What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-05-07 compared with 2020-11-05 · 205 added, 306 removed, 449 unchanged (53% of the section changed)

3 unchanged sentences

(In thousands, except share and per share amounts)

September 30,

Current assets:

2 unchanged sentences

Investment in equity securities

Accounts receivable (including amounts from related parties of $ 0 and

$ 1,050 as of September 30, 2020 and December 31, 2019, respectively)

Accounts receivable

Prepaid expenses and other current assets

18 unchanged sentences

Preferred stock, $ 0.001 par value — 10,000,000 shares authorized

as of September 30, 2020 and December 31, 2019;

as of March 31, 2021 and December 31, 2020;

0 shares issued and

outstanding as of September 30, 2020 and December 31, 2019

outstanding as of March 31, 2021 and December 31, 2020

Common stock, $ 0.001 par value — 300,000,000 shares authorized

as of September 30, 2020 and December 31, 2019;

as of March 31, 2021 and December 31, 2020;

46,103,606 and

23,098,969 shares issued and outstanding as of

September 30, 2020 and December 31, 2019, respectively

45,752,116 shares issued and outstanding as of March 31, 2021

and December 31, 2020, respectively

Additional paid-in-capital

8 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Revenues (including amounts from related parties

of $ 0 and $ 2,813 during the three and nine months

ended September 30, 2020, respectively, and $ 6,274

and $ 16,687 during the three and nine months ended

September 30, 2019, respectively) (1)

of $ 0 during the three months ended March 31,

2021, and $ 2,813 during the three months

ended March 31, 2020

Operating expenses

4 unchanged sentences

Interest income

Unrealized gain on equity securities

Unrealized loss on equity securities

Interest and other expense, net

Net income (loss)

Net income (loss) per share, basic

Net income (loss) per share, diluted

Includes $ 0 and $ 2.8 million, respectively, for the three months and nine months ended September 30, 2020 of related party revenue from Merck.

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

Net loss per share, basic and diluted

Weighted-average shares used in computing

basic and diluted net loss per share

See accompanying notes to unaudited interim condensed financial statements.

Sutro Biopharma, Inc.

Condensed Statements of Comprehensive Income (Loss)

Condensed Statements of Comprehensive Loss

(In thousands)

Three Months Ended

Nine Months Ended

September 30,

Net income (loss)

Other comprehensive income:

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

Comprehensive income (loss)

Unrealized loss on available-for-sale securities

Comprehensive loss

See accompanying notes to unaudited interim condensed financial statements.

11 unchanged sentences

Vesting of restricted stock units

Stock-based compensation expense

Issuance of common stock warrants in connection

with debt refinancing

Net unrealized loss on available-for- sale

Balances at March 31, 2020

Exercise of common stock options

Vesting of restricted stock units

Stock-based compensation expense

Issuance of common stock in connection with

public offering, net of issuance costs of $ 6,626

Net unrealized gain on available-for- sale

Balances at June 30, 2020

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

1 unchanged sentence

Stock-based compensation expense

Issuance of common stock in connection with

At-The-Market sale, net of issuance costs of $ 561

Net unrealized loss on available-for- sale

Balances at September 30, 2020

Balances at March 31, 2021

Preferred Stock

2 unchanged sentences

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

1 unchanged sentence

Purchase Plan

Stock-based compensation expense

Net unrealized gain on available-for- sale securities

Balances at March 31, 2019

Exercise of common stock options

Stock-based compensation expense

Net unrealized gain on available-for- sale securities

Balances at June 30, 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

Net unrealized gain on available-for- sale securities

Balances at September 30, 2019

Issuance of common stock warrants in connection

with debt refinancing

Net unrealized loss on available-for- sale

Balances at March 31, 2020

See accompanying notes to unaudited interim condensed financial statements.

2 unchanged sentences

(In thousands)

Nine Months Ended

September 30,

Three Months Ended

Operating activities

Net income (loss)

Adjustments to reconcile net income (loss) to net cash used in

Adjustments to reconcile net loss to net cash used in

operating activities:

2 unchanged sentences

Stock-based compensation

Unrealized gain on equity securities

Unrealized loss on equity securities

Remeasurement of liability awards

13 unchanged sentences

Purchases of equipment and leasehold improvements

Net cash used in investing activities

Net cash (used in) provided by investing activities

Financing activities

Proceeds from sales of common stock, net of issuance costs

Proceeds from debt refinancing

1 unchanged sentence

Proceeds from exercise of common stock options

Taxes paid related to net share settlement of restricted stock units

Taxes paid related to net shares settlement of restricted stock units

Proceeds from employee stock purchase plan

Net cash provided by (used in) financing activities

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

Net cash provided by financing activities

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

Cash, cash equivalents and restricted cash at beginning of period

5 unchanged sentences

Embedded interest associated with program fees

Warrants issued to lenders

See accompanying notes to unaudited interim condensed financial statements.

Sutro Biopharma, I nc.

Sutro Biopharma, Inc.

Notes to Unaudited Interim Condensed Financial Statements

2 unchanged sentences

Sutro Biopharma, Inc.

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

(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 and autoimmune disorders.

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.

At-The-Market Sales

During the three months ended September 30, 2020, the Company sold an aggregate of 2,000,000 shares of its common stock through its At-the-Market (“ATM Facility”) pursuant to its Common Stock Sales Agreement dated October 4, 2019 with Cowen and Company, LLC, as sales agent.

The gross proceeds from these sales were approximately $ 17.4 million, before deducting fees of approximately $ 0.6 million, resulting in net proceeds of approximately $ 16.8 million to the Company.

May 2020 Public Offering

On May 14, 2020, the Company closed a public offering of 12,650,000 shares of its 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.

The gross proceeds from this offering were approximately $ 98.0 million, before deducting approximately $ 6.6 million of underwriting discounts and commissions and other offering expenses, resulting in net proceeds of approximately $ 91.4 million to the Company.

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

As of September 30, 2020, the Company had an accumulated deficit of $ 168.3 million.

Management expects to incur additional substantial losses in the foreseeable future as a result of the Company’s research and development activities and costs to operate as a public company.

As of September 30, 2020, the Company had unrestricted cash, cash equivalents and marketable securities of $ 202.4 million, which are available to fund future operations.

The Company believes that its unrestricted cash, cash equivalents and marketable securities as of September 30, 2020 will be sufficient for the Company to continue for at least one year from the issuance date of its unaudited interim condensed financial statements.

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

As of March 31, 2021, the Company had an accumulated deficit of $ 258.2 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 March 31, 2021, the Company had unrestricted cash, cash equivalents and marketable securities of $ 294.9 million, which is 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 March 31, 2021 will enable the Company to maintain its operations for a period of at least 12 months following the filing date of its financial statements.

Summary of Significant Accounting Policies

10 unchanged sentences

The Company bases its estimates on historical experience and market-specific or other relevant assumptions that it believes are reasonable under the circumstances.

The amounts of assets and liabilities reported in the Company’s balance sheets and the amount of expenses and income reported for each of the periods presented are affected by estimates and assumptions, which are used for, but are not limited to, determining research and development periods under multiple element arrangements, stock-based compensation expense, income taxes and certain accrued liabilities.

An estimated DLOM to determine the fair value of the Company’s investment in equity securities and related liabilities was also use d due to the existence of a lock-up agreement that expires in December 2020.

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 it or treat COVID-19, as well as the economic impact on local, regional, national and international customers, suppliers, service providers and markets.

The amounts of assets and liabilities reported in the Company’s condensed balance sheets and the amounts of expenses and income reported for each of the periods presented are affected by estimates and assumptions, which are used for, but are not limited to, determining research and development periods under collaboration arrangements, stock-based compensation expense, valuation of marketable securities, impairment of long-lived assets, income taxes and certain accrued liabilities.

