What changed in this filing

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2023-02-23 compared with 2022-03-15 · 222 added, 174 removed, 369 unchanged (52% of the section changed)

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Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2022 and 2021

Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Years Ended December 31, 2021 and 2020

Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2022 and 2021

Statements of Cash Flows for the Years Ended December 31, 2022 and 2021

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We have audited the accompanying balance sheets of Shattuck Labs, Inc.

(the Company) as of December 31, 2021 and 2020, the related statements of operations and comprehensive loss, changes in redeemable convertible preferred stock and stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively, the financial statements).

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

(the Company) as of December 31, 2022 and 2021, the related statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for each of the years in the years then ended, and the related notes (collectively, the financial statements).

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

generally accepted accounting principles.

Change in Accounting Principle

As discussed in Note 2 to the financial statements, the Company has changed its method of accounting for leases as of January 1, 2022 due to the adoption of Accounting Standards Update (ASU) 2016-02, “Leases” (Topic 842).

Basis for Opinion

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Austin, Texas

March 15, 2022

February 23, 2023

SHATTUCK LABS, INC.

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Cash and cash equivalents $ 47,379 $ 92,268

Short-term investments 176,536 177,551

Investments 113,901 176,536

Prepaid expenses and other current assets 23,304 19,462

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Accounts payable $ 7,170 $ 10,012

Accrued expenses 14,574 7,352

Deferred revenue - related party — 7,728

Accrued expenses and other current liabilities 17,795 14,574

Total current liabilities 24,965 24,586

Non-current operating lease liabilities 4,202 —

Deferred rent — 2,213

Deferred revenue - related party, net of current portion — 21,306

Total liabilities 29,167 26,799

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Stockholders’ equity:

Common stock;

$ 0.0001 par value:

300,000,000 shares authorized, 42,338,898 shares issued and outstanding at December 31, 2021 and 41,779,183 shares issued and 41,767,431 shares outstanding at December 31, 2020

Common stock, $ 0.0001 par value:

300,000,000 shares authorized, 42,390,586 shares issued and outstanding at December 31, 2022 and 42,338,898 shares issued and outstanding at December 31, 2021

Additional paid-in capital 396,041 389,408

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Year Ended December 31,

Collaboration revenue - related party $ 30,017 $ 9,934

Collaboration revenue $ 652 $ 30,017

Operating expenses:

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Other ( 208 ) ( 330 )

Total other income (expense) 295 328

Total other income 1,384 295

Net loss $ ( 101,945 ) $ ( 44,974 )

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SHATTUCK LABS, INC.

STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK

AND STOCKHOLDERS’ EQUITY (DEFICIT)

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

Preferred Stock

Common Stock Additional

Accumulated Other Comprehensive Income (Loss) Accumulated

Total Stockholders’ Equity (Deficit)

Shares Amount Shares Amount Shares Amount Shares Amount

Accumulated Other Comprehensive Loss Accumulated

Total Stockholders’ Equity

Shares Amount

Balance at December 31, 2020 41,767,431 $ 5 $ 382,012 $ ( 63 ) $ ( 72,093 ) $ 309,861

Sales of Series B Redeemable convertible preferred stock, net of issuance costs — — 550,571 34,427 — — — — — — — —

Sales of Series B-1 Redeemable convertible preferred stock, net of issuance costs — — — — 1,319,964 82,613 — — — — — —

Conversion of Series A redeemable convertible preferred stock ( 1,093,019 ) ( 49,064 ) — — — — 7,487,151 1 49,063 — — 49,064

Conversion of Series B redeemable convertible preferred stock — — ( 550,571 ) ( 34,427 ) — — 3,771,363 1 34,426 — — 34,427

Conversion of Series B-1 redeemable convertible preferred stock — — — — ( 1,319,964 ) ( 82,613 ) 9,041,739 1 82,612 — — 82,613

Issuance of common stock upon initial public offering, net of issuance cost — — — — — — 13,664,704 1 213,529 — — 213,530

