 for the initiation of the first IND-enabling toxicology study under the first program in the collaboration, a decrease of $3.2 million in research and development services and materials supply, a decrease of $3.1 million in manufacturing activities supporting clinical trial supply, and a decrease of $0.6 million due to the absence in 2022 of the financing component related to the 2018 Merck Agreement, partially offset by a $10.0 million contingent payment earned in the third quarter of 2022 with the first patient dosed in a Phase 1 study of an investigational candidate under the first program in the collaboration.

EMD Serono revenue decreased by $1.9 million primarily due to a $2.0 million contingent payment earned in the second quarter of 2021, partially offset by a $0.1 million increase in 2022 materials supply and manufacturing activities supporting clinical trial supply.

BMS revenue decreased by $1.7 million primarily due to a decrease of $3.7 million in research and development services and materials supply, partially offset by a $2.0 million increase in manufacturing activities supporting clinical trial supply.

Research and Development Expense

Research and development expense increased by $32.8 million, or 31%, during the year ended December 31, 2022 as compared to the year ended December 31, 2021.

The increase was due primarily to increases of $11.2 million in personnel-related expenses due to higher headcount, $6.3 million in laboratory supplies and production materials-related expenses, $4.8 million in facilities-related expenses, $3.4 million in clinical trial costs, $1.5 million in consulting and outside services, and $0.2 million in equipment and office-related expenses.

The overall increase was due primarily to increases of $11.6 million in personnel-related expenses due to higher headcount, $11.0 million in laboratory supplies and preclinical research and clinical development expenses, $10.5 million in consulting and outside services, and $0.5 million in travel, equipment and office-related expenses, partially offset by a $0.8 million decrease in facilities-related expenses.

General and Administrative Expense

General and administrative expense increased by $3.5 million, or 6%, during the year ended December 31, 2022 as compared to the year ended December 31, 2021.

The increase was due primarily to increases of $11.4 million in personnel-related expenses due to higher headcount, $3.2 million in insurance and external services, $3.6 million in facilities-related expenses, and $1.0 million in equipment and office-related expenses.

The increase was due primarily to increases of $2.2 million in personnel-related expenses due to higher headcount, $1.3 million in external services, $1.2 million in equipment and office-related expenses, and $0.3 million in travel-related expenses, partially offset by a $1.5 million decrease in facilities-related expenses.

Interest Income

Interest income decreased by $0.9 million during the year ended December 31, 2021 as compared to the year ended December 31, 2020, due primarily to a $2.3 million decrease in the amortization of premiums on investments, partially offset by an increase of $1.4 million from higher average investment balances in 2021.

Unrealized (Loss) Gain on Equity Securities

Unrealized (loss) on equity securities was $4.5 million during the year ended December 31, 2021 as compared to an unrealized gain of $41.5 million for the year ended December 31, 2020.

The unrealized (loss) gain on equity securities in each period was entirely due to the remeasurement of the estimated fair value of our investment in Vaxcyte common stock.

Interest and Other Expense, Net

Interest and other expense, net decreased by $0.9 million during the year ended December 31, 2021 as compared to the year ended December 31, 2020, due primarily to a $1.2 million decrease in interest expense associated with the financing component related to the 2018 Merck Agreement, partially offset by a $0.3 million increase in interest expense related to our outstanding debt.

Interest income increased by $2.9 million during the year ended December 31, 2022 as compared to the year ended December 31, 2021, due primarily to higher average investment balances and higher average rates of return in 2022.

Unrealized Gain / (Loss) on Equity Securities

Unrealized gain on equity securities was $12.1 million during the year ended December 31, 2022 as compared to an unrealized (loss) of $4.5 million for the year ended December 31, 2021.

The unrealized gain (loss) on equity securities in each period was entirely due to the remeasurement of the estimated fair value of our investment in Vaxcyte common stock.

Interest and Other Income (Expense), Net

Interest and other income (expense), net, increased by $0.2 million during the year ended December 31, 2022 as compared to the year ended December 31, 2021, due primarily to the increase of $5.1 million from the financing component related to the Astellas Agreement, partially offset by a recognized gain of $4.1 million on

equity securities during the year ended December 31, 2022, a decrease of $0.6 million due to the absence of the financing component in the year ended December 31, 2022 related to the 2018 Merck Agreement, and a decrease of $0.2 million in interest incurred on our outstanding loan.

Liquidity and Capital Resources

Sources of Liquidity

To date, we have incurred significant net losses, and negative cash flows from operations.

We have incurred significant net losses to date.

We have also incurred negative cash flows from operations in the years prior to 2022.

Our operations have been funded primarily by payments received from our collaborators, and net proceeds from equity sales and debt.

As of December 31, 2021, we had $229.5 million in cash, cash equivalents and marketable securities, outstanding debt of $25.1 million and an accumulated deficit of $333.4 million.

2021 Contingent Payment from Merck

During the year ended December 31, 2021, we earned and received a $15.0 million contingent payment from Merck for the initiation of an IND enabling toxicology study for the first program in our collaboration to develop novel cytokine derivative therapeutics for cancer.

2020 Public Offerings

On May 14, 2020, we closed a public offering of 12,650,000 shares of our common stock at a public offering price of $7.75 per share, which included the exercise in full of the underwriters’

option to purchase 1,650,000 shares of common stock.

Our net proceeds from this offering, after deducting underwriting discounts and commissions and other offering expenses, was approximately $91.4 million.

On December 11, 2020, we closed a public offering of 6,900,000 shares of our common stock at a public offering price of $21.00 per share, which included the exercise in full of the underwriters’

option to purchase 900,000 shares of common stock.

Our net proceeds from this offering, after deducting underwriting discounts and commissions and other offering expenses, was approximately $135.8 million.

As of December 31, 2022, we had $302.3 million in cash, cash equivalents and marketable securities, equity securities of $32.0 million, outstanding debt of $16.3 million and an accumulated deficit of $452.6 million.

At-The-Market Sales

During the year ended December 31, 2020, we sold an aggregate of 2,614,286 shares of our common stock through our At-the-Market ATM facility, or ATM Facility, pursuant to a sales agreement dated October 4, 2019 with Cowen and Company, LLC, as sales agent.

During the year ended December 31, 2022, we sold an aggregate of 10,285,160 shares of our common stock through our ATM Facility pursuant to the Sales Agreement with Jefferies.

The gross proceeds from these sales were approximately $58.3 million, before deducting fees of approximately $2.0 million, resulting in net proceeds of approximately $56.3 million.

During the year ended December 31, 2021, we did not sell any shares under an ATM facility.

Vaxcyte, Inc.

Equity Ownership

In June 2020, Vaxcyte closed an initial public offering of its common stock at a price per share of $16.00.

The Vaxcyte common stock held by us is measured at fair value at each reporting period based on the closing price of Vaxcyte’s common stock on the last trading day of each reporting period, adjusted for a discount for lack of marketability due to the presence of a lock-up agreement during certain periods in 2020, with any unrealized gains and losses recorded in our statements of operations.

The lock-up agreement expired in December 2020.

As of December 31, 2021, we held 1,562,879 shares of Vaxcyte common stock with an estimated fair value of $37.2 million.

Upfront Payment from Astellas

In June 2022, we entered into a License and Collaboration Agreement with Astellas, for the development of immunostimulatory antibody-drug conjugates for up to three biological targets, to be identified by Astellas.

Pursuant to the agreement with Astellas, we received from Astellas a one-time, nonrefundable, non-creditable, upfront payment of $90.0 million during the year ended December 31, 2022.

Upfront Payment from Tasly

During the year ended December 31, 2022, we earned a $25.0 million nonrefundable upfront payment from Tasly under the Tasly License Agreement to grant Tasly an exclusive license to develop and commercialize luvelta in Greater China.

The upfront payment, net of a withholding tax of $2.5 million, resulted in a net payment to us of $22.5 million received during the year ended December 31, 2022.

Upfront Payment from Vaxcyte and Vaxcyte Equity Ownership

In December 2022, we entered into a letter agreement (the “Vaxcyte Agreement”) with Vaxcyte under which the Company granted to Vaxcyte (i) authorization to enter into an agreement with an independent alternate contract manufacturing organization, or CMO, to source cell-free extract solely for the products it licensed from the us, allowing Vaxcyte to have direct oversight over financial and operational aspects of the relationship with the CMO, and (ii) a right, but not an obligation, to obtain certain exclusive rights to internally manufacture and/or source extract from certain CMOs and the right to independently develop and make improvements to extract for use in connection with the exploitation of certain vaccine compositions (the “Option”).

Pursuant to the Vaxcyte Agreement, we received from Vaxcyte a one-time, nonrefundable, non-creditable, upfront payment of $10.0 million in cash, and 167,780 shares of Vaxcyte’s common stock with a fair value of $7.5 million at the date of the transaction in December 2022.

As of December 31, 2022, we held 667,780 shares of Vaxcyte common stock, which include the 167,780 shares received from Vaxcyte under the Vaxcyte Agreement.

The estimated fair value of Vaxcyte common stock was $32.0 million as of December 31, 2022.

During the year ended December 31, 2022, we sold 1,058,434 shares of Vaxcyte common stock for net proceeds of $28.7 million.

Contingent Payments from Merck

In July 2022, the first patient was dosed in a Phase 1 study of an investigational candidate resulting from the 2018 Merck Agreement for the first program in our collaboration to develop novel cytokine derivative therapeutics for cancer.

As a result of this achievement, we earned and received a $10.0 million contingent payment from Merck during the year ended December 31, 2022.

On February 28, 2020, or the Effective Date, we entered into a loan and security agreement, or the Loan and Security Agreement, with Oxford Finance LLC, or Oxford, as the collateral agent and a lender, and Silicon Valley Bank, as a lender, together with Oxford, the Lenders, pursuant to which the Lenders have agreed to lend us up to an aggregate of $25.0 million, or the Term A Loan.

Upon entering into the Loan and Security Agreement, we borrowed $25.0 million from the Lenders, with approximately $9.6 million of such amount applied to the repayment of the outstanding principal, interest and final payment fees owed pursuant to the prior loan and security agreement dated August 4, 2017.

In June 2022, we entered into an amendment to the LSA with Oxford and SVB (the “LSA Amendment”).

The LSA Amendment added a financial covenant that requires us to maintain a minimum unrestricted cash balance of $10.0 million.

We were in compliance with the financial covenant under the LSA Amendment as of December 31, 2022.

The proceeds from the Term A Loan under the Loan and Security Agreement may be used to satisfy our future working capital needs and to fund our general business requirements.

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We have also agreed not to encumber our intellectual property assets, except as permitted by the Loan and Security Agreement.

The Term A Loan matures on March 1, 2024, or the Maturity Date, and will be interest-only through March 1, 2022, followed by 24 equal monthly payments of principal and interest.

The Term A Loan matures on March 1, 2024, or the Maturity Date, and was interest-only through March 1, 2022, followed by 24 equal monthly payments of principal and interest.

The Term A Loan will bear interest at a floating per annum rate equal to the greater of (i) 8.07% or (ii) the sum of (a) the greater of (1) the thirty (30) day U.S.

LIBOR rate reported in the Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue or (2) 1.67%, plus (b) 6.40%.

We will be required to make a final payment of 3.83% of the original principal amount of the Term A Loan drawn, payable on the earlier of (i) the Maturity Date, (ii) the acceleration of the Term A Loan, or (iii) the prepayment of the Term A Loa n, or the Final Payment.

We may prepay all, but not less than all, of the Term A Loan upon 30 days’

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The Loan and Security Agreement provides that an event of default will occur if, among other triggers, there occurs any circumstances that could reasonably be expected to result in a material adverse change in our business, or operations or condition (financial or otherwise) or a material impairment of the prospect of us to repay any portion of our obligations under the Loan and Security Agreement.