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.

We have made estimates of the impact of COVID-19 within our financial statements and there may be changes to those estimates in future periods.

Actual results could differ from such estimates or assumptions.

The accompanying unaudited interim condensed financial statements have been prepared on the same basis as the audited financial statements and, in the opinion of management, reflect all adjustments of a normal recurring nature considered necessary to state fairly the Company's financial position, results of operations, comprehensive income (loss), and cash flows for the interim periods.

The interim results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020, or for any other future annual or interim period.

The accompanying unaudited interim condensed financial statements have been prepared on the same basis as the audited financial statements and, in the opinion of management, reflect all adjustments of a normal recurring nature considered necessary to state fairly the Company's financial position, results of operations , comprehensive loss, and cash flows for the interim periods.

The interim results for the three months ended March 3 1 , 20 2 1 are not necessarily indicative of the results that may be expected for the year ending December 31, 20 2 1 , or for any other future annual or interim period.

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company's audited financial statements included in the Annual Report on Form 10-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, for the year ended December 31, 2020.

Change in Estimate

In the quarter ended March 31, 2020, the Company recorded an adjustment to revenue related to a change in estimate in connection with its Exclusive Patent License and Research Collaboration Agreement (the “2018 Merck Agreement”) with Merck, which was a related party until the closing of the Company’s public offering on May 14, 2020.

The 2018 Merck Agreement provides for the joint development of up to three research programs focusing on cytokine derivatives for cancer and autoimmune disorders.

Under the 2018 Merck Agreement, the Company received from Merck a non-refundable, non-creditable, upfront payment of $ 60.0 million in August 2018 for access to the Company’s technology and the identification and preclinical research and development of two target programs.

Under ASC 606, the Company identified five performance obligations under the 2018 Merck Agreement, two of which relate to the performance of services for 1) the first target program and 2) the second target program.

At the inception of the 2018 Merck Agreement, the transaction price of $ 60.0 million was allocated among the performance obligations using the Company’s best estimate of standalone selling price (“SSP”) for each of the associated performance obligations.

Revenue allocated to the first and second target programs, which totaled $ 47.1 million, was being recognized on a proportion of performance basis, using the full-time equivalent (“FTE”) cost as the basis of measurement, with such performance expected to occur over an estimated service period of three years for each target program.

In March 2020, the Company adjusted revenue recognized for the first and second target programs as the parties determined additional resources should be assigned to the first target program with a reduction of resources attributed to the second target program.

This resulted in a decrease in the measure of proportional performance for the first target program and an increase in the measure of proportional performance for the second target program.

These adjustments collectively decreased both the Company’s revenues and net income by $ 0.8 million and basic and diluted net income per share by $ 0.03 and $ 0.03 , respectively, for the nine months ended September 30, 2020.

Adoption of New Accounting Principles

In December 2019, as part of its initiative to reduce complexity in the accounting standards, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

ASU 2019-12 also clarifies and simplifies other aspects of the accounting for income taxes.

The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted.

The Company early adopted ASU 2019-12 on January 1, 2020 , and this adoption had no material impact on the Company’s financial position or results of operations.

In August 2018, the FASB issued ASU 2018-13 (Topic 820), Fair Value Measurement:

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, reducing certain disclosures concerning the fair value hierarchy.

The guidance was effective for the Company on January 1, 2020 and did not have a material impact on the Company’s financial statements.

Recently Issued Accounting Pronouncements

1 unchanged sentence

For public entities, ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including all interim periods within those years.

As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, ASU 2016-13 is effective for the Company for the fiscal years beginning after December 15, 2020, including all interim periods within those years.

As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, ASU 2016-13 is effective for the Company for fiscal years beginning after December 15, 2022, including all interim periods within those years.

Early adoption is permitted.

The Company is currently assessing the impact that the adoption of ASU 2016-13 will have on its financial statements and related disclosures.

The Company does not expect the adoption of ASU 2016-13 will have a material impact on its financial statements and related disclosures.

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

11 unchanged sentences

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the balance sheets that sum to the total of the same amounts shown in the statements of cash flows.

September 30,

(in thousands)

6 unchanged sentences

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, adjusted for a discount for lack of marketability (DLOM), due to the lock-up agreement that expires in December 2020 , with any unrealized gains and losses recorded in the Company’s statements of operations.

As of September 30, 2020, the Company held 1,634,005 shares of Vaxcyte common stock with an estimated fair value of $ 78.8 million.

The Company recognized an unrealized gain related to Vaxcyte common stock of $ 29.7 million and $ 78.6 million for the three-month and nine-month periods ended September 30, 2020, respectively.

The unrealized gain for the nine months ended September 30, 2020 was $ 78.8 million from the change in estimated fair value of Vaxcyte common stock, partially offset by a $ 0.2 million adjustment related to a revaluation of a prior preferred stock warrant converted to common stock.

See Note 3—“Fair Value Disclosures,” Note 4 — “Cash and Marketable Securities”, and Note 8—“Related Party Transactions”.

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.

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, or an exit price, in the principal or most advantageous market for that asset or liability in an orderly transaction between market participants on the measurement date, and establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs, where available, and minimizes the use of unobservable inputs when measuring fair value.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, or an exit price, in the principal or most advantageous market for that asset or liability in an orderly transaction between market participants on the measurement date, and establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value.

The Company determined the fair value of financial assets and liabilities using the fair value hierarchy that describes three levels of inputs that may be used to measure fair value, as follows:

2 unchanged sentences

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The carrying amounts of accounts receivable, prepaid expenses, accounts payable, accrued liabilities and accrued compensation approximate fair value due to the short-term nature of these items.

The carrying amounts of accounts receivable, prepaid expenses, accounts payable, accrued liabilities and accrued compensation and benefits approximate fair value due to the short-term nature of these items.

The fair value of the Company’s outstanding loan (See Note 6) is estimated using the net present value of the payments, discounted at an interest rate that is consistent with market interest rate, which is a Level 2 input.

The estimated fair value of the Company’s outstanding loan approximates the carrying amount, as the loan bears a floating rate that approximates the market interest rate.

The Company’s investments in equity securities are classified as Level 2 within the fair value hierarchy while subject to a lock-up agreement that expires in December 2020.

As a result of the lock up, as of September 30, 2020, the Company has applied an estimated DLOM of 2.25 %, which is a Level 2 input.

Revenue Recognition

4 unchanged sentences

The Company may also perform research and development activities under the collaboration agreements.

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.

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 the Company materials and reagents, clinical product supply or additional research and development services under separate agreements.

2 unchanged sentences

At the inception of each agreement, the Company determines 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.

The Company also evaluates estimates of our resources, which are used as the basis of measurement for revenue to be recognized on a proportion of performance basis.

For arrangements that include multiple performance obligations, the Company allocates the transaction price to the identified performance obligations based on SSP of each distinct performance obligation.

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.

The Company recognizes revenue over time by measuring its 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, the Company allocate s the transaction price to the identified performance obligations based on the standalone selling price, or SSP , of each distinct performance obligation .

In instances where SSP is not directly observable , the Company develop s 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.

23 unchanged sentences

The following table sets forth the fair value of the Company’s financial assets and liabilities measured on a recurring basis by level within the fair value hierarchy:

September 30, 2020

March 31, 2021

(in thousands)

4 unchanged sentences

Asset-backed securities

government agency securities

The following table sets forth the fair value of the Company’s financial assets and liabilities measured on a recurring basis by

government securities

Supranational debt securities

The following table sets forth the fair value of the Company’s financial assets and liabilities measured on a recurring basis by level within the fair value hierarchy:

December 31, 2020

3 unchanged sentences

Corporate debt securities

Equity securities

Asset-backed securities

government agency securities

government securities

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

This pricing methodology applies to Level 1 investments, which are comprised of money market funds.

