What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-08-06 compared with 2020-05-11 · 119 added, 50 removed, 231 unchanged (42% of the section changed)

31 unchanged sentences

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 Celgene (now BMS), Merck and EMD Serono, the issuance and sale of redeemable convertible preferred stock, our initial public offering, or IPO, 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 Celgene (now BMS), Merck and EMD Serono, the issuance and sale of redeemable convertible preferred stock, our public offerings of common stock and debt proceeds.

We have no products approved for commercial sale and have not generated any revenue from commercial product sales.

We had a net loss of $19.6 million and $14.3 million for the three months ended March 31, 2020 and 2019, respectively.

We had a loss from operations of $35.6 million and net income of $10.3 million, due principally to an unrealized gain of $48.9 million related to our holdings of Vaxcyte common stock, for the six months ended June 30, 2020, and net loss of $28.0 million for the six months ended June 30, 2019.

We cannot assure you that we will have net income or that we will generate positive cash flow from operating activities in the future.

As of March 31, 2020, we had an accumulated deficit of $215.3 million.

As of June 30, 2020, we had an accumulated deficit of $185.5 million.

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.

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.

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 and research and development facilities 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.

8 unchanged sentences

nine patients who had unconfirmed stable disease at the six-week assessment point (two of whom subsequently developed progressive disease);

and five patients with progressive disease at the six-week assessment point.

Additionally, 35% (7 of 20) of patients who were evaluable for progression have stayed on study for longer than 24 weeks, and 11 patients dosed at 5.2 mpk or higher are continuing on study and have not yet reached 24

and five patients with progressive disease at the six-week

assessment point.

Although neither stable disease nor remaining on study for more than 24 weeks qualify as objective response s for FDA approval purposes, we believe they provide encouraging evidence of tumor control and clinical benefit .

8 unchanged sentences

We currently plan to report additional safety and initial efficacy data for STRO-002 in the second half of 2020 and to begin the dose expansion phase of the Phase 1 clinical study in the second half of 2020.

Although maximum tolerated dose has not been reached, we are continuing to actively explore the 5.2 mpk to 6.0 mpk dose levels as we seek to determine the recommended Phase 2 dose.

We are continuing to actively explore optimal dose levels as we seek to determine the recommended dose for expansion cohorts.

May 2020 Public Offering

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.

Vaxcyte Equity Ownership

In June 2020, Vaxcyte, Inc.

(“Vaxcyte”), formerly known as SutroVax, Inc., closed an initial public offering of its common stock at a price per share of $16.00.

As of June 30, 2020, we held 1,634,005 shares of Vaxcyte common stock, with a estimated fair value of $49.1 million, which are subject to a lock-up agreement that expires in December 2020.

Impacts of the COVID-19 Pandemic

1 unchanged sentence

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 and as a result, we may experience more pronounced disruptions in our operations, liquidity, supply chain, facilities, and clinical trials.

With respect to our clinical trials, we may experience 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 and overall financial performance in future periods.

With respect to our clinical trials, we have experienced very 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 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, 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, and disruptions in our supply chain for our product candidates.

4 unchanged sentences

We have no 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 products we provide to Celgene, SutroVax, Inc., or SutroVax, and EMD Serono.

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.

1 unchanged sentence

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 our 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.

21 unchanged sentences

Three Months Ended

Six Months Ended

(in thousands)

Internal costs:

18 unchanged sentences

Interest income consists primarily of interest received on our invested funds.

Interest and Other Income (Expense), Net

Unrealized Gain on Equity Securities

Unrealized gain 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.

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

Other income (expense) in the three months ended March 31,2020 and 2019 includes changes in values attributable to the arrangement with the Leukemia & Lymphoma Society, Inc.

and 2017 Call Option Plan.

Comparison of the Three Months Ended March 3 1 , 20 20 and 201 9

Other income (expense) in the three months ended June 30, 2020 and June 30, 2019 includes changes in values attributable to the arrangement with the Leukemia & Lymphoma Society, Inc.

and the Call Option Plan.