The Loan and Security Agreement previously included a covenant requiring us to keep substantially all of our cash and investments with SVB, the substantial majority of which was held in a custodial account with another institution, for which SVB Asset Management was the advisor.

In March 2023, we amended our Loan and Security Agreement to allow us to hold cash and investments at multiple financial institutions and we began the process of moving cash and investments into accounts at other financial institutions.

The Loan and Security Agreement also includes customary representations and warranties, other events of default and termination provisions.

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The aggregate estimated base rent payments due over the Lease Extension Period is approximately $4.2 million, subject to certain terms contained in the San Carlos Lease.

In June 2021, we entered into a first amendment, or the First Amendment, to our manufacturing facility lease, dated May 4, 2015, as amended, by and between 870 Industrial Road LLC, located at San Carlos, California, or the Industrial Lease, as an extension to the term of the Industrial Lease for a period of five years, or the Industrial Lease Extension Period.

In June 2021, we entered into a first amendment, or First Amendment, to our manufacturing facility lease, dated May 4, 2015, as amended, by and between 870 Industrial Road LLC, located at San Carlos, California, or the Industrial Lease, as an extension to the term of the Industrial Lease for a period of five years, or the Industrial Lease Extension Period.

Pursuant to the first Amendment, the Industrial Lease will expire on June 30, 2026, and it includes an option to renew the Industrial Lease for an additional five years.

The aggregate estimated base rent payments due over the Industrial Lease Extension Period is approximately $4.3 million, subject to certain terms contained in the Industrial Lease.

In September 2020, the Company entered into a sublease agreement, or the Sublease with Five Prime Therapeutics, Inc., or the Sublessor, for approximately 115,466 square feet, in a building located in South San Francisco, California, or the Premises.

The Company uses the Premises as its new corporate headquarters and to conduct (or expand) research and development activities.

The Company commenced making monthly payments for the first 85,755 square feet of the Premises, or Initial Premises, in July 2021, with occupancy of such space commencing in August 2021.

The Company was provided early access to the Initial Premises in the fourth quarter of 2020 to conduct certain planning and tenant improvement work.

In September 2020, we entered into a sublease agreement, or the Sublease with Five Prime Therapeutics, Inc., or the Sublessor, for approximately 115,466 square feet, in a building located in South San Francisco, California, or the Premises.

We use the Premises as our corporate headquarters and to conduct (or expand) research and development activities.

We commenced making monthly payments for the first 85,755 square feet of the Premises, or Initial Premises, in July 2021, with occupancy of such space commencing in August 2021.

We were provided early access to the Initial Premises in the fourth quarter of 2020 to conduct certain planning and tenant improvement work.

The Sublease is subordinate to the lease agreement, effective December 12, 2016, between the Sublessor and HCP Oyster Point III LLC, or the Landlord.

The commencement date for the remaining 29,711 square feet of the Premises, or the Expansion Premises, is expected to be 24 months following the commencement date on the Initial Premises.

However, the Company has the right to accelerate the commencement date on the Expansion Premises to an earlier date upon six months’

However, we have the right to accelerate the commencement date on the Expansion Premises to an earlier date upon six months’

prior written notice to the Sublessor.

The Sublease for both the Initial Premises and Expansion Premises will expire on December 31, 2027.

With a commencement date on the Initial Premises of July 1, 2021, the aggregate estimated base rent payments due over the term of the Sublease are approximately $39.1 million, including the approximately $5.2 million in potential financial benefit to the Company of base rent abatement to be provided by the Sublessor, subject to certain terms contained in the Sublease.

The Sublease contains customary provisions requiring the Company to pay its pro rata share of utilities and a portion of the operating expenses and certain taxes, assessments and fees of the Premises and provisions allowing the Sublessor to terminate the Sublease upon the termination of the lease with the Landlord or if the Company fails to remedy a breach of certain of its obligations within specified time periods.

Additionally, the Company posted a security deposit of $0.9 million, which is reflected as restricted cash in non-current assets on the Company’s balance sheet as of December 31, 2021 and 2020.

With a commencement date on the Initial Premises of July 1, 2021, the aggregate estimated base rent payments due over the term of the Sublease are approximately $39.1 million, including the approximately $5.2 million in potential financial benefit to us of base rent abatement to be provided by the Sublessor, subject to certain terms contained in the Sublease.

The Sublease contains customary provisions requiring us to pay our pro rata share of utilities and a portion of the operating expenses and certain taxes, assessments and fees of the Premises and provisions allowing the Sublessor to terminate the Sublease upon the termination of the lease with the Landlord or if we fail to remedy a breach of certain of its obligations within specified time periods.

Additionally, we posted a security deposit of $0.9 million, which is reflected as restricted cash in non-current assets on our balance sheet as of December 31, 2022 and 2021.

Funding Requirements

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(in thousands)

Cash used in operating activities

Cash (used in) provided by investing activities

Cash provided by (used in) operating activities

Cash used in investing activities

Cash provided by financing activities

Net (decrease) increase in cash, cash equivalents and restricted cash

Net increase (decrease) in cash, cash equivalents and restricted cash

Cash Flows from Operating Activities

Cash used in operating activities for the year ended December 31, 2021 was $81.7 million.

Our net loss of $105.5 million included $4.5 million of unrealized loss on equity securities as a result of the remeasurement of the estimated fair value of our investment in Vaxcyte common stock, non-cash charges of $23.2 million for stock-based compensation, $4.8 million for depreciation and amortization, $4.9 million for noncash lease expenses, $2.8 million for the amortization of premiums on our marketable securities, and $1.2 million in other non-cash charges.

Cash used in operating activities also reflected a net change in operating assets and liabilities of $17.6 million, due to an increase of $6.9 million in accounts receivable from our collaborators, a decrease of $15.2 million in our deferred revenue balance from revenue recognized under our collaboration agreements, an increase of $4.0 million in prepaid expenses and other assets, and a decrease of $2.7 million in our operating lease liability, which were partially offset by an increase of $8.6 million in accounts payable and other liabilities due to timing of payments, and an increase of $2.6 million in accrued compensation due to increased headcount.

Cash provided by operating activities for the year ended December 31, 2022 was $3.5 million.

Our net loss of $119.2 million included non-cash charges of $26.3 million for stock-based compensation, $12.1 million for the unrealized gain on equity securities as a result of the remeasurement of the estimated fair value of our investment in Vaxcyte common stock, $5.7 million for depreciation and amortization, $4.1 million for the realized gain on equity securities, $2.6 million for noncash lease expenses, $0.4 million for the accretion of discount on our marketable securities and $0.3 million in other non-cash charges.

Cash provided by operating activities also reflected a net change in operating assets and liabilities of $104.4 million, due to an increase of $93.6 million in our deferred revenue balance primarily due to the upfront payment from Astellas, a decrease of $5.3 million in accounts receivable from our collaborators, an increase of $5.3 million in accounts payable, accrued expenses and other liabilities due to timing of payments, an increase of $1.7 million in accrued compensation due to increased headcount, and an increase of $1.9 million in our operating lease liability, which were partially offset by an increase of $3.5 million in prepaid expenses and other assets.

Cash used in operating activities for the year ended December 31, 2021 was $81.7 million.

Our net loss of $32.1 million included $41.5 million of unrealized gain on equity securities as a result of the remeasurement of the estimated fair value of our investment in Vaxcyte common stock, and was partially offset by non-cash charges of $11.9 million for stock-based compensation, $4.3 million for depreciation and amortization, $0.2 million related to revaluation of the vested options under the Call Option Plan, $0.5 million for the amortization of premiums on our marketable securities, and $0.3 million for the amortization of debt issuance costs.

Cash used in operating activities also reflected a net change in operating assets and liabilities of $11.5 million, due principally to a decrease of $15.0 million in our deferred revenue balance from revenue recognized under our collaboration agreements, which was partially offset by an increase of $2.8 million in accrued compensation due to increased headcount and bonuses resulting from certain company goal achievements and a decrease of $0.7 million in accounts receivable from our collaborators.

Our net loss of $105.5 million included non-cash charges of $23.2 million for stock-based compensation, $4.9 million for noncash lease expenses, $4.8 million for depreciation and amortization, $4.5 million of unrealized loss on equity securities as a result of the remeasurement of the estimated fair value of our investment in Vaxcyte common stock, $2.8 million for the amortization of premiums on our marketable securities, and $1.2 million in other non-cash charges.

Cash used in operating activities also reflected a net change in operating assets and liabilities of $17.6 million, due to a decrease of $15.2 million in our deferred revenue balance from revenue recognized under our collaboration agreements, an increase of $6.9 million in accounts receivable from our collaborators, an increase of $4.0 million in prepaid expenses and other assets and a decrease of $2.7 million in our operating lease liability, which were partially offset by an increase of $8.6 million in accounts payable, accrued expenses and other liabilities due to timing of payments and an increase of $2.6 million in accrued compensation due to increased headcount.

Cash Flows from Investing Activities

Cash used in investing activities of $97.3 million for the year ended December 31, 2021 was primarily related to purchases of marketable securities of $248.7 million and purchases of property and equipment of $15.3 million, principally for leasehold improvements to the premises under the Sublease, offset partially by maturities and sales of marketable securities of $166.7 million.

Cash provided by investing activities of $0.6 million for the year ended December 31, 2020 was primarily related to purchases of marketable securities of $130.7 million and purchases of property and equipment of $7.1 million, principally for laboratory and manufacturing equipment, offset partially by maturities and sales of marketable securities of $138.4 million.

Cash used in investing activities of $35.0 million for the year ended December 31, 2022 was primarily related to purchases of marketable securities of $216.7 million and purchases of property and equipment of $7.9 million, principally for laboratory equipment, partially offset by maturities and sales of marketable securities of $160.8 million and proceeds from sale of Vaxcyte equity securities of $28.7 million.

Cash used in investing activities of $97.3 million for the year ended December 31, 2021 was primarily related to purchases of marketable securities of $248.7 million and purchases of property and equipment of $15.3 million, principally for leasehold improvements to the Premises under the Sublease, partially offset by maturities and sales of marketable securities of $166.7 million.

Cash Flows from Financing Activities

Cash provided by financing activities of $48.3 million for the year ended December 31, 2022 was primarily related to $56.3 million of net proceeds from our ATM Facility sales of common stock, $1.6 million of net proceeds received from participants in our employee equity plans and $0.3 million of proceeds received from the exercise of common stock options, partially offset by debt repayment of $9.4 million and a $0.5 million tax payment related to the net share settlement of certain vested restricted stock units.

Cash provided by financing activities of $3.3 million for the year ended December 31, 2021 was primarily related to $2.5 million of proceeds received from the exercise of common stock options, and $1.8 million of net proceeds received from participants in our employee equity plans, partially offset by a $1.0 million tax payment related to the net share settlement of certain vested restricted stock units.

Cash provided by financing activities of $269.2 million for the year ended December 31, 2020 was primarily related to $251.4 million of net proceeds from the issuance of common stock from our public offering and the sales of common stock pursuant to our ATM Facility, $25.0 million of gross proceeds from our debt refinancing, and $2.8 million of net proceeds received from participants in our employee equity plans and from the exercise of common stock options, partially offset by a $10.0 million repayment of the August 2017 Loan (as defined in Note 7 to our financial statements included elsewhere in this report) .

Contractual Obligations and Other Commitments

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We do not have any products approved for commercial sale and have not generated any revenue from commercial product sales.

Our total revenue to date has been generated principally from our collaboration and license agreements with Celgene (now BMS), Merck, and EMD Serono, and to a lesser extent, from manufacturing, supply and services and materials we provide to the above collaborators and to Vaxcyte.