This pricing methodology applies to Level 1 investments, which are comprised of money market funds, U.S.

government securities and the Vaxcyte common stock shares held by the Company.

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 U.S.

government agency securities.

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

The Company’s equity securities represent Vaxcyte common stock shares and are classified as Level 2 while subject to certain restrictions on sale.

These assets are valued using market prices with a DLOM being applied, which is a Level 2 input.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

1 unchanged sentence

In certain cases where there is limited activity or less transparency around inputs to valuation, securities are classified as Level 3 within the valuation hierarchy.

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 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.

As of March 31, 2021, the Company held 1,567,324 shares of Vaxcyte common stock with an estimated fair value of $ 31.0 million.

The Company recognized an unrealized loss related to Vaxcyte common stock of $ 10.7 million for the three months ended March 31, 2021.

Cash Equivalents and Marketable Securities

Cash equivalents and marketable securities consisted of the following:

September 30, 2020

March 31, 2021

(in thousands)

3 unchanged sentences

Asset-based securities

government agencies

government securities

Supranational debt securities

Less amounts classified as cash equivalents

6 unchanged sentences

Asset-based securities

government agencies

government securities

Less amounts classified as cash equivalents

Total marketable securities

As of September 30, 2020 and December 31, 2019, zero and $ 15.6 million, respectively, of marketable securities had maturities of more than one year and are classified as long-term assets.

There were zero and $ 4.5 million of investments in an unrealized loss position of zero and $ 3,000 as of September 30, 2020 and December 31, 2019, respectively.

During the three and nine months ended September 30, 2020 and 2019, the Company did no t record any other-than-temporary impairment charges on its available-for-sale securities.

As of March 31, 2021 and December 31, 2020, $ 74.6 million and zero , respectively, of marketable securities had maturities of more than one year and are classified as long-term assets.

There were $ 84.6 million and $ 14.7 million of investments in an unrealized loss position of $ 64,000 and $ 3,000 as of March 31, 2021 and December 31, 2020, respectively.

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

Based upon the Company’s impairment review, the Company determined that the unrealized losses were not attributed to credit risk but were primarily associated with changes in interest rates.

5 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Bristol Myers Squibb Company ("BMS")

3 unchanged sentences

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.

The following table presents the changes in the Company’s deferred revenue balance from collaboration agreements during the nine months ended September 30, 2020:

Nine Months Ended

September 30, 2020

The following table presents the changes in the Company’s deferred revenue balance from collaboration agreements during the three months ended March 31, 2021:

Three Months Ended

March 31, 2021

(in thousands)

2 unchanged sentences

Recognition of revenue in current period

Deferred revenue—September 30, 2020

The Company’s balance of deferred revenue contains the transaction price from collaboration agreements allocated to performance obligations which are partially unsatisfied, including the $ 5.0 million received from Merck 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, and a $ 0.2 million upfront fee billed to Vaxcyte in consideration for the Company’s performance of certain development and manufacturing services, which amount may be recognized as revenue in future periods, upon completion of the earning process for such activities.

The Company expects to recognize approximately $ 15.7 million of deferred revenue over the next twelve months .

There have been no material changes to the Company’s collaboration agreements in the nine months ended September 30, 2020, except as described below.

Collaborations with Celgene

Deferred revenue—March 31, 2021

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

The Company expects to recognize approximately $ 12.1 million of the deferred revenue over the next twelve months .

There have been no material changes to the Company’s collaboration agreements in the three months ended March 31, 2021, except as described below.

Collaborations with BMS

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.

However, except for the presentation in the tables, the Company will continue to refer to its agreements with Celgene throughout this Form 10-Q as being with Celgene.

Celgene Agreement

In September 2014, the Company signed a Collaboration and License Agreement with Celgene 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 ® .

Upon signing the Celgene Agreement, the Company received an upfront, nonrefundable payment totaling $ 83.1 million.

In March 2015, the Company received a $ 15.0 million contingent payment (“March 2015 payment”) from Celgene that provided Celgene a right to access certain of the Company’s technology for use in conjunction with certain Celgene intellectual property.

Throughout this Form 10-Q, the Company refers to Celgene as BMS and its agreements with Celgene as the BMS Agreement and the 2018 BMS Master Services Agreement.

BMS Agreement

In September 2014, the Company signed a Collaboration and License 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 ® .

In August 2017, the Company entered into an amended and restated collaboration and license agreement with BMS to refocus the collaboration on four programs that were advancing through preclinical development, including an ADC program targeting B cell maturation antigen (“BCMA ADC”).

Upon signing the BMS Agreement, the Company received an upfront, nonrefundable payment totaling $ 83.1 million.

In March 2015, the Company received a $ 15.0 million contingent payment (“March 2015 payment”) from BMS that provided BMS a right to access certain of the Company’s technology for use in conjunction with certain BMS intellectual property.

In June 2016, the Company received a $ 25.0 million milestone (“June 2016 payment”) upon completion of certain preclinical activities.

1 unchanged sentence

In August 2017, the Company received an option fee payment of $ 12.5 million.

In September 2017, the Company earned a $ 10.0 million milestone for certain manufacturing accomplishments, which payment was received from Celgene in October 2017.

In December 2018, the Company earned a $ 10.0 million milestone for certain manufacturing accomplishments, which payment was received from Celgene in the same month.

In August 2017, the Company entered into an amended and restated collaboration and license agreement with Celgene to refocus the collaboration on four programs that were advancing through preclinical development, including an ADC program targeting B cell maturation antigen (“BCMA ADC”).

In September 2017, the Company earned a $ 10.0 million milestone for certain manufacturing accomplishments, which payment was received from BMS in October 2017.

In December 2018, the Company earned a $ 10.0 million milestone for certain manufacturing accomplishments, which payment was received from BMS in the same month.

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 manufactured by the Company and is the first collaboration program IND.

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

The Company will continue to be responsible for clinical supply manufacturing and certain development services for the BCMA ADC and is eligible to receive from Celgene aggregate development and regulatory contingent payments of up to $ 275.0 million, if approved in multiple indications, and tiered royalties ranging from mid to high single digit percentages on worldwide sales of any resulting commercial products.

With respect to the remaining three collaboration programs (BCMA-CD3, PD1-LAG3 and PD1-TIM3), during the second quarter of 2019 Celgene notified the Company that it decided not to exercise the option to acquire U.S.

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

The Company will continue to be responsible for clinical supply manufacturing and certain development services for the BCMA ADC and is eligible to receive from BMS aggregate development and regulatory contingent payments of up to $ 275.0 million, if approved in multiple indications, and tiered royalties ranging from mid to high single digit percentages on worldwide sales of any resulting commercial products.

With respect to the remaining three collaboration programs (BCMA-CD3, PD1-LAG3 and PD1-TIM3), during the second quarter of 2019 BMS notified the Company that it decided not to exercise the option to acquire U.S.

clinical development and commercialization rights to a second collaboration program.

Therefore, Celgene was not required to pay the Company the $ 12.5 million option maintenance fee that would have been due upon IND clearance for the first collaboration program, as described above.

Therefore, BMS was not required to pay the Company the $ 12.5 million option maintenance fee that would have been due upon IND clearance for the first collaboration program, as described above.

Consequently, the U.S.

clinical development and commercialization rights to the other three collaboration programs remain owned by the Company, without any further option to Celgene.