Comparison of the Three Months Ended June 30 , 20 20 and 201 9

Three Months Ended

6 unchanged sentences

Interest income

Interest and other income (expense), net

Unrealized gain on equity securities

Interest and other expense, net

Net income (loss)

* Percentage not meaningful

We have recognized revenue as follows during the periods indicated:

2 unchanged sentences

Bristol Myers Squibb Company ("BMS") (1)

Merck Sharp & Dohme Corporation (“Merck”)—related party

Merck Sharp & Dohme Corporation (“Merck”) (2)

Merck KGaA, Darmstadt, Germany (operating in the United

States and Canada under the name “EMD Serono”)

SutroVax—related party

Total revenue

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

Total revenue decreased by $1.5 million, or 17%, during the three months ended March 31, 2020 compared to the three months ended March 31, 2019.

This was due primarily to a $1.8 million decrease in revenue under the 2018 Merck Agreement.

The revenue decrease under the 2018 Merck Agreement consists of a $2.3 million decrease from the impact from the change in estimate related to additional resources being assigned to the first target program and a reduced number of resources on the second target program, and the cumulative catch-up in revenue as a result of the change in transaction price, offset partially by an increase of $0.5 million in research and development services.

The net increase of $0.2 million in EMD Serono revenue reflects an increase of $2.0 million under the supply agreement, offset by a $1.8 million decrease due to the completion in May 2019 of revenue recognition of the transaction price under the EMD Serono Agreement.

Additionally, there was a $0.5 million increase from Celgene for contract research and manufacturing activities supporting clinical trial supply, and a $0.2 million decrease in revenues from SutroVax.

Merck was a related party until the closing of the Company’s public offering on May 14, 2020.

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

* Percentage not meaningful

Total revenue decreased by $1.1 million, or 10%, during the three months ended June 30, 2020 compared to the three months ended June 30, 2019.

This was due primarily to a $2.5 million decrease in revenue from EMD Serono, of which $1.4 million was due to the completion in May 2019 of recognition of the transaction price under the EMD Serono Agreement, and a decrease of $1.1 million under the supply agreement.

A $1.8 million increase under the 2018 Merck Agreement was partially offset by a decrease of $0.3 million from the financing component associated with the upfront payment.

Additionally, there was a $0.2 million decrease from Celgene for contract research and manufacturing activities supporting clinical trial supply, and a $0.1 million increase in revenues from Vaxcyte.

Research and Development Expense

Research and development expense increased by $2.4 million, or 16%, during the three months ended March 31, 2020 compared to the three months ended March 31, 2019.

The increase was due primarily to increases of $1.0 million in personnel-related expenses due to higher headcount and $1.4 million in consulting and outside services.

Research and development expense increased by $1.1 million, or 7%, during the three months ended June 30, 2020 compared to the three months ended June 30, 2019.

The increase was due primarily to increases of $1.4 million in personnel-related expenses due to higher headcount, $0.5 million in consulting and outside services, and $0.3 million in facilities-related expenses, partially offset by a decrease of $1.0 million in laboratory supplies and production materials-related expenses.

General and Administrative Expense

General and administrative expense increased by $1.0 million, or 13% during the three months ended March 31, 2020 compared to the three months ended March 31, 2019.

The increase was due primarily to increases of $0.6 million in personnel-related expenses due to higher headcount and $0.4 million in legal and external services.

General and administrative expense increased by $0.6 million, or 7% during the three months ended June 30, 2020 compared to the three months ended June 30, 2019.

The increase was due primarily to increases of $0.8 million in personnel-related expenses due to higher headcount and $0.2 million in legal and external services, partially offset by a $0.4 million decrease in equipment-related expenses.

Interest Income

Interest income decreased by $0.5 million during the three months ended March 31, 2020 compared to the three months ended March 31, 2019, due primarily to a decrease of $0.1 million from lower average investment balances in the first quarter of 2020 and a $0.4 million decrease in the amortization of investments.

Interest and Other Income (Expense), Net

Interest and other income (expense), net changed by $0.1 million during the three months ended March 31, 2020 compared to the three months ended March 31, 2019, due primarily to a $0.3 million decrease in interest expense associated with a financing component related to the 2018 Merck Agreement, and a $0.2 million increase related to the revaluation of vested SutroVax call options during the three months ended March, 31, 2020.

Interest income decreased by $0.7 million during the three months ended June 30, 2020 compared to the three months ended June 30, 2019, due primarily to a decrease in the amortization of premiums on investments.