Our total revenue to date has been generated principally from our collaboration and license agreements with BMS, Merck, Astellas, EMD Serono, Vaxcyte, BioNova, Tasly, and to a lesser extent, from manufacturing, supply and services and materials we provide to our collaborators.

When we enter into collaboration agreements, we assess whether the arrangements fall within the scope of ASC 808, Collaborative Arrangements (ASC 808) based on whether the arrangements involve joint operating activities and whether both parties have active participation in the arrangement and are exposed to significant risks and rewards.

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Consideration under these contracts generally includes a nonrefundable upfront payment, development, regulatory and commercial milestones and other contingent payments, and royalties based on net sales of approved products.

Additionally, the collaborations may

provide options for the customer to acquire from us materials and reagents, clinical product supply or additional research and development services under separate agreements.

Additionally, the collaborations may provide options for the customer to acquire from us materials and reagents, clinical product supply or additional research and development services under separate agreements.

We assess which activities in the collaboration agreements are considered distinct performance obligations that should be accounted for separately.

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At the inception of each agreement, we determine the arrangement transaction price, which includes variable consideration, based on the assessment of the probability of achievement of future milestones and contingent payments and other potential consideration.

We recognize revenue over time by measuring the progress towards the complete satisfaction of the relevant performance obligation using an appropriate input or output method based on the nature of the service promised to the customer.

For arrangements that include multiple performance obligations, we allocate the transaction price to the identified performance obligations based on the standalone selling price, or SSP, of each distinct performance obligation.

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The amounts billed are recognized as revenue as the performance obligations are met by us.

Revenue subject to governmental withholding taxes is recognized on a gross basis with the withholding taxes recorded as a component of income tax expense.

Research and Development

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Stock-Based Compensation

We recognize compensation costs related to stock-based awards granted to employees based on the estimated fair value of the awards on the date of grant.

We measure and recognize compensation expense for all stock-based awards, including restricted stock units, stock options, and the ESPP, to employees, consultants and nonemployee directors based on the estimated fair value of the awards on the grant date.

The fair value of stock options and purchase rights under the ESPP are estimated using the Black-Scholes option-pricing model.

The Black-Scholes model requires use of assumptions and judgments about the variables used in the calculations, including the expected term, the expected volatility of the underlying stock, the related risk-free interest rate for the expected term of the award and the expected dividends.

Stock-based compensation expense for restricted stock units and stock options is generally recognized on a straight line basis over the requisite service period.

Stock-based compensation expense for the ESPP is recognized on a straight-line basis over the offering period.

We account for forfeitures of stock-based awards as they occur.

We estimate the grant date fair value, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model.

The grant date fair value of the stock-based awards is generally recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective awards.

The Black-Scholes option-pricing model requires the use of highly subjective assumptions to determine the fair value of stock-based awards, including the expected term and expected volatility of the underlying stock.

We will continue to use judgment in evaluating the expected term and expected volatility utilized for our stock-based compensation calculations on a prospective basis.

The closing sale price per share of our common stock as reported on the Nasdaq Global Market on the date of grant is used to determine the exercise price per share of our stock-based awards to purchase common stock.

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We had cash, cash equivalents and marketable securities of $302.3 million and $229.5 million as of December 31, 2022 and 2021, respectively, which consisted of money market funds, commercial paper, corporate debt securities, asset-backed securities, U.S.

government agency securities and supranational debt securities.

government securities, U.S.

agency securities and supranational debt securities.

Such interest earning instruments carry a degree of interest rate risk;

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LIBOR rate reported in the Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue or (2) 1.67%, plus (b) 6.40%.

This debt matures on March 1, 2024 and will be interest-only through March 1, 2022.

This debt matures on March 1, 2024 and was interest-only through March 1, 2022.

Such interest-bearing debt carries a limited degree of interest rate risk.

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equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S.

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company'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) and our report dated February 28, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

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Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

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.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (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.

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Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Collaboration revenue

Accounting for the License and Collaboration agreement with Astellas Pharma, Inc.

Description of the Matter

The Company recognized collaboration revenue of $61.9 million for the year ended December 31, 2021.

As described in Note 2, the Company derives revenue from collaboration arrangements under which the Company may grant licenses to its collaboration partners to further development and commercialize its proprietary product candidates.

The Company may perform research and development activities and consideration under the contracts generally includes nonrefundable upfront payments, development, regulatory and commercialization milestones, other contingent payments and royalties.

The Company also provides materials and reagents, clinical materials and research and development services to collaborators.

The Company receives consideration for these services based on full time equivalent personnel effort at agreed upon rates and agreed upon pricing for the materials.

Management examines these research and development and material supply activities and bills its collaboration partners for eligible costs under the arrangements.

Of the $61.9 million recognized as revenue, $24.2 million was recognized for the reimbursement of expenses for employee research and development activities and material supply activities with Merck & Co., Inc., BMS, EMD Serono, Inc., and Vaxcyte.

Auditing the Company’s accounting for revenues from collaboration arrangements was challenging, as the revenue recorded within the Company’s financial statements are based on a high-volume of research and development activities across multiple projects, which are subject to reimbursement.

As described in Note 5, during 2022 the Company entered into a License and Collaboration Agreement (the “Astellas Agreement”) with Astellas Pharma Inc.

(“Astellas”), which resulted in the recognition of $3.9 million of revenue for the year ended December 31, 2022 and $86.1 million of deferred revenue at December 31, 2022.

Auditing the Company’s accounting for the Astellas Agreement was complex and required the Company to apply significant judgement, including the determination of performance obligations, transaction price and the estimation of standalone selling

price for each identified performance obligation.

Estimates of the standalone selling price require management judgement and assumptions, which may include forecasted full-time equivalents (FTEs) and development timelines.

Changes to these assumptions can have a material effect on the allocation of the transaction price to the performance obligations and can impact the amount and timing of revenue recognized.

How We Addressed the Matter in Our Audit

Our audit procedures included, among others, testing the eligibility of the Company’s internal and external research and development activities against the terms of the agreements.

We conducted meetings with program management to understand the nature of the activities performed under the collaboration agreements and to test the calculation of eligible costs for reimbursement.

We also obtained external confirmations from collaboration partners to confirm the terms of the agreements.

Our audit procedures included, among others, obtaining and reading the Astellas Agreement and evaluating the completeness of the performance obligations identified by management.

We also evaluated management’s estimates of the standalone selling price for each performance obligation.

We evaluated the forecasted FTEs used by the Company in developing estimates of the standalone selling price by evaluating management’s budget process and performing cross-functional inquiries of individuals within research and development functions to understand the nature of the activities under the Astellas Agreement.

Additionally, we compared the forecasted FTEs to the Astellas Agreement.

We also performed a sensitivity analysis to evaluate the impact that changes in the forecasted FTEs used to develop the estimates of standalone selling price would have on each performance obligation.

We also obtained an external confirmation from Astellas of the terms of the Astellas Agreement.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2007.

Redwood City, California

February 28, 2022

San Mateo, California

March 30, 2023

SUTRO BIOPHARMA, INC.

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Accrued compensation

Deferred revenue—current

Operating lease liability—current

Debt—current

Other current liabilities

Deferred revenue-current

Operating lease liability-current

Accrued expenses and other current liabilities

Total current liabilities

Deferred revenue, non-current

Operating lease liability—non-current

Deferred rent

Debt—non-current

Operating lease liability-non-current

Debt-non-current

Other non-current liabilities

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Additional paid-in-capital

Accumulated other comprehensive (loss) income

Accumulated other comprehensive loss

Accumulated deficit

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Year Ended December 31,

Revenue (including amounts from related parties of

$ 0 , $ 2,813 and $ 22,536 during the years ended

December 31, 2021, 2020 and 2019, respectively)

Operating expenses

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Interest income

Unrealized (loss) gain on equity securities

Interest and other expense, net

Unrealized gain (loss) on equity securities

Interest and other income (expense), net

Loss before provision for income taxes

Provision for income taxes

Net loss per share, basic and diluted

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Year Ended December 31,

Other comprehensive (loss) income:

Unrealized (loss) gain on available-for-sale securities

Other comprehensive loss:

Net unrealized loss on available-for-sale securities

Comprehensive loss

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Balances at December 31, 2019

Adoption of Accounting Standards Update (ASU)

2014-09, Revenue from Contracts with

Customers (Topic 606)

Exercise of common stock options

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Stock-based compensation expense

Net unrealized gain on available-for-sale securities

Balances at December 31, 2019

Exercise of common stock options

Issuance of common stock under Employee Stock

Purchase Plan

Vesting of restricted stock units

Stock transaction associated with taxes withheld on

restricted stock units

Stock-based compensation expense

Issuance of common stock warrants in connection

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Balances at December 31, 2021

Exercise of common stock options

Issuance of common stock under Employee Stock

Purchase Plan

Vesting of restricted stock units

Stock transaction associated with taxes withheld on

restricted stock units

Stock-based compensation expense

Issuance of common stock in connection with

At-The-Market sale, net of issuance costs of $ 2,026

Net unrealized loss on available-for-sale securities

Balances at December 31, 2022

See accompanying notes to financial statements.

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Operating activities

Adjustments to reconcile net loss to net cash used in operating activities:

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation and amortization

Amortization of premium (accretion of discount) on marketable securities

(Accretion of discount) amortization of premium on marketable securities

Stock-based compensation

Noncash lease expenses

Unrealized loss (gain) on equity securities

Realized gain on equity securities

Unrealized (gain) loss on equity securities

Remeasurement of liability awards

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Accrued compensation

Other liabilities

Accrued expenses and other liabilities

Deferred rent

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Change in operating lease liability

Net cash used in operating activities

Net cash provided by (used in) operating activities

Investing activities

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Sales of marketable securities

Proceeds from sale of equity securities, net

Purchases of equipment and leasehold improvements

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Payments of debt

Proceed from exercise of common stock options

Proceeds from exercise of common stock options

Taxes paid related to net share settlement of restricted stock units

1 unchanged sentence

Proceeds from employee stock purchase plan

Net cash provided by (used in) financing activities

Net (decrease) increase in cash, cash equivalents and restricted cash

Net cash provided by financing activities

Net increase (decrease) in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of year

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Offering costs included in accounts payable

Embedded interest associated with program fees

Financing component associated with program fees

Value of 167,780 shares of Vaxcyte common stock received under the Vaxcyte

Warrants issued to lenders

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Sutro Biopharma, Inc.

(the “Company”) is a clinical stage drug discovery, development and manufacturing company focused on leveraging its integrated cell-free protein synthesis and site-specific conjugation platform, XpressCF ® , to create a broad variety of optimally designed, next-generation protein therapeutics, initially for cancer.

(the “Company”), is a clinical-stage oncology company developing site-specific and novel-format antibody drug conjugates, or ADCs.

The Company was incorporated on April 21, 2003 and is headquartered in South San Francisco , California .

The Company operates in one business segment, the development of biopharmaceutical products.

The Company has incurred significant losses and has negative cash flows from operations.

At-The-Market Sales

During the year ended December 31, 2022, the Company sold an aggregate of 10,285,160 shares of its common stock through its At-the-Market Facility (“ATM Facility”) pursuant to its Open Market Sales Agreement SM dated April 2, 2021 with Jefferies LLC (“Jefferies”), as sales agent (the “Sales Agreement”).

During the year ended December 31, 2022, the gross proceeds from these sales were approximately $ 58.3 million, before deducting fees of approximately $ 2.0 million, resulting in net proceeds of approximately $ 56.3 million, to the Company.

The Company has incurred significant losses to date and had negative cash flows from operations in the years prior to the year ended December 31, 2022.

As of December 31, 2022, there was an accumulated deficit of $ 452.6 million.

Management expects to continue to incur additional substantial losses in the foreseeable future as a result of the Company’s research and development and other operational activities.

As of December 31, 2021, the Company had unrestricted cash, cash equivalents and marketable securities of $ 229.5 million, which is available to fund future operations.