Further, upon the expiration of the research term defined by the Celgene agreement, ex-U.S.

clinical development and commercialization rights to the other three collaboration programs remain owned by the Company, without any further option to BMS.

Further, upon the expiration of the research term defined by the BMS agreement, ex-U.S.

clinical development and commercialization rights to these three collaboration programs reverted to the Company in the third quarter of 2020.

Therefore, the Company now solely holds worldwide rights to the BCMA-CD3, PD1-LAG3, and PD1-TIM3 programs.

The contingent payments under the Celgene Agreement are not considered to be substantive milestones because the receipt of such payments is based solely on the performance of Celgene.

The Company has received and will be eligible to receive financial support for research and development services assigned to the Company by Celgene, based on an agreed-upon level of FTE personnel effort and related reimbursement rate, which will be recognized as revenue as the related reimbursable activities approved by Celgene and the Company are performed by the Company.

Celgene may terminate the Celgene Agreement at any time with 120 days’ prior written notice.

Either the Company or Celgene has the right to terminate the Celgene Agreement based on the other party’s uncured material breach, challenge of the validity and enforceability of intellectual property, or bankruptcy.

In accounting for this arrangement under ASC 606, applying the practical expedients, the Celgene Agreement was treated as a single arrangement that had been modified in 2017, in the form it was last modified prior to the adoption of ASC 606.

Given the modification of the Celgene Agreement in 2017, the Company determined that the remaining deferred revenue balance of $ 8.2 million as of the date of the modification, related to certain prior Celgene payments to the Company, together with the $ 12.5 million option fee payment received in August 2017, would comprise the transaction price of $ 20.7 million to be allocated on a relative basis among the Company’s performance obligations based on the Company’s best estimate of each SSP or fair value.

The Company identified the three performance obligations relating to the Celgene Agreement as:

(1) access by Celgene to worldwide development and commercialization rights on the first collaboration program to achieve IND clearance;

The contingent payments under the BMS Agreement are not considered to be substantive milestones because the receipt of such payments is based solely on the performance of BMS.

The Company has received financial support for research and development services assigned to the Company by BMS, based on an agreed-upon level of FTE personnel effort and related reimbursement rate, which will be recognized as revenue as the related reimbursable activities approved by BMS and the Company are performed by the Company.

BMS may terminate the BMS Agreement at any time with 120 days’ prior written notice.

Either the Company or BMS has the right to terminate the BMS Agreement based on the other party’s uncured material breach, challenge of the validity and enforceability of intellectual property, or bankruptcy.

In accounting for this arrangement under ASC 606, applying the practical expedients, the BMS Agreement was treated as a single arrangement that had been modified in 2017, in the form it was last modified prior to the adoption of ASC 606.

Given the modification of the BMS Agreement in 2017, the Company determined that the remaining deferred revenue balance of $ 8.2 million as of the date of the modification, related to certain prior BMS payments to the Company, together with the $ 12.5 million option fee payment received in August 2017, would comprise the transaction price of $ 20.7 million to be allocated on a relative basis among the Company’s performance obligations based on the Company’s best estimate of each SSP or fair value.

The Company identified the three performance obligations relating to the BMS Agreement as:

(1) access by BMS to worldwide development and commercialization rights on the first collaboration program to achieve IND clearance;

(2) the Company’s estimated future services on the collaboration Joint Steering Committee (“JSC”);

and (3) Celgene’s use of certain technology and the option to acquire worldwide development and commercialization rights to a second collaboration program.

Based on its estimated SSP, relative to the total estimated SSP values of all identified performance obligations, the portion of the transaction price allocated to the first performance obligation was $ 8.2 million, which performance obligation was satisfied as of the modification date of the Celgene Agreement, as the BCMA ADC program was the most advanced of the four collaboration programs and estimated by the Company to be the one for which Celgene would first achieve IND clearance and gain worldwide development and commercialization rights.

The second and third performance obligations identified above were unsatisfied as of the modification date of the Celgene Agreement.

and (3) BMS’s use of certain technology and the option to acquire worldwide development and commercialization rights to a second collaboration program.

Based on its estimated SSP, relative to the total estimated SSP values of all identified performance obligations, the portion of the transaction price allocated to the first performance obligation was $ 8.2 million, which performance obligation was satisfied as of the modification date of the BMS Agreement, as the BCMA ADC program was the most advanced of the four collaboration programs and estimated by the Company to be the one for which BMS would first achieve IND clearance and gain worldwide development and commercialization rights.

The second and third performance obligations identified above were unsatisfied as of the modification date of the BMS Agreement.

The Company determined the portion of the transaction price to be allocated to the JSC performance obligation was $ 0.2 million .

Revenue related to such performance obligation will be recognized by the Company over the estimated period during which it will perform its JSC services.

The Company determined that the portion of the transaction price to be allocated to the third performance obligation, which provided Celgene with an option to acquire worldwide development and commercialization rights to a second collaboration program, was $ 12.3 million.

Although Celgene decided not to exercise this option, the Company still had the continuing performance obligation to provide Celgene access to the Company’s technology.

The Company determined that the portion of the transaction price to be allocated to the third performance obligation, which provided BMS with an option to acquire worldwide development and commercialization rights to a second collaboration program, was $ 12.3 million.

Although BMS decided not to exercise th is option, the Company still ha d the continuing performance obligation to provide BMS access to the Company’s technology.

As such, the Company’s revenue related to such performance obligation was recognized over the period from August 2017 through September 2020 , the estimated term of the use of the technology .

Upon the adoption of ASC 606 on January 1, 2019, the Company recorded a $ 4.5 million adjustment to decrease its deferred revenue for performance obligations that were satisfied in prior periods, with the corresponding adjustment being a reduction to the Company’s accumulated deficit.

For the three and nine months ended September 30, 2020, the Company recognized $ 1.0 million and $ 3.0 million, respectively, of revenue associated with the Company’s ongoing performance related to partially unsatisfied performance obligations, and $ 0.2 million and $ 0.6 million, respectively, from research and development services.

For the three and nine months ended September 30, 2019, the Company recognized $ 1.0 million and $ 2.9 million, respectively, of revenue associated with the Company’s ongoing performance related to partially unsatisfied performance obligations, and $ 0.1 million and $ 0.4 million, respectively, from research and development services.

As of September 30, 2020 and December 31, 2019, there was zero and $ 3.0 million, respectively, of deferred revenue related to payments received by the Company under the Celgene Agreement.

2018 Celgene Master Services Agreement

In March 2018, the Company entered into a Master Development and Clinical Manufacturing Services Agreement (the “2018 Celgene Master Services Agreement”) with Celgene, wherein Celgene requested the Company to provide development, manufacturing and supply chain management services, including clinical product supply.

For the three months ended March 31, 2021 and 2020, the Company recognized zero and $ 1.0 million, respectively, of revenue associated with the Company’s ongoing performance related to partially unsatisfied performance obligations, and $ 0.3 million and $ 0.1 million, respectively, from research and development services.

As of both March 31, 2021 and December 31, 2020, there was a zero balance in deferred revenue related to payments received by the Company under the BMS Agreement.

2018 BMS Master Services Agreement

In March 2018, the Company entered into a Master Development and Clinical Manufacturing Services Agreement (the “2018 BMS Master Services Agreement”) with BMS, wherein BMS requested the Company to provide development, manufacturing and supply chain management services, including clinical product supply.

The consideration for the services is based on an agreed-upon level of FTE personnel effort and related reimbursement rate in addition to agreed-upon pricing for the clinical product supply.

Upon adoption of ASC 606 on January 1, 2019, this was deemed a modification of the arrangement and the consideration terms were at fair value and materials are to be provided on an as agreed upon basis.