Unrealized Gain on Equity Securities

Unrealized gain on equity securities was $48.9 million during the three months ended June 30, 2020, as compared to $0 for the three months ended June 30, 2019, due to a $49.1 million unrealized gain from the remeasurement of the estimated fair value of our investment in Vaxcyte common stock in June 2020, offset by a $0.2 million adjustment related to a revaluation of a prior preferred stock warrant converted to common stock.

Interest and Other Expense, Net

Interest and other expense, net changed by $1.7 million during the three months ended June 30, 2020 compared to the three months ended June 30, 2019, due primarily to a $1.8 million increase in other expenses related to the remeasurement of the vested call options under the Call Option Plan, a $0.2 million increase in interest expense related to our outstanding debt, which was partially offset by a $0.3 million decrease in interest expense associated with a financing component related to the 2018 Merck Agreement.

Comparison of the Six Months Ended June 30 , 20 20 and 201 9

Six Months Ended

(in thousands)

Operating expenses

Research and development

General administrative

Total operating expenses

Loss from operations

Interest income

Unrealized gain on equity securities

Interest and other expense, net

Net income (loss)

* Percentage not meaningful

We have recognized revenue as follows during the periods indicated:

Six Months Ended

(in thousands)

Bristol Myers Squibb Company ("BMS") (1)

Merck Sharp & Dohme Corporation (“Merck”) (2)

Merck KGaA, Darmstadt, Germany (operating in the United

States and Canada under the name “EMD Serono”)

Total revenue

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

Merck was a related party until the closing of the Company’s public offering on May 14, 2020.

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

Total revenue decreased by $2.5 million, or 13%, during the six months ended June 30, 2020 compared to the six months ended June 30, 2019.

This was primarily due to a net decrease of $2.3 million in EMD Serono revenue which reflects a $3.1 million decrease due to the completion in May 2019 of recognition of the transaction price under the EMD Serono Agreement, partially offset by an increase of $0.8 million under the supply agreement with EMD Serono.

The $0.4 million revenue decrease under the 2018 Merck Agreement consists of a $2.3 million decrease from the change in estimate related to additional resources being assigned to the first target program and a reduced number of resources on the second target program, and the cumulative catch-up in revenue as a result of the change in transaction price, offset partially by an increase of $1.9 million in ongoing performance and research and development services.

Additionally, there was a $0.3 million increase from Celgene for research and development services and contract research and manufacturing activities supporting clinical trial supply, and a $0.1 million decrease in revenues from Vaxcyte.

Research and Development Expense

Research and development expense increased by $3.5 million, or 11%, during the six months ended June 30, 2020 compared to the six months ended June 30, 2019.

The increase was due primarily to increases of $2.4 million in personnel-related expenses due to higher headcount, $1.9 million in consulting and outside services, and $0.6 million in facilities-related expenses, partially offset by a decrease of $1.3 million in laboratory supplies and production materials-related expenses.

General and Administrative Expense

General and administrative expense increased by $1.6 million, or 10% during the six months ended June 30, 2020 compared to the six months ended June 30, 2019.

The increase was due primarily to increases of $1.4 million in personnel-related expenses due to higher headcount and $0.7 million in legal and external services, partially offset by a decrease of $0.2 million in travel expenses and $0.3 million in equipment-related expenses.

Interest Income

Interest income decreased by $1.3 million during the six months ended June 30, 2020 compared to the six months ended June 30, 2019, due primarily to a decrease of $0.2 million from lower average investment balances in the six months of 2020 and a $1.1 million decrease in the amortization of premiums on investments.

Unrealized Gain on Equity Securities

Unrealized gain on equity securities was $48.9 million during the six months ended June 30, 2020, as compared to $0 for the six months ended June 30, 2019, due to a $49.1 million unrealized gain from the remeasurement of the estimated fair value of our investment in Vaxcyte common stock in June 2020, offset by a $0.2 million adjustment related to a revaluation of a prior preferred stock warrant converted to common stock.

Interest and Other Expense, Net

Interest and other expense, net changed by $1.6 million during the six months ended June 30, 2020 compared to the six months ended June 30, 2019, due primarily to a $2.0 million increase in other expenses related to the remeasurement of the vested call options under the Call Option Plan, partially offset by a $0.4 million decrease in interest expense associated with a financing component related to the 2018 Merck Agreement.