As of December 31, 2022, the Company had unrestricted cash, cash equivalents and marketable securities of $ 302.3 million and equity securities of $ 32.0 million, consisting solely of common stock of Vaxcyte, which are available to fund future operations.

The Company will need to raise additional capital to support the completion of its research and development activities and to support its operations.

The Company believes that its unrestricted cash, cash equivalents and marketable securities as of December 31, 2021 will enable the Company to maintain its operations for a period of at least 12 months following the filing date of these financial statements.

The Company believes that its unrestricted cash, cash equivalents, marketable securities and equity securities as of December 31, 2022 will enable the Company to maintain its operations for a period of at least 12 months following the filing date of these financial statements.

Basis of Presentation and Summary of Significant Accounting Policies

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Actual results could differ from such estimates or assumptions.

The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including revenue, expenses, manufacturing, clinical trials, research and development costs and employee-related amounts, 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 it, as well as the economic impact on local, regional, national and international customers, suppliers, service providers and markets.

The Company has made estimates of the impact of COVID-19 within its financial statements and there may be changes to those estimates in future periods.

Actual results could differ from such estimates or assumptions.

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) 2016-13 (Topic 326), Financial Instruments Credit Losses.

The guidance modifies the measurement and recognition of credit losses for most financial assets and certain other instruments.

The amendment updates the guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the “incurred loss”

model with an “expected loss”

The Company adopted ASU 2016-13 in the third quarter of 2021 using the modified retrospective adoption approach.

As a result of this adoption, the Company presents these financial assets, which include accounts receivable and available-for-sale debt securities, at the net amount the Company expects to collect.

The amendment also requires the Company to record credit losses related to available-for-sale debt securities as an allowance through net income rather than reducing the carrying amount under the historical, other-than-temporary-impairment model.

The adoption of ASU 2016-13 did no t have a material impact on the Company’s financial statements and related disclosures for the year ended December 31, 2021.

In February 2016, the FASB issued ASU 2016-02 (Topic 842), Leases (Accounting Standards Codification, or “ASC”, 842).

ASC 842 supersedes the lease recognition requirements in ASC 840, Leases.

ASC 842 clarifies the definition of a lease and requires lessees to recognize right-of-use assets and lease liabilities for all leases, including those classified as operating leases under previous lease accounting guidance.

The Company adopted ASC 842 on July 1, 2021 , effective as of January 1, 2021.

There was no impact on the Company’s accumulated deficit as of January 1, 2021 as a result of the adoption of this standard.

Results for the period ended December 31, 2021 are presented under Topic 842.

Other prior period amounts are not adjusted and continue to be reported in accordance with the Company's historic accounting under previous lease guidance, ASC Topic 840:

Leases (“Topic 840”).

The Company elected the package of practical expedients permitted under the transition guidance of the new standard, which allowed the Company to carry forward its historical assessment on whether a contract is or contains a lease, lease classification, and initial direct costs.

Upon adoption on January 1, 2021, the Company recognized operating lease right-of-use (“ROU”) assets of $ 29.7 million, and current and non-current operating lease liabilities of $ 2.9 million and $ 27.8 million, respectively.

In connection with the adoption of this standard, deferred rent of $ 1.3 million and prepaid rent of $ 0.3 million, which was previously recorded in prepaid expenses and other current assets on the balance sheet as of December 31, 2020, were derecognized.

Finance lease assets and liabilities were not material.

The adoption of ASC 842 did not have a material impact on the Company’s Statements of Operations and Statements of Cash flows.

Recent Accounting Pronouncements Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, which provides optional expedients and exceptions for a limited period of time to ease the potential burden in accounting treatments related to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met.

Adoption of the expedients and exceptions is elective and is permitted upon issuance of the guidance through December 31, 2022.

The Company does not expect that the new guidance will have material impact on its financial position, results of operations and cash flows.

There were no new accounting pronouncements issued since our filing of the Annual Report on Form 10-K for the year ended December 31, 2021, which would have a significant effect on our financial statements.

Prior Period Reclassifications

The prior period presentation of interest and other income (expense), net and provision for income taxes have been updated to conform to current period presentation.

The reclassifications had no effect on prior years' net loss.

The prior period presentation of accounts payable and accrued expenses and other current liabilities have been updated to conform to current period presentation.

Accordingly, adjustments have been made to the Balance Sheets and Statements of Cash Flows.

The reclassifications had no effect on prior years' net loss.

Cash, Cash Equivalents, Marketable Securities and Restricted Cash

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If a credit loss exists, the Company assesses whether it has plans to sell the security or it is more likely than not it will be required to sell any marketable security before recovery of its amortized cost basis.

If either condition is met, the security’s amortized cost basis is written down to fair value and is recognized through interest and other expense, net.

If neither condition is met, declines as a result of credit losses, if any, are recognized as an allowance for credit loss, limited to the amount of unrealized loss, through interest and other expense, net.

If either condition is met, the security’s amortized cost basis is written down to fair value and is recognized through interest and other income (expense), net.

Any portion of unrealized loss that is not a result of a credit loss, is recognized in other comprehensive income (loss).

The Company invests in money market funds, commercial paper, corporate debt securities, asset-based securities and U.S.

government agency securities with high credit ratings.

The Company invests in money market funds, commercial paper, corporate debt securities, asset-based securities, U.S.

government securities, U.S.

agency securities and supranational debt securities with high credit ratings.

The Company has established guidelines regarding diversification of its investments and their maturities, with the objectives of maintaining safety and liquidity while maximizing yield.

Under certain agreements, the Company has pledged cash and cash equivalents as collateral.

Restricted cash related to such agreements was $ 0.9 million and $ 0.9 million, respectively, as of December 31, 2021 and 2020.

As of December 31, 2022 and 2021, restricted cash related to such agreements was $ 0.9 million and $ 0.9 million, respectively.

A reconciliation of cash, cash equivalents, and restricted cash reported within the Company’s Balance Sheets to the amount reported within the accompanying Statements of Cash Flows was as follows:

11 unchanged sentences

Investments in Equity Securities

Subsequent to the closing of the initial public offering (“IPO”) of Vaxcyte, Inc.

in June 2020, the fair value of Vaxcyte’s common stock became readily determinable.

As a result, beginning June 2020, Vaxcyte common stock held by the Company is measured at fair value at each reporting period based on the closing price of Vaxcyte’s common stock on the last trading day of each reporting period, with any unrealized gains and losses recorded in the Company’s statements of operations.

Vaxcyte common stock held by the Company is measured at fair value at each reporting period based on the closing price of Vaxcyte’s common stock on the last trading day of each reporting period, with any realized or unrealized gains and losses recorded in the Company’s Statements of Operations.

Property and Equipment, Net

6 unchanged sentences

An impairment loss would be recognized when the estimated, undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount.

Impairment, if any, is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value.

Impairment, if any, is measured at the amount by which the carrying amount of a long-lived asset exceeds its fair value.

The Company did no t recognize any impairment charges during the years ended December 31, 2022, 2021 and 2020.

As of December 31, 2022 and 2021, management believes that no revision to the remaining useful lives or write down of the remaining long-lived assets is required.

The Company adopted ASU 2016-02 (Topic 842), Leases (Accounting Standards Codification, or “ASC”, 842) on July 1, 2021 , effective as of January 1, 2021.

The Company determines if an arrangement is or contains a lease at contract inception by assessing whether the arrangement contains an identified asset and whether the lessee has the right to control such asset.

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Revenue Recognition

On January 1, 2019 , the Company adopted Accounting Standards Update (ASU) No.

When the Company enters into collaboration agreements, it assesses whether the arrangements fall within the scope of ASC 808, Collaborative Arrangements ("ASC 808") based on whether the arrangements involve joint operating activities and whether both parties have active participation in the arrangement and are exposed to significant risks and rewards.

To the extent that the arrangement falls within the scope of ASC 808, the Company assesses whether the payments between the Company and its collaboration partner fall within the scope of other accounting literature.

If it concludes that payments from the collaboration partner to the Company represent consideration from a customer, such as license fees and contract research and development activities, the

Company accounts for those payments within the scope of Accounting Standards Update (ASU) No.

2014-09 (Topic 606), Revenue from Contracts with Customers (“ASC 606”).

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(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.

When the Company enters into collaboration agreements, it assesses whether the arrangements fall within the scope of ASC 808, Collaborative Arrangements (ASC 808) based on whether the arrangements involve joint operating activities and whether both parties have active participation in the arrangement and are exposed to significant risks and rewards.

If it concludes that payments from the collaboration partner to the Company represent consideration from a customer, such as license fees and contract research and development activities, the Company accounts for those payments within the scope of ASC 606, Revenue from Contracts with Customers.

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

However, if the Company concludes that its collaboration partner is not a customer for certain activities and associated payments, such as for certain collaborative research, development, manufacturing and commercial activities, the Company presents such payments as a reduction of research and development expense or general and administrative expense, based on where the Company presents the underlying expense.

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In instances where SSP is not directly observable, the Company develops assumptions that require judgment to determine the SSP for each performance obligation identified in the contract.

These key assumptions may include FTE, personnel effort, estimated costs, discount rates and probabilities of clinical development and regulatory success.

These key assumptions may include full-time equivalent, or FTE, personnel effort, estimated costs, discount rates and probabilities of clinical development and regulatory success.

Upfront Payments :

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License Grants:

For collaboration arrangements that include a grant of a license to the Company’s intellectual property, the Company considers whether the license grant is distinct from the other performance obligations included in the arrangement.

included in the arrangement.

For licenses that are distinct, the Company recognizes revenues from nonrefundable, upfront payments and other consideration allocated to the license when the license term has begun and the Company has provided all necessary information regarding the underlying intellectual property to the customer, which generally occurs at or near the inception of the arrangement.

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

At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of each such milestone and any related constraint and, if necessary, adjusts its estimate of the overall transaction price.

At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of each milestone and any related constraint and, if necessary, adjusts its estimate of the overall transaction price.

Since milestone and contingent payments may become payable to the Company upon the initiation of a clinical study or filing for or receipt of regulatory approval, the Company reviews the relevant facts and circumstances to determine when the Company should update the transaction price, which may occur before the triggering event.

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The amounts billed are recognized as revenue as the performance obligations are met by the Company.

Stock-Based Compensation

The Company maintains a stock-based compensation plan as a long-term incentive for employees, consultants, and members of the Company’s Board of Directors.

The plan allows for the issuance of restricted stock units, non-statutory and incentive stock options to employees and non-statutory stock options (“NSOs”) to nonemployees.

The Company also maintains an employee stock purchase plan.

Share-based payments, including purchases under the Company’s employee stock purchase plan, are measured using fair-value-based measurements and recognized as compensation expense over the service period in which the awards are expected to vest.

The Company’s fair-value-based measurements of awards to employees and directors as of the grant date utilize the single-option award-valuation approach, and the Company uses the straight-line method for expense attribution.

The fair-value-based measurements of options granted to nonemployees are remeasured at each period end until the options vest and are amortized to expense as earned.

The Company accounts for forfeitures of stock-based awards as they occur.

The valuation model used for calculating the estimated fair value of stock awards is the Black-Scholes option-pricing model.

The Black-Scholes model requires the Company to make assumptions and judgments about the variables used in the calculations, including the expected term (weighted-average period of time that the options granted are expected to be outstanding), the expected volatility of the Company’s common stock, the related risk-free interest rate and the expected dividends.

Revenue subject to governmental withholding taxes is recognized on a gross basis with the withholding taxes recorded as a component of income tax expense.

Research and Development

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Payments made to third parties under these arrangements in advance of the performance of the related services by the third parties are recorded as prepaid expenses until the services are rendered.