Accordingly, the Company will recognize revenue upon the performance of such services.

For the three and nine months ended September 30, 2020, the Company earned $ 5.9 million and $ 7.1 million, respectively, under the 2018 Celgene Master Services Agreement.

For the three and nine months ended September 30, 2019, the Company earned $ 2.2 million and $ 3.2 million, respectively, under the 2018 Celgene Master Services Agreement.

For the three months ended March 31, 2021 and 2020, the Company earned $ 0.9 million and $ 0.9 million, respectively, under the 2018 BMS Master Services Agreement.

As of March 31, 2021 and December 31, 2020, there was $ 2.5 million and $ 1.2 million, respectively, of deferred revenue under the 2018 BMS Master Services Agreement.

2018 Merck Agreement

7 unchanged sentences

and (5) a material right pertaining to the performance of services related to a contingent third target program upon the payment of an additional amount.

The transaction price of $60.0 million was allocated among the performance obligations using the Company’s best estimate of

SSP for each of the associated performance obligations.

The transaction price of $60.0 million was allocated among the performance obligations using the Company’s best estimate of SSP for each of the associated performance obligations.

Based on its estimated SSP, relative to the estimated total SSP values of all identified performance obligations, the portion of the transaction price allocated to the first performance obligation was $ 7.3 million.

It was determined that such performance obligation was satisfied as of the effective date of the 2018 Merck Agreement, and accordingly revenue associated with this performance obligation would, pursuant to ASC 606, have been recorded on the effective date of the Merck Agreement.

Revenue allocated to the first and second target programs, which totaled $ 47.1 million , was being recognized on a proportion of performance basis, using the FTE cost as the basis of measurement, with such performance expected to occur over an estimated service period of three years for each target program.

As it pertains to the JSC performance obligation, the revenue allocated to such performance obligation was $ 0.7 million, which was being recognized as revenue on a proportion of performance basis using FTE cost as the basis, and such effort is expected to be incurred on a relatively consistent basis throughout the term of the 2018 Merck Agreement.

The Company allocated $ 4.9 million of the transaction price to the material right associated with the contingent third program.

Revenue allocated to the first and second target programs, which totaled $ 47.1 million, was being recognized on an input basis, using the FTE cost as the basis of measurement, with such performance expected to occur over an estimated service period of three years for each target program.

As it pertains to the JSC performance obligation, the revenue allocated to such performance obligation was $ 0.7 million, which was being recognized as revenue on an input basis using FTE cost as the basis, and such effort is expected to be incurred on a relatively consistent basis throughout the term of the 2018 Merck Agreement.

allocated $ 4.9 million of the transaction price to the material right associated with the contingent third program.

Recognition of the $4.9 million as revenue will begin upon commencement of the third program or upon the determination that the contingent third target program is no longer a performance obligation.

Additionally, 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 September 30, 2020 on the unearned revenue portion beyond one year from the effective date of the agreement, which amount is expected to be recognized as revenue over the estimated service period for the first and second target programs.

Upon adoption of ASC 606 on January 1, 2019, the Company recorded a $ 6.3 million adjustment to decrease its deferred revenue for performance obligations that were satisfied in prior periods, with the corresponding adjustment being a reduction to the Company’s accumulated deficit.

Additionally, 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 March 31, 2021 on the unearned revenue portion beyond one year from the effective date of the agreement, which amount is expected to be recognized as revenue over the estimated service period for the first and second target programs.

This resulted in a decrease in the measure of proportional performance for the first target program by $ 6.2 million and an increase in the measure of proportional performance for the second target program of $ 1.1 million for a collective decrease in revenue of $ 5.1 million.

See Note 2 above for further explanation.

This resulted in a decrease in the measure of progress for the first target program by $ 6.2 million and an increase in the measure of progress for the second target program of $ 1.1 million for a collective decrease in revenue of $ 5.1 million.

Also, 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.

3 unchanged sentences

Based upon the adjusted transaction price, revenue allocated to the access to intellectual property rights was $ 7.8 million and incremental revenue of $ 0.5 million was recognized in the period as this performance obligation was previously completed.

Revenue allocated to the first and second target programs totaled $ 50.5 million, to be recognized on a proportion of performance basis, using the FTE cost as the basis of measurement, with such performance expected to occur over an estimated service period of three years for each target program.

Revenue allocated to the first and second target programs totaled $ 50.5 million, to be recognized on an input basis, using FTE cost as the basis of measurement, with such performance expected to occur over an estimated service period of three years for each target program.

Incremental revenue of $ 1.5 million was recognized in the quarter ended March 31, 2020.

The Company allocated $ 5.9 million of the adjusted transaction price to the material right associated with the contingent third program.

No revenue for this performance obligation has been recognized and recognition of the $ 5.9 million as revenue will begin upon the earlier of (i) the commencement of the third program;

or (ii) upon the determination that the contingent third target program is no longer a performance obligation.

The option to expand activities to the contingent third target program expired in January 2021.

Consequently, the contingent third target program is no longer a performance obligation and the related revenue was recognized during the quarter ended March 31, 2021.

As it pertains to the JSC performance obligation, the incremental transaction price allocation was immaterial.

As a result of the change in transaction price, the Company recorded a $ 2.0 million cumulative catch-up in revenue in the quarter ended March 31, 2020.

During the three and nine months ended September 30, 2020, the Company recognized revenue of $ 6.9 million and $ 13.0 million, respectively, associated with the Company’s ongoing performance related to the partially unsatisfied performance obligations, $ 0.4 million and $ 1.5 million, respectively, related to the interest component described above, and $ 1.7 million and $ 4.2 million, respectively, for FTE funding provided by Merck.

During the three and nine months ended September 30, 2019, the Company recognized revenue of $ 3.8 million and $ 10.5 million, respectively, associated with the Company’s ongoing performance related to the partially unsatisfied performance obligations, $ 0.8 million and $ 2.5 million, respectively, related to the interest component described above, and $ 0.9 million and $ 2.6 million, respectively, for FTE funding provided by Merck.

As of September 30, 2020 and December 31, 2019, there was $ 23.9 million and $ 31.9 million, respectively, of deferred revenue related to the transaction price under the 2018 Merck Agreement.

The Company is also eligible to receive aggregate milestone payments of up to $ 1.6 billion, assuming the development and sale of all therapeutic candidates and all possible indications identified under the collaboration.

During the three months ended March 31, 2021 and 2020, the Company recognized revenue of $ 9.1 million and $ 0.9 million, respectively, associated with the Company’s ongoing performance related to the partially unsatisfied performance obligations, $ 0.2 million and $ 0.6 million, respectively, related to the interest component described above, and $ 1.2 million and $ 1.3 million, respectively, for FTE funding provided by Merck.

As of March 31, 2021 and December 31, 2020, there was $ 9.4 million and $ 18.5 million, respectively, of deferred revenue related to the transaction price under the 2018 Merck Agreement.

The Company is also eligible to receive aggregate contingent payments of up to approximately $ 0.5 billion for each of the target programs 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 each of the target programs are developed for non-oncology or a single indication, the Company will be eligible for reduced aggregate milestone payments.

2 unchanged sentences

Either the Company or Merck has the right to terminate the 2018 Merck Agreement based on the other party’s uncured material breach or bankruptcy.

2020 Merck Master Services Agreement

In August 2020, the Company entered into a Pre-Clinical and Clinical Supply Agreement (the “2020 Merck Master Services Agreement”) with Merck, wherein Merck requested the Company to provide development, manufacturing and supply chain management services, including clinical product supply, upon completion of the research programs under the 2018 Merck Agreement.

The consideration for the services is based on an agreed-upon level of FTE personnel effort and related reimbursement rate in addition to agreed-upon pricing for the clinical product supply.