Liquidity and Capital Resources

Sources of Liquidity

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

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

As of March 31, 2020, we had $129.6 million in cash, cash equivalents and marketable securities, outstanding debt of $24.2 million and an accumulated deficit of $215.3 million.

May 2020 Public Offering

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

Vaxcyte Equity Ownership

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

As of June 30, 2020, we held 1,634,005 shares of Vaxcyte common stock, which are subject to a lock-up agreement that expires in December 2020.

The Vaxcyte common stock held by us will be 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 DLOM due to the lock-up agreement, with any unrealized gains and losses recorded in our statements of operations.

As of June 30, 2020, the estimated fair value of the Vaxcyte common stock held by us was $49.1 million.

We recognized an unrealized gain related to Vaxcyte common stock of $48.9 million for the three and six months ended June 30, 2020, of which $49.1 million was from the fair value of Vaxcyte common stock, offset by a $0.2 million adjustment related to a revaluation of a prior preferred stock warrant converted to common stock.

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

O ur operations have been funded primarily by payments received from our collaborators, and net proceeds from equity sale s and debt.

As of June 3 0 , 20 20 , we had cash, cash equivalents and marketable securities of $ 207 .

0 million , equity securities of $ 49.1 million , outstanding debt of $24.

3 million and an accumulated deficit of $ 185 .

For a description of our Loan and Security Agreement with Oxford Finance LLC and Silicon Valley Bank, please see Note 6 to our condensed financial statements.

11 unchanged sentences

The following table summarizes our cash flows during the periods indicated:

Three Months Ended

Six Months Ended

(in thousands)

Cash used in operating activities

Cash provided by (used in) investing activities

Cash used in investing activities

Cash provided by (used in) provided by financing activities

1 unchanged sentence

Cash Flows from Operating Activities

Cash used in operating activities for the three months ended March 31, 2020 was $18.7 million.

Our net loss of $19.6 million was reduced by non-cash charges of $2.7 million for stock-based compensation and $1.1 million for depreciation and amortization.

Cash used in operating activities also reflected a net decrease in operating assets and liabilities of $2.9 million, due to an increase of $2.8 million in accounts receivable from research and development services revenues from our collaborators, a decrease of $3.1 million in accrued compensation expense primarily due to bonuses paid in connection with certain goal achievements, a decrease of $0.7 million in other liabilities due to timing of payments, an increase of $2.3 million in our deferred revenue balance due to the $5.0 million received from Merck upon their exercise of an option to extend the research term of the collaboration’s first cytokine-derivative program by one year, which payment was earned in March 2020 and received in April 2020, offset by revenue recognized under our collaboration agreements, and a decrease of $1.4 million in prepaid expenses and other assets.

Cash used in operating activities for the three months ended March 31, 2019 was $20.1 million.

Our net loss of $14.3 million was decreased by non-cash charges of $2.3 million for stock-based compensation and $1.1 million for depreciation and amortization, which were offset partially by a $0.6 million increase in the accretion of discount on our marketable securities and a $0.1 million reduction of the liability attributable to the arrangement with The Leukemia & Lymphoma Society.

Cash used in operating activities for the six months ended June 30, 2020 was $31.2 million.

Our net income of $10.3 million included $48.9 million of unrealized gain on equity securities as a result of the remeasurement of our investment in Vaxcyte common stock, which was partially offset by non-cash charges of $5.7 million for stock-based compensation, $2.2 million for depreciation and amortization, $2.0 million for the remeasurement of the vested call options, and $0.3 million for financing costs related to the public offering.

Cash used in operating activities also reflected a net decrease in operating assets and liabilities of $2.9 million, comprised of a decrease of $1.5 million in accrued compensation expense primarily due to 2019 bonuses paid in 2020, a decrease of $2.5 million in accounts payable and other liabilities due to timing of payments, and a decrease of $1.6 million in our deferred revenue balance from revenue recognized under our collaboration agreements, offset partially by a $1.2 million decrease in accounts receivable from our collaborators, and a decrease of $1.5 million in prepaid expenses and other assets.

Cash used in operating activities for the six months ended June 30, 2019 was $35.7 million.

Our net loss of $28.0 million included non-cash charges of $4.7 million for stock-based compensation, $2.3 million for depreciation and amortization, and a $0.2 million loss on disposal of property and equipment, which were offset partially by a $1.3 million increase in the accretion of discount on our marketable securities and a $0.1 million reduction of a liability attributable to an agreement.