Stock-Based Compensation

The Company maintains a stock-based compensation plan as a long-term incentive for employees, consultants, and members of the Company’s Board of Directors.

The plan allows for the issuance of restricted stock units, non-statutory and incentive stock options to employees and non-statutory stock options to nonemployees.

The Company also maintains an employee stock purchase plan.

The Company measures and recognizes compensation expense for all stock-based awards, including restricted stock units, stock options, and the ESPP, to employees, consultants and nonemployee directors based on the estimated fair value of the awards on the grant date.

The fair value of stock options and purchase rights under the ESPP are estimated using the Black-Scholes option-pricing model.

The Black-Scholes model requires the Company to make assumptions and judgments about the variables used in the calculations, including the expected term, the expected volatility of the underlying stock over the expected term of the award, the related risk-free interest rate for the expected term of the award and the expected dividends.

Stock-based compensation expense for restricted stock units and stock options is generally recognized on a straight line basis over the requisite service period.

Stock-based compensation expense for the ESPP is recognized on a straight-line basis over the offering period.

The Company accounts for forfeitures of stock-based awards as they occur.

The Company provides for income taxes under the asset and liability method.

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government securities

agency securities

Supranational debt securities

7 unchanged sentences

government securities

Supranational debt securities

Where applicable, the Company uses quoted market prices in active markets for identical assets to determine fair value.

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If quoted prices in active markets for identical assets are not available, then the Company uses quoted prices for similar assets or inputs other than quoted prices that are observable, either directly or indirectly.

These investments are included in Level 2 and consist of commercial paper, corporate debt securities, asset-backed securities and supranational debt securities.

These investments are included in Level 2 and consist of commercial paper, corporate debt securities, asset-backed securities, U.S.

agency securities and supranational debt securities.

These assets are valued using market prices when available, adjusting for accretion of the purchase price to face value at maturity.

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Investments in Equity Securities

Subsequent to the closing of the initial public offering (“IPO”) of Vaxcyte in June 2020, the fair value of Vaxcyte’s common stock became readily determinable.

As of December 31, 2022 and 2021, the Company held 667,780 and 1,562,879 shares, respectively, of Vaxcyte common stock with an estimated fair value of $ 32.0 million and $ 37.2 million, respectively.

The Company recognized an unrealized (loss) gain of ($ 4.5 ) million and $ 41.5 million for the year ended December 31, 2021 and 2020, respectively, which resulted from the change in estimated fair value of Vaxcyte common stock, adjusted by a $ 9,000 and $ 146,000 payment received for call option exercises and a revaluation of a prior preferred stock warrant converted to common stock for the year ended December 31, 2021 and 2020, respectively.

The Company recognized an unrealized gain (loss) of $ 12.1 million, $( 4.5 ) million and $ 41.5 million for the years ended December 31, 2022, 2021 and 2020, respectively.

The Company sold 1,058,434 shares and zero shares of Vaxcyte common stock at their fair market value during the years ended December 31, 2022 and 2021, respectively.

The Company recognized a gain of $ 4.1 million on equity securities during the year ended December 31, 2022 which is recorded under interest and other income (expense), net, in the Statements of Operations.

During the year ended December 31, 2022, the Company received 167,780 shares of Vaxcyte common stock pursuant to a letter agreement (the “

Vaxcyte Agreement”) with Vaxcyte, as a non-cash consideration with a fair value of $ 7.5 million at the date of the transaction.

Please refer to note 5 for additional information.

Cash Equivalents and Marketable Securities

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government securities

agency securities

Supranational debt securities

Less amounts classified as cash equivalents

amounts classified as cash equivalents

Total marketable securities

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government securities

Less amounts classified as cash equivalents

Supranational debt securities

amounts classified as cash equivalents

Total marketable securities

As of December 31, 2021 and 2020, $ 68.8 million and zero , respectively, of marketable securities had maturities of more than one year and are classified as long-term assets.

There were $ 176.5 million and $ 14.7 million of investments in an unrealized loss position of $ 0.3 million and $ 3,000 as of December 31, 2021 and 2020, respectively .

As of December 31, 2022 and 2021, zero and $ 68.8 million, respectively, of marketable securities had maturities of more than one year and are classified as long-term assets.

There were $ 139.5 million and $ 176.5 million of investments in an unrealized loss position of $ 0.6 million and $ 0.3 million as of December 31, 2022 and 2021, respectively .

During the years ended December 31, 2022, 2021 and 2020, the Company did no t record any other-than-temporary impairment charges on its available-for-sale securities.

Based on the Company’s procedures under the expected credit loss model, including an assessment of unrealized gains on the portfolio after December 31, 2021, the Company concluded that the unrealized losses for its marketable securities were not attributable to credit and therefore an allowance for credit losses for these securities has not been recorded as of December 31, 2021.

Based on the Company’s procedures under the expected credit loss model, including an assessment of unrealized gains and losses on the portfolio after December 31, 2022, the Company concluded that the unrealized losses for its marketable securities were not attributable to credit and therefore an allowance for credit losses for these securities has not been recorded as of December 31, 2022.

Also, based on the scheduled maturities of the investments, the Company was more likely than not to hold these investments for a period of time sufficient for a recovery of the Company’s cost basis.

The Company recognized no material gains or losses on its cash equivalents and current and non-current marketable securities as of December 31, 2021 and as a result, the Company did not reclassify any amounts out of accumulated other comprehensive income for the year then ended.

The Company recognized no material gains or losses on its cash equivalents and current and non-current marketable securities as of December 31, 2022 and as a result, the Company did not reclassify any amounts out of accumulated other comprehensive income (loss) for the year then ended.

Collaboration and License Agreements and Supply Agreements

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The Company’s accounts receivable balances may contain billed and unbilled amounts from upfront payments, milestones and other contingent payments, as well as reimbursable costs from collaboration and license agreements and supply agreements.

The Company has not experienced credit loss from its accounts receivable and, therefore, has no t recorded a reserve for estimated credit losses as of December 31, 2021.

The Company has not experienced credit losses from its accounts receivable and, therefore, has no t recorded a reserve for estimated credit losses as of December 31, 2022 and 2021.

In accordance with its agreements, the Company recognized revenue as follows:

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States and Canada under the name "EMD Serono")

Astellas Pharma Inc.

(“Astellas”)

Vaxcyte, Inc.

('Vaxcyte") (2)

BioNova Pharmaceuticals, Ltd.

(“BioNova”)

Tasly Biopharmaceuticals Co., Ltd.

(“Tasly”)

Total revenue

(1) In January 2019, BMS announced the entry into a definitive agreement to acquire Celgene and the transaction was completed in November 2019.

(1) Merck was a related party until the closing of the Company's public offering on May 14, 2020.

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Deferred revenue—December 31, 2022

The Company’s balance of deferred revenue contains a license option payment and the transaction price from collaboration agreements allocated to performance obligations which are partially unsatisfied.

The Company’s balance of deferred revenue contains upfront payments and an advance payment for an obligation from one of our supply agreements which remains partially unsatisfied.

The Company expects to recognize approximately $ 16.8 million of the deferred revenue over the next twelve months .

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BMS Agreement

In November 2019, BMS acquired Celgene, and Celgene became a wholly owned subsidiary of BMS.

In connection with such acquisition, BMS assumed the rights and obligations of the 2014 Celgene Agreement, 2017 Celgene Agreement and 2018 Celgene Master Services Agreement.

Throughout this Annual Report, the Company refers to Celgene as BMS and the Company's agreements with Celgene as the BMS Agreement and the 2018 BMS Master Services Agreement.

In September 2014, the Company signed a Collaboration and License Agreement (the “BMS Agreement”) with BMS to discover and develop bispecific antibodies and/or antibody-drug conjugates (“ADCs”), focused primarily on the field of immuno-oncology, using the Company’s proprietary integrated cell-free protein synthesis platform, XpressCF ® .

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In May 2019, the U.S.

Food and Drug Administration cleared the investigational new drug (“IND”) application for the BCMA ADC, which was discovered and is being manufactured by the Company and is the first collaboration program IND.

Food and Drug Administration cleared the investigational new drug (“IND”) application for the BCMA ADC, which was discovered and manufactured by the Company and is the first collaboration program IND.

BMS has worldwide development and commercialization rights with respect to the BCMA ADC.

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The option to expand activities to a third program expired in January 2021.

Under ASC 606, the Company determined there was a financing component associated with the $ 60.0 million upfront payment and has calculated total interest expense of $ 7.3 million as of December 31, 2021, on the unearned revenue portion beyond one year from the effective date of the agreement, which amount was recognized as interest expense and revenue over the service period for the first and second target programs.

Under ASC 606, the Company determined there was a financing component associated with the $ 60.0 million upfront payment on the unearned revenue portion beyond one year from the effective date of the agreement, which amount was recognized as interest expense and revenue over the estimated service period for the first and second target programs.

In March 2020, Merck exercised its option to extend the research term of the collaboration’s first cytokine-derivative program by one year , which, pursuant to the terms of the 2018 Merck Agreement, triggered a payment of $ 5.0 million.

The $ 5.0 million was, in prior periods, considered to be a fully constrained variable consideration.

Removal of the constraint on this variable consideration resulted in a change to the total transaction price, from

$ 60.0 million to $ 65.0 million.

Removal of the constraint on this variable consideration resulted in a change to the total transaction price, from $ 60.0 million to $ 65.0 million.

The Company allocated the updated transaction price to all identified performance obligations on the same basis as the initial allocation upon inception of the 2018 Merck Agreement, with any adjustments recorded as a cumulative catch-up in the current period.

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As a result of the change in transaction price, the Company recognized substantially all of the $ 15.0 million contingent payment, with a remaining $ 0.3 million related to the Joint Steering Committee, ("JSC") performance obligation, as a cumulative catch-up in revenue in the period ended December 31, 2021.

In September 2021, the Company entered into an amendment to the 2018 Merck Agreement (the “2021 Amendment”) to extend the research term for the first program in the 2018 Merck Agreement to discover and develop novel cytokine derivative therapeutics for cancer and autoimmune disorders.

Under the terms of the 2021 Amendment, the Company received a payment of $ 2.5 million and may receive up to an additional $ 7.5 million upon the achievement of certain developmental milestones.

Pursuant to ASC 606, the Company concluded that the 2021 Amendment constitutes a contract modification which is to be accounted for as a separate contract from the 2018 Merck Agreement.

As a result of the change in transaction price, the Company recognized substantially all of the $ 15.0 million contingent payment as a cumulative catch-up in revenue in the period ended December 31, 2021, with a remaining $ 0.3 million related to the Joint Steering Committee, ("JSC") performance obligation.

This remaining $ 0.3 million related to the JSC performance obligation was recognized during the year ended December 31, 2022.

Under the terms of the 2021 Amendment, the Company received a payment of $ 2.5 million with an additional $ 7.5 million to be received upon the achievement of certain developmental milestones by Merck on a second molecule under the first cytokine-derivative program of the collaboration.

Pursuant to ASC 606, the Company concluded that the 2021 Amendment constitutes a contract modification which is to be accounted for as a separate contract from the 2018 Me rck Agreement.

From the $ 2.5 million payment received, $ 1.9 million was recognized as revenue on a proportion of performance basis in the year ended December 31, 2021, related to the Company’s identified performance obligations under the 2021 Amendment.

The additional $ 7.5 million is considered to be fully constrained variable consideration.

In December 2021, Merck did not extend the research term for the second research program of the collaboration and that research program reverted to the Company.

The first program of the collaboration is focused on two distinct cytokine derivative molecules for the treatment of cancer.

The Company is also eligible to receive aggregate contingent paym ents of up to approximately $ 0.5 billion for the target program selected by Merck, assuming the development and sale of the therapeutic candidate and all possible indications identified under the collaboration.

If one or more products from the target program is developed for non-oncology or a single indication, the Company will be eligible for reduced aggregate milestone payments.