Consideration terms are at fair value and materials are to be provided on an agreed upon basis.

Accordingly, the Company will recognize revenue upon the performance of such services.

During the three months ended March 31, 2021, the Company earned $ 1.4 million under the 2020 Merck Master Services Agreement.

EMD Serono Agreements

1 unchanged sentence

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.

Upon signing the Collaboration Agreement, the Company received an upfront, nonrefundable, non-creditable payment totaling $ 10.0 million.

Upon signing the MDA Agreement, the Company received an additional upfront, nonrefundable payment totaling $ 10.0 million and will receive financial support for research and development services to be provided by the Company, based on an agreed-upon level of FTE personnel effort and related reimbursement rate.

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

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

Relatedly, in August 2020, the Company earned a $ 1.0 million clinical supply milestone payment under the MDA Agreement, which payment was received by the Company in October 2020.

Additionally, in September 2019, the Company earned a $ 1.5 million contingent payment under the MDA Agreement upon designation by EMD Serono of a specific bispecific antibody drug conjugate as a clinical development candidate with their approval to advance it to IND-enabling studies, which payment was received by the Company in November 2019.

In addition, the Company is eligible to receive tiered royalties ranging from low-to-mid single digit percentages, along with certain additional one-time royalties, on worldwide sales of any commercial products that may result from the MDA Agreement.

3 unchanged sentences

Either the Company or EMD Serono has the right to terminate the MDA Agreement based on the other party’s uncured material breach or bankruptcy.

Upon adoption of ASC 606 on January 1, 2019, the Company identified a single performance obligation under the MDA Agreement, which consists of the technology license, research and development activities and JSC participation over the estimated period of the agreement, as each are interrelated and not distinct within the overall context of the agreement.

The transaction price of $ 20.0 million was being recognized on a proportion of performance basis, using the FTE cost as the basis of measurement, with such performance occurring over the estimated service period of the agreement, from June 2014 through May 2019.

The Company recorded a $ 0.6 million adjustment to increase its deferred revenue for performance obligations that were unsatisfied in prior periods, with the corresponding adjustment being an increase to the Company’s accumulated deficit.

For the three and nine months ended September 30, 2020, the Company earned $ 0.3 million and $ 2.6 million, respectively, from a supply agreement, $ 0.3 million and $ 1.1 million, respectively, from research and development services, and $ 1.0 million and $ 1.0 million, respectively, from a milestone payment.

For the three and nine months ended September 30, 2019, the Company earned $ 0.6 million and $ 2.1 million, respectively, from a supply agreement, $ 0.5 million and $ 2.2 million, respectively, from research and development services, and $ 1.5 million and $ 3.8 million, respectively, associated with the Company’s ongoing performance related to partially unsatisfied performance obligations.

As of September 30, 2020 and December 31, 2019, there was zero and $ 0.8 million, respectively, of deferred revenue related to payments received by the Company under the MDA Agreement.

During the three months ended March 31, 2021 and 2020, the Company earned $ 0.2 million and $ 0.3 million, respectively, from research and development services.

As of both March 31, 2021 and December 31, 2020, there was a zero balance in deferred revenue related to payments received by the Company under the MDA Agreement.

2019 EMD Serono Supply Agreement

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.

The consideration for the services is based on an agreed-upon level of FTE personnel effort and related reimbursement rate in addition to agreed-upon pricing for the clinical product supply.

Consideration terms are at fair value and materials are to be provided on an agreed upon basis.

Accordingly, the Company will recognize revenue upon the performance of such services.

During the three months ended March 31, 2021 and 2020, the Company earned $ 0.1 million and $ 2.0 million, respectively, under the 2019 EMD Serono Supply Agreement.

As of both March 31, 2021 and December 31, 2020, there was $ 1.0 million, respectively, of deferred revenue related to payments received by the Company under the 2019 EMD Serono Supply Agreement.

Vaxcyte Supply Agreement

1 unchanged sentence

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

For the three and nine months ended September 30, 2020, the Company recognized revenue of $ 0.2 million and $ 0.3 million, respectively, under the Supply Agreement.

For the three and nine months ended

September 30, 2019, the Company recognized revenue of $ 0.8 million and $ 1.1 million, respectively, under the Supply Agreement.

As the Company has a right to consideration from Vaxcyte in an amount that corresponds directly with the value of the Company’s supplied extracts and custom reagents, the Company’s supply of extracts and custom reagents in discrete unit form are recognized as revenue at the time when such supplies are shipped to Vaxcyte, in line with the “right to invoice” practical expedient in ASC 606.

The Company has not received any returns to date and believes that returns of its products will continue to be minimal.

As such, the Company does not record any reserve for the returns but will continue to evaluate the need for a reserve each reporting period.

For the three months ended March 31, 2021 and 2020, the Company recognized revenue of $ 1.3 million and $ 36,000 , respectively, under the Supply Agreement.

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.

The agreed-upon reimbursements by Vaxcyte of the costs associated with such arrangements, principally for pass-through costs from the CMOs, which totaled approximately $ 0.2 million, were accounted for by the Company as a reduction to research and development expense.

The Leukemia & Lymphoma Society, Inc.

4 unchanged sentences

In consideration for the funding to the Company under the LLS Agreement, the Company may be required in the future to make payments to LLS, contingent upon reaching certain pre-specified late-stage clinical development, regulatory and commercialization milestones and should the Company enter into certain transactions relating to STRO-001 with a third party, which payments in the aggregate could total up to a maximum of $ 19.5 million, assuming receipt by the Company from LLS of the entire $ 6.0 million in clinical development funding for STRO-001.

As of September 30, 2020, no events have occurred that would require such payments to LLS.

As of March 31, 2021, no events have occurred that would require such payments to LLS.

The LLS Agreement terminates upon the earlier of (a) fulfillment of all payment obligations by both parties or (b) 12 years after the effective date.

1 unchanged sentence

Either the Company or LLS has the right to terminate the LLS Agreement based on the other party’s uncured material breach.

The Company concluded that the contingent payments were an embedded derivative and recorded a related liability of approximately $ 0.2 million and $ 0.1 million, respectively, as a part of other noncurrent liabilities as of September 30, 2020 and December 31, 2019, with the corresponding change in estimated fair value recorded in the statements of operations as interest and other expense, net.

The Company concluded that the contingent payments were an embedded derivative and recorded a related liability of approximately $ 0.1 million and $ 0.2 million, respectively, as a part of other noncurrent liabilities as of March 31, 2021 and December 31, 2020, with the corresponding change in estimated fair value recorded in the statements of operations as interest and other expense, net.

The value of the embedded derivative was estimated based on the probability-adjusted and discounted value of future payments.

9 unchanged sentences

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

As of December 31, 2019, the outstanding principal on the August 2017 Loan was $ 10.0 million.

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 in a series of term loans (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.

Under the terms of the Loan and Security Agreement, the Company may, at its sole discretion, borrow from the Lenders up to an additional $ 5.0 million (the “Term B Loan” and together with the Term A Loan, the “Term Loans”) upon the Company’s closing of a new collaboration agreement that includes an upfront payment of at least $ 50.0 million to the Company, as determined by Oxford in its sole and absolute discretion (the “Term B Milestone Event”).

The Company may draw the Term B Loan during the period commencing on the date of the occurrence of the Term B Milestone Event and ending on the earliest of (i) December 31, 2020, (ii) the thirtieth (30th) day following the occurrence of the Term B Milestone Event, and (iii) the occurrence of an event of default by the Company.

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 Loans mature 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 Loans 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.

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 bears 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 %.