Cash used in operating activities also reflected a net decrease in operating assets and liabilities of $13.8 million, due to a decrease in our deferred revenue balance of $8.9 million from revenue recognized under our collaboration agreements, a decrease of $2.7 million in accrued compensation expense primarily due to bonuses paid in connection with certain goal achievements, and an increase in accounts receivable of $4.0 million from higher research and development services revenues from our collaborators.

This was offset partially by a decrease in $0.3 million in prepaid expenses and other current assets, a $0.5 million increase in accounts payable due to timing of payments, and a 0.4 million increase in other liabilities of which $0.3 million was contributions received from participants of our employee stock purchase plan offset against $0.7 million in purchases made from our employee stock purchase plan.

This was offset partially by a decrease in $0.4 million in prepaid expenses and other current assets, a $1.3 million increase in accounts payable due to timing of payments, and a $0.1 million increase in other liabilities.

Cash Flows from Investing Activities

Cash provided by investing activities of $41.6 million for the three months ended March 31, 2020 was primarily related to maturities of marketable securities of $37.5 million and sales of marketable securities of $8.5 million, offset partially by purchases of marketable securities of $3.6 million and capital expenditures of $0.8 million principally related to laboratory and manufacturing equipment.

Cash used in investing activities of $78.1 million for the three months ended March 31, 2019 was primarily related to purchases of marketable securities of $119.1 million and capital expenditures of $0.3 million, principally related to laboratory and manufacturing equipment, offset partially by maturities and sales of marketable securities of $41.3 million.

Cash used in investing activities of $15.5 million for the six months ended June 30, 2020 was primarily related to purchases of marketable securities of $91.3 million and purchases of property and equipment of $2.5 million, principally to support laboratory and manufacturing activities, offset partially by maturities and sales of marketable securities of $78.0 million.

Cash used in investing activities of $68.9 million for the six months ended June 30, 2019 was primarily related to purchases of marketable securities of $147.4 million and purchases of property and equipment of $0.8 million, principally to support laboratory and manufacturing activities, offset partially by maturities and sales of marketable securities of $79.3 million.

Cash Flows from Financing Activities

Cash provided by financing activities of $15.7 million for the three months ended March 31, 2020 was primarily related to $25.0 million of gross proceeds from our debt refinancing and $0.7 million of proceeds received from participants of our employee stock purchase plan and exercise of common stock options, partially offset by a $10.0 million repayment of the August 2017 Loan.

Cash used in financing activities of $0.5 million for the three months ended March 31, 2019 was related to commencement of the repayment of the August 2017 Loan in March 2019.

Cash provided by financing activities of $107.1 million for the six months ended June 30, 2020 was primarily related to $91.4 million of net proceeds from the issuance of common stock from our public offering, $25.0 million of gross proceeds from our debt refinancing and $0.7 million of proceeds received from participants of our employee stock purchase plan and from the exercise of common stock options, partially offset by a $10.0 million repayment of the August 2017 Loan.

Cash used in financing activities of $1.3 million for the six months ended June 30, 2019 was primarily related to commencement of the repayment of the August 2017 Loan in March 2019 of $2.0 million, offset by $0.7 million of proceeds received from participants of our employee stock purchase plan.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements, as defined under SEC rules.

While we have an investment classified as variable interest entity, its purpose is not to provide off-balance sheet financing.

Critical Accounting Policies and Estimates

1 unchanged sentence

The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the revenue generated and expenses incurred during the reporting periods.

Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

Our estimates are

based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions.

2 unchanged sentences

We have no products approved for commercial sale and have not generated any revenue from commercial product sales.

Collaboration revenue

14 unchanged sentences

In addition, amounts paid in advance of services being rendered may result in an associated financing component to the upfront payment.

Accordingly, the interest on such borrowing cost component will be recorded as interest expense and revenue, based on

an appropriate borrowing rate applied to the value of services to be performed by us over the estimated service performance period.

Accordingly, the interest on such borrowing cost component will be recorded as interest expense and revenue, based on an appropriate borrowing rate applied to the value of services to be performed by us over the estimated service performance period.

License Grants:

24 unchanged sentences

Stock-Based Compensation

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

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

23 unchanged sentences

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-Q

Item 2. Management’s Discussion and Analysis