The remaining $ 0.6 million was recognized as revenue during the year ended December 31, 2022.

Merck decided not to pursue further development of a second molecule under the first cytokine-derivative program of the collaboration and therefore allowed the option to extend the period for nomination of additional clinical candidates under the 2021 Amendment to expire in June 2022.

In December 2021, Merck did not extend the research term for the second research program of the collaboration, which research program reverted to the Company.

The first research program of the collaboration is focuse d on one distinct cytokine derivative molecule for the treatment of cancer.

The Company is eligible to receive aggregate contingent payments of up to approximately $ 0.5 billion for the target program selected by Merck, assuming the develo pment and sale of the therapeutic candidate and all possible indications identified under the collaboration.

If one or more products from the target program is developed for non-oncology or a single indication, the Company will be eligible for reduced aggregate contingent payments.

In addition, the Company is eligible to receive tiered royalties ranging from mid-single digit to low teen percentages on the worldwide sales of any commercial products that may result from the collaboration .

As of December 31, 2021 and 2020, there was a total of $ 0.9 million and $ 18.5 million, respectively, of deferred revenue related to the 2018 Merck Agreement and 2021 Amendment.

In July 2022, the first patient was dosed in a Phase 1 study of an investigational candidate resulting from the 2018 Merck Agreement for the development of a novel cytokine derivative therapeutic for the treatment of cancer.

As a result of this achievement, the Company earned and received a $ 10.0 million contingent payment from Merck and recognized the revenue during the year ended December 31, 2022.

As of December 31, 2022 and 2021, there was zero and $ 0.9 million, respectively, of deferred revenue related to the 2018 Merck Agreement and 2021 Amendment.

2020 Merck Master Services Agreement

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unsatisfied performance obligations

Contingent payment earned

Research and development services

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The Collaboration Agreement was subsumed into the License Agreement (the “MDA Agreement”), which agreement is to develop ADCs for multiple cancer targets.

Under the MDA Agreement, a novel bispecific ADC product candidate targeting EGFR and MUC1, known as M1231, is undergoing development.

Recently, EMD Serono decided to close the Phase 1a trial of M1231 in patients with solid tumors and not initiate a previously planned expansion study.

EMD Serono stated that the decision was based on strategic portfolio considerations.

The Company is eligible to receive up to $ 52.5 million for M1231 under the MDA Agreement, primarily from pre-commercial contingent payments.

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In April 2019, the Company entered into an ADC Product Preclinical and Phase I Clinical Supply Agreement (the “2019 EMD Serono Supply Agreement”) with EMD Serono, wherein EMD Serono requested the Company to provide development, manufacturing and supply chain management services, including clinical product supply.

As of December 31, 2021 and 2020, there was zero and $ 1 million, respectively, of deferred revenue related to payments received by the Company under the 2019 EMD Serono Supply Agreement.

As of December 31, 2022 and 2021, there was no deferred revenue related to payments received by the Company under the 2019 EMD Serono Supply Agreement.

Revenues under the EMD Serono agreements were as follows:

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(in thousands)

Contingent payment earned

Research and development services

Materials supply

Total revenue

Astellas License and Collaboration Agreement

In June 2022, the Company entered into a License and Collaboration Agreement (the “Astellas Agreement”) with Astellas for the development of immunostimulatory antibody-drug conjugates for up to three biological targets, to be identified by Astellas.

The Company will conduct research and pre-clinical development of any compound (as designated by Astellas) in each of the three programs in accordance with the terms of a research plan between the Company and Astellas.

Astellas will have an exclusive worldwide license to develop and commercialize any such designated compound, subject to the Company’s rights to participate in cost and profit sharing in the United States, as described below.

Pursuant to the Astellas Agreement, the Company received from Astellas a one-time, nonrefundable, non-creditable, upfront payment of $ 90.0 million during the year ended December 31, 2022.

Under ASC 808 and ASC 606, the Company determined that both parties are active participants in the activities and are exposed to significant risks and rewards dependent on the success of the development program, and identified four performance obligations under the Astellas Agreement as:

(1) performance of services related to the first target program;

(2) performance of services related to the second target program;

(3) performance of services related to the third target program;

and (4) the Company’s estimated future services on the collaboration JSC.

The transaction price of $ 90.0 million was allocated among the performance obligations using the Company’s best estimate of the standalone selling price, or SSP, for each of the associated performance obligations.

Revenue allocated to the three target programs, which totaled $ 89.1 million, is being recognized on a proportion of performance basis, using FTE cost as the basis of measurement, with such performance expected to occur over an estimated service period of four years for each target program.

As it pertains to the JSC performance obligation, the revenue allocated to such performance obligation was $ 0.9 million, and is being recognized on a proportion of performance basis using FTE cost as the basis of measurement, and such effort is expected to be incurred on a relatively consistent basis throughout the term of the Astellas Agreement.

Additionally, under ASC 606, the Company determined a financing component associated with the $ 90.0 million upfront payment and has calculated $ 32.6 million as of December 31, 2022 on the unearned revenue portion beyond one year from the effective date of the agreement, which amount will be recognized as interest expense and revenue over the estimated service period for the three target programs.

The Company is also eligible to receive up to $ 422.5 million in development, regulatory and commercial milestones for each product candidate, and tiered royalties ranging from low double-digit to mid-teen percentages on worldwide sales of any commercial products that may result from the collaboration, subject to customary deductions under certain circumstances.

The Company can also elect to convert any product candidate into a cost and profit-sharing arrangement, for the United States only.

In the event the Company makes such election, it will share commercialization costs and profits relating to such product candidate equally with Astellas in the United States, and no royalties will be due from Astellas for net sales of such product candidates in the United States.

The Astellas Agreement contains customary provisions for termination, including by Astellas for convenience upon 30 days’

written notice and by either party for cause, including for material breach (subject to cure).

The Company has certain reversion rights as to product candidates in connection with certain termination events.

Revenues under the Astellas Agreement were as follows:

Year ended December 31,

(in thousands)

Ongoing performance related to

unsatisfied performance obligations

Contingent payment / milestone earned

Research and development services

Materials supply

Financing component on unearned revenue

Total revenue

As of December 31, 2022 and 2021, there was $ 86.1 million and zero deferred revenue, respectively, related to the upfront payment received by the Company under the Astellas Agreement.

Collaboration with Vaxcyte

Vaxcyte Supply Agreement

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The pricing is based on an agreed upon cost-plus arrangement.

During 2020, upon Vaxcyte’s request and their agreement to reimburse the related costs, the Company entered into agreements with third-party contract manufacturers (“CMOs”) to conduct process transfers to allow for such CMOs to manufacture and supply extract and custom reagents for Vaxcyte.

During 2020, upon Vaxcyte’s request and their agreement to reimburse the related costs, the Company entered into agreements with third-party contract manufacturing organizations, or CMOs, to conduct process transfers to allow for such CMOs to manufacture and supply extract and custom reagents for Vaxcyte.

As part of the agreement with Vaxcyte, should the Company decide to purchase extract from the extract CMO, the Company would be required to reimburse Vaxcyte for a portion of all incurred process transfer costs.

As of December 31, 2022 and 2021, there was $ 4.8 million and $ 2.3 million in such accruals related to the Vaxcyte Supply Agreement.

For the year ended December 31, 2022 and 2021, the agreed-upon reimbursements by Vaxcyte of the costs associated with such arrangements, principally for pass-through costs from the CMOs, were $ 12.4 million and $ 8.9 million, respectively, and were accounted for by the Company as a reduction to research and development expense based on the Company’s conclusion that Vaxcyte was not a customer for such activities and associated payments.

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Total revenue

Vaxcyte Agreement

In December 2022, the Company entered into a letter agreement (the “Vaxcyte Agreement”) with Vaxcyte under which the Company granted to Vaxcyte (i) authorization to enter into an agreement with an independent alternate CMO to source cell-free extract solely for the products it licensed from the Company, allowing Vaxcyte to have direct oversight over financial and operational aspects of the relationship with the CMO (“CMO Relationship Rights”), and (ii) a right, but not an obligation, to obtain certain exclusive rights to internally manufacture and/or source extract from certain CMOs and the right to independently develop and make improvements to extract for use in connection with the exploitation of certain vaccine compositions (the “Option”).

The Option is exercisable for five years following the effective date of the Vaxcyte Agreement (the “Option Period”), subject to potential acceleration in the event of a change of control of Vaxcyte.

Pursuant to the Vaxcyte Agreement, the Company received a one-time, nonrefundable, non-creditable, upfront payment of $ 10.0 million in cash, and 167,780 shares of Vaxcyte common stock with a fair value of $ 7.5

million in December 2022.

The Company will receive an additional nonrefundable, non-creditable payment of $ 5.0 million after the Company and Vaxcyte mutually agree in writing upon the Form Definitive Agreement that will become effective upon Vaxcyte’s exercise of the Option.

In the event Vaxcyte elects to exercise the Option, Vaxcyte will pay the Company $ 75.0 million in cash in two installments, and upon the occurrence of certain regulatory milestones, certain additional milestone payments totaling up to $ 60.0 million.

In the event that Vaxcyte undergoes a change of control, and subsequently exercises the Option, a substantial majority of the milestone payments will be accelerated.

The Company evaluated the terms of the Vaxcyte Agreement and concluded that the Vaxcyte Agreement is considered a new standalone contract and distinct from the previously existing agreements with Vaxcyte.

Under ASC 606, the Company determined that Vaxcyte is a customer for this arrangement and identified the promised goods and services under the Vaxcyte Agreement as:

(1) the Option;

(2) the Form Definitive Agreement;

(3) CMO Relationship Rights;

and (4) Joint steering committee participation.

The Company concluded that the promises within the contract are interrelated and interdependent of one another.

As such, these are not considered distinct but are combined as a single performance obligation.

This single performance obligation is considered a material right as it provides Vaxcyte with the right to acquire additional goods at a price it would not have received without having entered into the Vaxcyte Agreement.

Other than the upfront cash and stock payments received, all other payment provisions in the Vaxcyte Agreement were considered constrained variable consideration or otherwise not eligible for revenue recognition at inception and as of December 31, 2022.

Revenue for the single performance obligation was deferred and will be eligible to begin to be recognized at the earlier of when the Option is exercised or expires.

As of December 31, 2022 and 2021, there was $ 17.5 million and zero deferred revenue, respectively, related to the upfront cash and stock payments received by the Company under the Vaxcyte Agreement.

BioNova Option Agreement

In October 2021, the Company entered into an agreement with BioNova to confer BioNova the option to obtain exclusive rights to develop and commercialize STRO-001 in China, Hong Kong, Macau and Taiwan, referred to as Greater China.

In October 2021, the Company entered into an agreement with BioNova granting BioNova the option to obtain exclusive rights to develop and commercialize STRO-001 in China, Hong Kong, Macau and Taiwan (“Greater China”) and amended the BioNova Option Agreement with BioNova in the first quarter of 2023.

BioNova will pursue the clinical development, regulatory approval, and commercialization of STRO-001 in multiple indications, including non-Hodgkin's lymphoma, multiple myeloma, and leukemia in the licensed territory.

The Company will retain development and commercial rights of STRO-001 globally outside of Greater China, including the United States.

Under the BioNova Option Agreement, BioNova paid the Company an initial licensing option payment of $ 4.0 million, with potential payments totaling up to $ 200 million related to option exercise, development, regulatory, and commercial milestones.

Under the BioNova Option Agreement, BioNova paid the Company an initial licensing option payment of $ 4.0 million, with potential payments totaling up to $ 199.0 million related to the initial licensing option payment, option exercise, development, regulatory, and commercial milestones.

The Company will provide STRO-001 to BioNova under appropriate clinical and commercial supply service agreements.