The Company will be required to make a final payment of 3.83 % of the original principal amount of the Term Loans drawn, or $ 1.0 million, payable on the earlier of (i) the Maturity Date, (ii) the acceleration of any Term Loans, or (iii) the prepayment of the Term Loans (the “Final Payment”).

The Company will be required to make a final payment of 3.83 % of the original principal amount of the Term A Loan drawn, or $ 1.0 million, 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 Loan (the “Final Payment”).

The final payment amount is accreted as interest expense until the Maturity Date using the effective interest method.

The Company may prepay all, but not less than all, of the Term Loans upon 30 days’ advance written notice to Oxford, provided that the Company will be obligated to pay a prepayment fee equal to (i) 3.00 % of the principal amount of the applicable Term Loan prepaid on or before the first anniversary of the applicable funding date, or (ii) 2.00 % of the principal amount of the applicable Term Loan prepaid between the first and second anniversary of the applicable funding date, or (iii) 1.00 % of the principal amount of the applicable Term Loan prepaid thereafter, and prior to the Maturity Date (each, a “Prepayment Fee”).

The Company may prepay all, but not less than all, of the Term A Loan upon 30 days’ advance written notice to Oxford, provided that the Company will be obligated to pay a prepayment fee equal to (i) 3.00 % of the principal amount of the Term A Loan prepaid on or before the first anniversary of the applicable funding date, or (ii) 2.00 % of the principal amount of the Term A Loan prepaid between the first and second anniversary of the applicable funding date, or (iii) 1.00 % of the principal amount of the Term A Loan prepaid thereafter, and prior to the Maturity Date (each, a “Prepayment Fee”).

The Loan and Security Agreement contains customary affirmative and restrictive covenants, including covenants regarding incurrence of additional indebtedness or liens, investments, transactions with affiliates, delivery of financial statements, maintenance of inventory, payment of taxes, maintenance of insurance, protection of intellectual property rights, dispositions of property, business combinations or acquisitions, among other customary covenants.

7 unchanged sentences

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

As of September 30, 2020, the Company has classified the outstanding debt balance of $ 25.0 million as non-current, which reflects the scheduled repayment terms under the Loan and Security Agreement.

As of September 30, 2020 and December 31, 2019, accrued interest expense was $ 0.2 million and $ 0.4 million, respectively.

During the three and nine months ended September 30, 2020, the Company recorded interest expense related to loans outstanding of $ 0.7 million and $ 1.7 million, respectively, with average interest rates of 8.07 % and 8.08 %, respectively, and interest related to the accretion of debt discount of $ 0.1 million and $ 0.3 million, respectively.

During the three and nine months ended September 30, 2019, the Company recorded interest expense related to loans outstanding of $ 0.3 million and $ 0.9 million, respectively, with average interest rates of 8.64 % and 8.80 %, respectively, and interest related to the accretion of debt discount of $ 79,000 and $ 254,000 , respectively.

As of March 31, 2021, the Company has classified the outstanding debt balance of $ 25.0 million as non-current, which reflects the scheduled repayment terms under the Loan and Security Agreement.

As of both March 31, 2021 and December 31, 2020, accrued interest expense was $ 0.2 million.

During the three months ended March 31, 2021 and 2020, the Company recorded interest expense related to loans outstanding of $ 0.6 million and $ 0.2 million, respectively, with average interest rates of 8.07 % and 8.09 %, respectively, and interest related to the accretion of debt discount of $ 0.1 million in each period.

Commitments and Contingencies

September 2020 Sublease Agreement

On September 3, 2020, the Company entered into a sublease agreement (the “Sublease”) with Five Prime Therapeutics, Inc.

In September 2020, the Company entered into a sublease agreement (the “Sublease”) with Five Prime Therapeutics, Inc.

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

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

The commencement date for the first 85,755 square feet of the Premises (“Initial Premises”) is expected to be mid-2021 at which time the Company will occupy the space and commence making monthly payments under the Sublease.

The Company will be provided early access to the Sublease space commencing in the fourth quarter of 2020 to conduct certain planning and tenant improvement work, which the Company expects will result in it recording rent expense prior to space occupancy and making actual lease payments.

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

The commencement date for the first 85,755 square feet of the Premises (“Initial Premises”) is expected to be by mid-2021 at which time the Company will occupy the space and commence making monthly payments under the Sublease.

The Company was provided early access to the Sublease commencing in the fourth quarter of 2020 to conduct certain planning and tenant improvement work, which resulted in the Company recording rent expense of $ 1.1 million in 2020 and $ 1.1 million during the three months ended March 31, 2021, prior to space occupancy and making actual lease payments.

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

1 unchanged sentence

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

Assuming a commencement date on the Initial Premises of April 1, 2021, the aggregate estimated base rent payments due over the term of the Sublease are approximately $ 47.7 million, excluding the 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.

Assuming 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 $ 45.5 million, excluding 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.

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 in the form of a bank standby letter of credit, which is reflected as restricted cash in non-current assets on the Company’s balance sheet as of September 30, 2020.

As of September 30, 2020, the Company’s future minimum payments (excluding potential financial benefit to the Company of base rent abatement, as noted above) under the noncancelable operating sublease are as follows:

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 March 31, 2021 and December 31,2020.

As of March 31, 2021, the Company’s future minimum payments (excluding potential financial benefit to the Company of base rent abatement, as noted above) under the noncancelable operating leases and sublease are as follows:

Year Ending December 31,

1 unchanged sentence

Total future minimum sublease payments

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.

Indemnification & Other

In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to vendors, lessors, business partners, board members, officers, and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by the Company, negligence or willful misconduct of the Company, violations of law by the Company, or from intellectual property infringement claims made by third parties.

In addition, the Company has entered into indemnification agreements with directors and certain officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees.

No demands have been made upon the Company to provide indemnification under such agreements, and thus, there are no claims that the Company is aware of that could have a material effect on the Company’s balance sheets, statements of operations, or statements of cash flows.

The Company currently has directors’ and officers’ liability insurance.

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

1 unchanged sentence

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 three months and nine months ended September 30, 2020 and September 30, 2019 are described in Note 5.

Transactions with Merck for the three months ended March 31, 2021 and 2020 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 interest 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 three months and nine months ended September 30, 2020 and 2019 are described in Note 5.

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

Transactions with Vaxcyte for the three months ended March 31, 2021 and 2020 are described in Note 5.

Stockholders’ Equity

1 unchanged sentence

The Company has reserved common stock, on an if-converted basis, for issuance as follows:

September 30,

Common stock options issued and outstanding

6 unchanged sentences

Preferred Stock

As of September 30, 2020 and December 31, 2019, the Company had 10,000,000 shares of preferred stock authorized with a par value of $ 0.001 per share.

No shares of preferred stock were outstanding as of September 30, 2020 and December 31, 2019.

As of March 31, 2021 and December 31, 2020, the Company had 10,000,000 shares of preferred stock authorized with a par value of $ 0.001 per share.

No shares of preferred stock were outstanding as of March 31, 2021 and December 31, 2020.

During the period from 2008 to 2012, the Company issued various warrants for the purchase of redeemable convertible preferred stock in connection with debt financings and the issuance of redeemable convertible preferred stock.

17 unchanged sentences

As a result, common stock reserved for issuance under the 2018 Plan was increased by 2,287,605 shares on January 1, 2021.

As of September 30, 2020, the Company had 1,918,224 shares available for grant under the 2018 Plan.

As of March 31, 2021, the Company had 1,787,323 shares available for grant under the 2018 Plan.

The following table summarizes option activity under the Company’s 2004 Plan and 2018 Plan:

5 unchanged sentences

Canceled and forfeited

Stock options outstanding at September 30, 2020

Stock options exercisable at September 30, 2020

Stock options outstanding at March 31, 2021

Stock options exercisable at March 31, 2021

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.

For the three and nine months ended September 30, 2020, the aggregate intrinsic value of stock options exercised was $ 48,000 and $ 129,000 , respectively, determined at the date of the option exercise.

For the three and nine months ended September 30, 2019, the aggregate intrinsic value of stock options exercised was $ 63,000 and $ 119,000 , respectively, determined at the date of the option exercise.

For the three months ended March 31, 2021 and 2020, the aggregate intrinsic value of stock options exercised was $ 1.9 million and $ 76,000 , respectively, determined at the date of the option exercise.

Employee Stock Options Valuation

For determining stock-based compensation expense, the fair-value-based measurement of each employee stock option was estimated as of the date of grant using the Black-Scholes option-pricing model with assumptions as follows:

Nine Months Ended

September 30,

Three Months Ended

Expected term (in years)

Expected volatility

73.15%-84.24%

72.89%-74.89%

Risk-free interest rate

Expected dividend

Using the Black-Scholes option-valuation model, the weighted-average estimated grant-date fair value of employee stock options granted during the three and nine months ended September 30, 2020 was $ 5.69 and $ 5.09 per share, respectively, and during the three and nine months ended September 30, 2019 was $ 4.88 and $ 6.74 per share, respectively.

Using the Black-Scholes option-valuation model, the weighted-average estimated grant-date fair value of employee stock options granted during the three ended March 31, 2021 and 2020 was $ 15.13 and $ 4.94 per share, respectively.

Restricted Stock Units

During the nine months ended September 30, 2020, the Company granted 505,250 shares of restricted common stock units, or RSUs, to certain employees.

These RSUs will become fully vested over four years in August 2024 .

A summary of the status and activity of non-vested RSUs at September 30, 2020 is as follows:

During the three months ended March 31, 2021, the Company granted 1,435,750 shares of restricted common stock units (“RSUs”) to certain employees.

These RSUs vest annually and will become fully vested over four years .

A summary of the status and activity of non-vested RSUs during the three months ended March 31, 2021 is as follows:

Non-vested December 31, 2020

1 unchanged sentence

Canceled and forfeited

Non-vested September 30, 2020

Non-vested March 31, 2021

2018 Employee Stock Purchase Plan

5 unchanged sentences

The fair value of the ESPP shares is estimated using the Black-Scholes option pricing model.

For the nine months ended September 3 0 , 20 20 , the fair value of ESPP shares was estimated using the following assumptions:

Nine Months Ended

September 30,

For the three months ended March 31, 2021 and 2020 , the fair value of ESPP shares was estimated using the following assumptions:

Three Months Ended

Expected term (in years)

2 unchanged sentences

Expected dividend

As of September 30 , 2020, 327,931 shares had been purchased and 361,539 shares were available for future issuance under the ESPP.

As of March 31, 2021 , 421,277 shares had been purchased and 725,714 shares were available for future issuance under the ESPP.

Stock-Based Compensation Expense

2 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Research and development expense:

Stock options

Restricted stock units

General and administrative expense:

Stock options

Restricted stock units

As of September 30 , 2020, unrecognized stock-based compensation expense related to the unvested stock options and RSUs granted was $ 18.5 million and $ 5.4 million, respectively.

As of March 31, 2021 , unrecognized stock-based compensation expense related to the unvested stock options and RSUs granted was $ 28.3 million and $ 33.9 million, respectively.

The remaining unrecognized compensation cost is expected to be recognized over a weighted-average period of 2.9 years and 3.8 years, respectively.

As of September 30 , 2020, there is $ 0.3 million of unrecognized stock-based compensation expense related to the ESPP.

As of March 31, 2021 , there is $ 0.3 million of unrecognized stock-based compensation expense related to the ESPP.

Non-Employee Stock-Based Compensation Expense

The fair value of options granted to non-employees was estimated using the Black-Scholes method.

The stock-based compensation expense related to non-employees for the three and nine months ended September 30, 2020 and 2019 was immaterial.

The stock-based compensation expense related to non-employees for the three months ended March 31, 2021 and 2020 was immaterial.

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 September 30, 2020, 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 vest 25 % on each of January 1, 2017, 2018, 2019, and 2020, and expire one year from the vesting date.

As of March 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.

The call options were measured at fair value on grant date and at each reporting period prior to their vesting, with cost recognized over the requisite service period as compensation cost.

Any changes in the fair value subsequent to the vesting date are recognized in interest and other expense, net in the statements of operations.

Call options covering 248,944 and 17,780 shares have been granted with an exercise price of $ 1.28 per share and $ 2.04 per share, respectively.

A summary of the status of the call options at September 30, 2020 and at December 31, 2019 is as follows:

September 30,

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

Options vested and exercised

2 unchanged sentences

Total options granted

The amounts recognized as compensation expense related to the Call Option Plan for the three and nine months ended September 30, 2020 were $ 90,000 and $ 158,000 , respectively.

The amounts recognized as compensation expense related to the Call Option Plan for the three and nine months ended September 30, 2019 were $ 24,000 and $ 59,000 , respectively.

The amounts recognized as other expense related to the remeasurement of the vested call options for the three and nine months ended September 30, 2020 were $ 1.1 million and $ 3.1 million, respectively.

The amounts recognized as other expense related to the remeasurement of the vested call options for the three and nine months ended September 30, 2019 were no t material.

As of September 30, 2020 and December 31, 2019, the liability attributable to the Call Option Plan was $ 3.4 million and $ 76,000 , respectively.

Net Income (Loss) Per Share

The amounts recognized as compensation expense related to the Call Option Plan for the three months ended March 31, 2021 and 2020 were $ 20,000 and $ 138,000 , respectively.

The amounts recognized as other expense related to the remeasurement of the vested call options for the three months ended March 31, 2021 and 2020 were $ 30,000 and $ 193,000 , respectively.

As of March 31, 2021 and December 31, 2020, the liability attributable to the Call Option Plan was $ 79,000 and $ 109,000 , respectively.

Net Loss Per Share

The following table sets forth the computation of the Company’s basic and diluted net loss per share.

Three Months Ended

Nine Months Ended

September 30,

Net income (loss), basic and diluted

Weighted-average shares used to compute basic EPS

Dilutive effect of common stock options

Dilutive effect of restricted stock units

Dilutive effect of warrants to purchase common stock

Weighted-average shares used to compute diluted EPS

Net income (loss) earnings per share:

The following common stock equivalents were excluded from the computation of diluted net loss per share for the period ended September 30, 2019, because including them would have been antidilutive:

As of September 30,

Net loss, basic

Shares issued in computing net loss per share,

basic and diluted

Net loss per share, basic and diluted

The following common stock equivalents were excluded from the computation of diluted net loss per share for

the periods ended March 31, 2021 and 2020, because including them would have been antidilutive:

As of March 31,

Common stock options issued and outstanding

2 unchanged sentences

Subsequent Events

The Company has evaluated all events occurring through November 4, 2020, the date on which the condensed financial statements were issued, during which time nothing has occurred outside the normal course of business operations that would require disclosure other than the event disclosed below.

From October 1, 2020 through November 4, 2020, the Company sold an aggregate of 500,000 shares of its common stock through its ATM Facility.

The net proceeds to the Company from these sales after deducting fees was approximately $ 5.0 million.

On April 14, 2021, the Company announced that Merck, known as MSD outside the United States and Canada, will make to the Company a $ 15 million milestone payment for the initiation of an IND enabling toxicology study for the first program in its collaboration to develop novel cytokine derivative therapeutics for cancer and autoimmune disorders.

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 1. Financial Statements