Upon commercialization, the Company is eligible to receive tiered royalties ranging from low- to mid-teen percentages based on annual net sales of STRO-001 in Greater China for at least ten years following the first commercial sale of STRO-001 in Greater China.

In February 2023, BioNova announced that the first patient has been dosed in the phase 1 clinical study of STRO-001.

The Company identified a combined performance obligation under the initial license option agreement, which consists of four interrelated promises:

generating a recommended dose of STRO-001 for multiple myeloma and Non-Hodgkin’s lymphoma, providing licensed know-how and regulatory filings necessary to prepare an IND;

generating a recommended dose of STRO-001 for multiple myeloma and Non-Hodgkin’s lymphoma;

providing licensed know-how and regulatory filings necessary to prepare an IND;

providing initial clinical supply in the People’s Republic of China;

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These promises are considered to be interdependent and not distinct from each other, representing a combined output.

The transaction price at inception included the refundable payment of $ 4.0 million and was considered constrained at the inception of the agreement since the Company could not conclude it was probable that a significant reversal in the amount of revenue recognized would not occur.

BioNova will have the right to exercise the license option for an additional payment of $ 12.0 million.

As of December 31, 2021, there was $ 4.0 million of deferred revenue related to the payment received by the Company under the BioNova Option Agreement and BioNova had not yet exercised the license option.

The transaction price at inception included the refundable initial licensing option payment of $ 4.0 million and was considered constrained at the inception of the agreement.

During the year ended December 31, 2022, the Company recognized the $ 4.0 million licensing option payment as revenue after the Company performed the combined performance obligation under the BioNova Option Agreement.

BioNova has the right to exercise the license option for an additional payment of $ 12.0 million.

As of December 31, 2022, there was no deferred revenue under the BioNova Option Agreement and BioNova had not yet exercised the license option.

Tasly License Agreement

In December 2021, the Company entered into a license agreement with Tasly, to grant Tasly an exclusive license to develop and commercialize STRO-002 in Greater China.

Tasly will pursue the clinical development, regulatory approval, and commercialization of STRO-002 in multiple indications, including ovarian cancer, non-small cell lung cancer, triple-negative breast cancer, and other indications in Greater China.

The Company will retain development and commercial rights of STRO-002 globally outside of Greater China, including the United States.

Under the Tasly License Agreement, Tasly is obligated to make to the Company an initial nonrefundable upfront payment of $ 40.0 million, with additional potential payments totaling up to $ 345 million related to development, regulatory and commercialization contingent payments and milestones.

The Company will provide STRO-002 to Tasly under appropriate clinical and commercial supply service agreements.

Upon commercialization, the Company will receive tiered royalties, ranging from low- to mid-teen percentages based on annual net sales of STRO-002 in Greater China for at least ten years following the first commercial sale of STRO-002 in Greater Chin a.

The Company determined that the Tasly License Agreement falls within the scope of ASC 808, as both parties are active participants in the activities and are exposed to significant risks and rewards dependent on the success of the commercialization of indications for STRO-002 in Greater China.

In December 2021, the Company entered into a license agreement with Tasly to grant Tasly an exclusive license to develop and commercialize STRO-002, or luveltamab tazevibulin, or luvelta, in Greater China (the

“Tasly License Agreement”).

Tasly will pursue the clinical development, regulatory approval, and commercialization of luvelta in multiple indications, including ovarian cancer, non-small cell lung cancer, triple-negative breast cancer, and other indications in Greater China.

The Company will retain development and commercial rights of luvelta globally outside of Greater China, including the United States.

Under the Tasly License Agreement, Tasly was obligated to make to the Company an initial nonrefundable upfront payment of $ 40.0 million, with additional potential payments totaling up to $ 345 million related to development, regulatory and commercialization contingent payments and milestones.

The Company will provide luvelta to Tasly under appropriate clinical and commercial supply service agreements.

Upon commercialization, the Company will receive tiered royalties, ranging from low- to mid-teen percentages based on annual net sales of luvelta in Greater China for at least ten years following the first commercial sale of luvelta in Greater China.

The Company concluded that the Tasly License Agreement contained the following units of account:

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As such, based on the nature of the agreement and collaborative activities, the Company determined that the costs associated with these governance and information sharing activities performed under the agreement will be included in research and development expenses in the Statements of Operations, with any reimbursement of costs by Tasly reflected as a reduction of such expenses.

During the year ended December 31, 2021, the Company did no t recognize a reduction of research and development expenses under the Tasly License Agreement.

During the year ended December 31, 2022 and 2021, the Company did no t recognize a reduction of research and development expenses under the Tasly License Agreement.

On December 24, 2021, the effective date of the Tasly License Agreement, the Company satisfied its only performance obligation related to the $ 40.0 million upfront payment by delivering to Tasly the license, know-how and data required under the Tasly License Agreement.

Following the satisfaction of such performance obligation, under the Tasly License Agreement, Tasly is obligated to pay the Company the $ 40.0 million upfront payment.

Following the satisfaction of such performance obligation, under the Tasly License Agreement, Tasly was obligated to pay the Company the $ 40.0 million upfront payment.

In February 2022, Tasly indicated to the Company that it would like to discuss and renegotiate the terms of the Tasly License Agreement.

As any renegotiation could affect the amount and timing of Tasly’s obligations under the terms of the Tasly License Agreement, including the upfront payment, the Company has concluded that it will not recognize the $ 40.0 million upfront payment as revenue in December 2021.

As any renegotiation could affect the amount and timing of Tasly’s obligations under the terms of the Tasly License Agreement, including the upfront payment, the Company concluded that it would not recognize the $ 40.0 million upfront payment as revenue as of December 2021.

In April 2022, the Company entered into amendment No.

1 (the “Tasly Amendment”) to the Tasly License Agreement with Tasly.

Pursuant to the Tasly Amendment, the initial nonrefundable upfront payment due by Tasly was amended to $ 25.0 million, and a $ 15.0 million payment will become payable to the Company upon the achievement of certain regulatory milestones.

The Tasly Amendment also added an additional regulatory milestone payment to the Tasly License Agreement, providing additional potential payments totaling up to $ 350.0 million related to development, regulatory and commercialization milestones, beyond the payments described above, and made certain other ministerial edits.

During the year ended December 31, 2022, the Company recognized the $ 25.0 million upfront payment as revenue after the payment, net of a withholding tax, was received by the Company from Tasly.

The withholding tax of $ 2.5 million was recorded as an income tax charge related to the upfront payment.

Property and Equipment, Net

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In August 2017, the Company entered into a loan and security agreement with Oxford Finance LLC (“Oxford”) and Silicon Valley Bank (“SVB”) under which it borrowed $ 15.0 million (the “August 2017 Loan”).

The loan was due in 30 monthly installments from March 2019 through its repayment in August 2021 , with interest-only monthly payments until March 2019 .

The Company commenced repayment of the loan in March 2019 .

The interest charges on the loan were based on a floating rate that equaled the greater of 7.39 % or the sum of the 30-day U.S.

Dollar London Interbank Offered Rate (“LIBOR”) plus 6.40 %.

In connection with the August 2017 Loan, the Company issued to Oxford and SVB a warrant to purchase the Company’s Series D-2 redeemable convertible preferred stock (the “2017 Warrant”).

The 2017 Warrants were later converted into warrants to purchase Series E redeemable convertible preferred stock in May and July 2018, and upon the Company’s IPO on October 1, 2018, all Series E redeemable convertible preferred stock warrants were converted to warrants to purchase 46,359 shares of common stock.

The estimated fair value upon issuance of the 2017 Warrant of $ 0.3 million was recorded as a debt discount on the associated borrowings on the Company’s balance sheet.

The debt discount was amortized to interest expense over the expected repayment period of the loan using the effective-interest method.

On February 28, 2020, (the “Effective Date”), the Company entered into a loan and security agreement (the “Loan and Security Agreement”) with Oxford as the collateral agent and a lender, and SVB as a lender (together with Oxford, the “Lenders”), pursuant to which the Lenders agreed to lend the Company up to an aggregate of $ 25.0 million (the “Term A Loan”).

3 unchanged sentences

The associated unamortized debt discount on the August 2017 Loan and new lender fees from the debt issuance will be amortized as interest expense using the effective interest method until the maturity date of the Term A Loan.

In June 2022, the Company entered into an amendment to the Loan and Security Agreement with Oxford and SVB (the “LSA Amendment”).

The LSA Amendment added a financial covenant that requires the Company to maintain a minimum unrestricted cash balance of $ 10.0 million.

The Company was in compliance with the financial covenant under the LSA Amendment as of December 31, 2022.

See “Note 14.

Subsequent Events”

for additional information on the amendment to the Loan and Security Agreement.

The Company’s obligations under the Loan and Security Agreement are secured by all assets of the Company, other than its intellectual property.

The Company has also agreed not to encumber its intellectual property assets, except as permitted by the Loan and Security Agreement.

The Term A Loan matures on March 1, 2024 (the “Maturity Date”) and will be interest-only through March 1, 2022 , followed by 24 equal monthly payments of principal and interest.

The Term A Loan matures on March 1, 2024 (the “Maturity Date”) and was interest-only through March 1, 2022 , followed by 24 equal monthly payments of principal and interest.

The Term A Loan will bear interest at a floating per annum rate equal to the greater of (i) 8.07 % or (ii) the sum of (a) the greater of (1) the thirty (30) day U.S.

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As of December 31, 2022 and 2021, accrued interest expense was $ 0.1 million and $ 0.2 million, respectively.

During years ended December 31, 2021, 2020 and 2019, the Company recorded interest expense related to loans outstanding of $ 2.6 million, $ 2.3 million and $ 1.1 million, respectively, with average interest rates of 8.07 %, 8.08 % and 8.72 %, respectively, and interest related to the accretion of debt discount of $ 0.6 million, $ 0.5 million and $ 0.2 million, respectively.

Long-term debt and net premium (amortization) balances are as follows:

During the years ended December 31, 2022, 2021 and 2020, the Company recorded interest expense related to loans outstanding of $ 2.4 million, $ 2.6 million and $ 2.3 million, respectively, with average interest rates of 8.72 %, 8.07 % and 8.08 %, respectively, which includes interest related to the accretion of debt discount of $ 0.5 million, $ 0.6 million and $ 0.5 million, respectively.

Long-term debt and net premium balances are as follows:

(in thousands)

Principal amount of debt

Net premium / (amortization) associated with accretion of final payment and

Principal amount of debt outstanding

Net premium associated with accretion of final payment and

other debt issuance costs

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Total future maturities

Less amount representing interest

Less final payment

Total principal amount of debt

amount representing interest

final payment

Total principal amount of debt outstanding

Commitments and Contingencies

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(the “Sublessor”), for approximately 115,466 square feet, in a building located in South San Francisco, California (the “Premises”).

The Company uses the Premises as its new corporate headquarters and to conduct (or expand) research and development activities.

The Company uses the Premises as its corporate headquarters and to conduct (or expand) research and development activities.

The Company commenced making monthly payments for the first 85,755 square feet of the Premises (“Initial Premises”) in July 2021, with occupancy of such space commencing in August 2021.

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The Sublease for both the Initial Premises and Expansion Premises will expire on December 31, 2027 .

With a commencement date on the Initial Premises of July 1, 2021,

the aggregate estimated base rent payments due over the term of the Sublease are approximately $ 39.1 million, including the approximately $ 5.2 million in potential financial benefit to the Company of base rent abatement to be provided by Sublessor, subject to certain terms contained in the Sublease.

With a commencement date on the Initial Premises of July 1, 2021, the aggregate estimated base rent payments due over the term of the Sublease are approximately $ 39.1 million, including the approximately $ 5.2 million in potential financial benefit to the Company of base rent abatement to be provided by Sublessor, subject to certain terms contained in the Sublease.

Additionally, the Company posted a security deposit of $ 0.9 million, which is reflected as restricted cash in non-current assets on the Company’s balance sheet as of December 31, 2021 and 2020.

Additionally, the Company posted a security deposit of $ 0.9 million, which is reflected as restricted cash in non-current assets on the Company’s Balance Sheets as of December 31, 2022 and 2021.

The Company recognizes rent expense for these operating leases on a straight-line basis over the lease period.

The components of lease costs, which the Company includes in operating expenses in the statements of operations, were as follows (in thousands):

The components of lease costs, which the Company includes in operating expenses in the Statements of Operations, were as follows:

(in thousands)

Operating lease cost

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Total lease cost

During the year ended December 31, 2021, the Company recorded operating lease expense of $ 8.4 million and paid $ 6.2 million of operating lease payments related to the lease liabilities, which the Company includes in net cash used in operating activities in the statements of cash flows.

As of December 31, 2021, the weighted-average remaining lease term was 5.7 years and the weighted-average discount rate used to determine the operating lease liability was 10.8 %.

As of December 31, 2021, the maturities of the Company’s operating lease liabilities were as follows (in thousands):

During the years ended December 31, 2022 and 2021, the Company recorded operating lease expense of $ 6.2 million and $ 8.4 million, respectively, and paid $ 1.7 million and $ 6.2 million, respectively, of operating lease payments related to the lease liabilities, which the Company includes in net cash provided by (used in) operating activities in the Statements of Cash Flows.

Under the historical guidance of ASC 840, rent expense was $ 4.7 million for the year ended December 31, 2020.

As of December 31, 2022 and 2021, the weighted-average remaining lease term was 4.8 years and 5.7 years, respectively, and the weighted-average discount rate used to determine the operating lease liability was 10.8 % for both years.

As of December 31, 2022, the maturities of the Company’s operating lease liabilities were as follows:

Year Ending December 31,

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Total lease liabilities, non-current

(1) Includes approximately $ 5.2 million in potential financial benefit to the Company of base rent abatement to be provided by sublessor for months 7 –

18 of the sublease period, subject to certain terms contained in the Sublease.

Under the historical guidance of ASC 840, the deferred rent balance on December 31, 2020 totaled $ 1.3 million and the future minimum lease payments for the Company's operating leases on December 31, 2020 were as follows (in thousands):

Year Ending December 31,

(in thousands)

2025 and beyond

Total future minimum lease payments

(1) Excludes approximately $ 5.2 million in potential financial benefit to the Company of base rent abatement to be provided by sublessor for months 7 –

18 of the sublease period, subject to certain terms contained in the Sublease.

Rent expense was $ 4.7 million and $ 3.6 million for the years ended December 31, 2020 and 2019, respectively.

Indemnification & Other

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In addition, the Company enters into agreements in the normal course of business, including with contract research organizations for clinical trials, contract manufacturing organizations for certain manufacturing services, and vendors for preclinical studies and other services and products for operating purposes, which are generally cancelable upon written notice.

Related-Party Transactions

Upon the Company’s public offering on May 14, 2020, Merck’s ownership of the Company’s outstanding equity interest decreased to less than 10 %.

As a result, starting May 14, 2020, the Company ceased to reflect balances and transactions associated with Merck as being with a related party in its financial statements.

Transactions with Merck for the years ended December 31, 2021, 2020 and 2019 are described in Note 5.

As discussed in Note 2, Vaxcyte closed its IPO of its common stock on June 16, 2020, resulting in the Company’s ownership of Vaxcyte’s outstanding equity being less than 4.0 %.

As a result, starting on June 16, 2020, the Company ceased to reflect any balances and transactions associated with Vaxcyte being a related party in its financial statements.

Transactions with Vaxcyte for the years ended December 31, 2021, 2020 and 2019 are described in Note 5.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

(in thousands)

Vaxcyte-related accrual under Vaxcyte Supply Agreement

CMO-related accrual

Clinical trials-related accrual

Total accrued expenses and other current liabilities

Stockholders’

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On October 1, 2018, 1,232,220 shares of the Series C redeemable convertible preferred warrants were canceled, and the remaining 687,928 shares were converted to 25,453 shares of warrants to purchase common stock on a 1-for-0.0370 basis at an exercise price of $ 12.9649 .

The common stock warrant was outstanding and exercisable as of December 31, 2020 .

In November 2021, this common stock warrant was fully net exercised into 9,308 shares of common stock.

In November 2021,

this common stock warrant was fully net exercised into 9,308 shares of common stock.

All Series E redeemable convertible preferred warrants were converted to 46,359 shares of warrants to purchase common stock on a 1-for-0.0275 basis.

2 unchanged sentences

The 2020 Warrants will terminate on the earlier of February 28, 2030 or the closing of certain merger or consolidation transactions.

Equity Incentive Plans, Employee Stock Purchase Plan and Stock-Based Compensation

Equity Incentive Plans, Equity Inducement Plans, Employee Stock Purchase Plan and Stock-Based Compensation

2004 Equity Incentive Plan, 2018 Equity Incentive Plan and 2021 Equity Inducement Plan

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In addition to the shares of common stock reserved for future issuance under the 2004 Plan that were added to the 2018 Plan upon its effective date, the Company initially reserved 2,300,000 shares of common stock for issuance under the 2018 Plan.

shares of the Company’s capital stock outstanding on the immediately preceding December 31 (rounded to the nearest whole share), or a lesser number of shares determined by the Company’s board of directors.

In addition, the number of shares of common stock reserved for issuance under the 2018 Plan will automatically increase on the first day of January for a period of up to ten years , commencing on January 1, 2019, in an amount equal to 5 % of the total number of shares of the Company’s capital stock outstanding on the immediately preceding December 31 (rounded to the nearest whole share), or a lesser number of shares determined by the Company’s board of directors.

As a result, common stock reserved for issuance under the 2018 Plan was increased by 2,316,303 shares on January 1, 2022.

4 unchanged sentences

At all times the Company will reserve and keep available a sufficient number of shares as will be required to satisfy the requirements of all outstanding awards granted under the 2021 Plan.

In August 2022, the Company amended and restated the 2021 Plan (the “Amended and Restated 2021 Plan”) and reserved an additional 750,000 shares of common stock available for issuance under the Amended and Restated 2021 Plan to be granted by the Company to certain employees as a material inducement to their acceptance of employment with the Company in accordance with Nasdaq Listing Rule 5635(c)(4).

Additionally, in February 2023, the Company amended and restated the 2021 Plan (the “Amended and Restated 2021 Plan”) and reserved an additional 500,000 shares of common stock available for issuance under the Amended and Restated 2021 Plan to be granted by the Company to certain employees as a material inducement to their acceptance of employment with the Company in accordance with Nasdaq Listing Rule 5635(c)(4).

The total number of shares reserved for issuance pursuant to the Amended and Restated 2021 Plan is 2,000,000 shares.

As of December 31, 2022, the Company had 1,541,706 shares available for grant under the 2018 Plan and the 2021 Plan.

8 unchanged sentences

Exercisable at December 31, 2022

The aggregate intrinsic value was calculated as the difference between the exercise prices of the underlying stock option awards and the estimated fair value of the Company’s common stock on the date of exercise.

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between our closing stock price on the last trading day of fiscal 2022 and the exercise prices, multiplied by the number of in-the-money stock options) that would have been received by the stock option holders had all stock option holders exercised their stock options on December 31, 2022.

For the years ended December 31, 2022, 2021 and 2020, the aggregate intrinsic value of stock options exercised was $ 0.1 million, $ 2.8 million and $ 1.2 million, respectively, determined at the date of the option exercise.

17 unchanged sentences

Treasury notes with maturities approximately equal to the expected term of the options.

Expected Dividend —The Company has never paid dividends on its common stock.

Expected Dividend —

The Company has never paid dividends on its common stock.

Therefore, the Company used an expected dividend of zero .

40 unchanged sentences

As of December 31, 2022, there is $ 0.2 million of unrecognized stock-based compensation expense related to the ESPP.

Call Option Plan

In February 2017, the Company adopted a Call Option Plan to grant selected employees, officers, directors and consultants (collectively, the “Participants”) options to purchase shares of the common stock of Vaxcyte.

As of December 31, 2021, the Company has reserved 266,724 shares of Vaxcyte common stock for issuance under the program, under which call options covering 248,944 and 17,780 shares were granted in February 2017 and August 2019, respectively.

The call options granted in February 2017 vested 25 % on each of January 1, 2017, 2018, 2019, and 2020, and expire one year from the vesting date.

The call options granted in August 2019 vest 25 % on each of January 1, 2019, 2020, 2021, and 2022, and expire one year from the vesting date.

A summary of the status of the call options at December 31, 2021 and 2020 is as follows:

December 31, 2021

December 31, 2020

Options vested and exercised

Options vested and outstanding

Options unvested and outstanding

Total options granted

The amounts recognized as compensation expense related to the Call Option Plan for the years ended December 31, 2021, 2020 and 2019 were $ 97,000 , $ 109,000 and $ 78,000 , respectively.

The amounts recognized as other expense or income related to the remeasurement of the vested call options for the years ended December 31, 2021, 2020 and 2019 were $ 109,000 of other income and $ 76,000 and $ 153,000 of other expense, respectively.

As of December 31, 2021 and 2020, the liability attributable to the Call Option Plan was $ 97,000 and $ 109,000 , respectively.

Provision for income taxes was zero , $ 0.1 million and zero for the years ended December 31, 2021, 2020 and 2019, respectively.

Current provision for income taxes consists of the following:

Year Ended December 31,

(in thousands)

Total current provision for income taxes

The Company recorded a foreign income tax charge of $ 2.5 million during the year ended December 31, 2022, due to a withholding tax in China on its license revenue from Tasly.

The Company has established a full valuation allowance against its net deferred tax assets due to the uncertainty surrounding the realization of such assets.

5 unchanged sentences

Stock compensation

ASC 606 adoption

Foreign withholding

The components of the Company’s deferred tax assets consist of the following:

3 unchanged sentences

Research and development credits

Deferred revenue

Capatalized research and development expenditure

Accruals and other

12 unchanged sentences

Due to the Company’s history of operating losses and future sources of taxable income, the Company believes that the recognition of the deferred tax assets is currently not more likely than not to be realized and, accordingly, have provided a full valuation allowance against net deferred tax assets.

For the year ended December 31, 2021, 2020 and 2019, the net increase in the valuation allowance was $ 26.2 million, $ 11.1 million and $ 12.6 million, respectively.

For the years ended December 31, 2022, 2021 and 2020, the net increase in the valuation allowance was $ 30.6 million, $ 26.2 million and $ 11.1 million, respectively.

As of December 31, 2022, the Company had federal net operating loss carryforwards of $ 246.4 million and federal general business credits from research and development expenses totaling $ 32.5 million, as well as state net operating loss carryforwards of $ 118.5 million and state research and development credits of $ 21.3 million.

36 unchanged sentences

Shares to be issued under ESPP

Subsequent Events

The Company sold 1,641,374 shares of its common stock under its ATM Facility pursuant to the Sales Agreement with Jefferies during the period from January 1, 2023 through March 27, 2023.

Net proceeds were $ 10.9 million, after deducting issuance costs.

The Loan and Security Agreement previously included a covenant requiring the Company to keep substantially all of the cash and investments with SVB, the substantial majority of which was held in a custodial account with another institution, for which SVB Asset Management was the advisor.

In March 2023 , the Loan and Security Agreement was amended to allow the Company to hold cash and investments at multiple financial institutions and the Company began the process of moving cash and investments into accounts at other financial institutions.

Changes in and Disagreements with Acco untants on Accounting and Financial Disclosure

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

What changed 10-K

Item 5. Market for Registrant’s Common Equity