Exercise of stock options — — — — — — 181,449 — 229 — — 229

Exercise of stock options and purchases pursuant to employee stock purchase plan 559,715 — 1,929 — — 1,929

Vesting of common stock previously subject to vesting requirements 11,752 — — — — —

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Balance at December 31, 2021 42,338,898 $ 5 $ 389,408 $ ( 560 ) $ ( 117,067 ) $ 271,786

Exercise of stock options and ESPP purchases — — — — — — 559,715 — 1,929 — — 1,929

Vesting of common stock previously subject to vesting requirements — — — — — — 11,752 — — — — —

Exercise of stock options and purchases pursuant to employee stock purchase plan 51,688 — 171 — — 171

Stock-based compensation expense — — 6,462 — — 6,462

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Depreciation 3,073 1,380

Net amortization of premium on short-term investments 3,035 1

Net amortization of premium on investments 1,370 3,035

Loss on sale of assets 704 —

Non-cash operating lease expense 302 —

Changes in operating assets and liabilities:

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Accounts payable ( 2,842 ) 7,866

Accrued expenses 6,924 3,313

Deferred revenue - related party ( 29,034 ) 6,569

Accrued expenses and other current liabilities 2,975 6,924

Non-current operating lease liabilities ( 702 ) —

Deferred revenue — ( 29,034 )

Deferred rent — 1,524

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Cash flows from investing activities:

Purchase of property and equipment ( 7,926 ) ( 727 )

Sale and maturities of short-term investments 201,575 37,595

Purchases of short-term investments ( 204,092 ) ( 183,190 )

Net cash used in investing activities ( 10,443 ) ( 146,322 )

Purchases of property and equipment ( 11,614 ) ( 7,926 )

Sale of property and equipment 104 —

Sale and maturities of investments 193,325 201,575

Purchases of investments ( 132,377 ) ( 204,092 )

Net cash provided by (used in) investing activities 49,438 ( 10,443 )

Cash flows from financing activities:

Proceeds from the exercises of stock options and ESPP purchases 1,929 229

Proceeds from the initial public offering — 232,301

Issuance costs of the initial public offering — ( 18,738 )

Proceeds from sale of Series B-1 redeemable convertible preferred stock — 83,000

Issuance costs of Series B-1 redeemable convertible preferred stock — ( 387 )

Proceeds from sale of Series B redeemable convertible preferred stock — 34,620

Issuance costs of Series B redeemable convertible preferred stock — ( 159 )

Proceeds from the exercises of stock options and purchases pursuant to employee stock purchase plan 171 1,929

Net cash provided by financing activities 171 1,929

Net increase (decrease) in cash and cash equivalents ( 65,630 ) 150,885

Net decrease in cash and cash equivalents ( 44,889 ) ( 65,630 )

Cash and cash equivalents, beginning of period 92,268 157,898

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Supplemental disclosures of non-cash financial activities:

Unrealized loss on short-term investments $ ( 497 ) $ ( 117 )

Operating lease liabilities recognized for operating right-of-use assets $ 5,447 $ —

Operating right-of-use assets exchanged for operating lease liabilities $ 2,945 $ —

Unpaid amounts related to purchase of property and equipment $ — $ 392

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Shattuck Labs, Inc.

(the “Company”) was incorporated in 2016 in the State of Delaware and is a clinical-stage biopharmaceutical company developing dual-sided fusion proteins, including its ARC ® and GADLEN ™ platforms, as novel classes of biologic medicines capable of multifunctional activity with potential applications in oncology and inflammatory diseases.

(the “Company”) was incorporated in 2016 in the State of Delaware and is a clinical-stage biopharmaceutical company developing dual-sided fusion proteins, including its Agonist Redirected Checkpoint (“ARC ® ”) and gamma delta T cell engager (“GADLEN ™ ”) platforms, as novel classes of biologic medicines capable of multifunctional activity with potential applications in oncology and inflammatory diseases.

Using its proprietary technology, the Company is building a pipeline of therapeutics, initially focused on the treatment of solid tumors and hematologic malignancies.

The Company has two clinical-stage product candidates, SL-172154 and SL-279252, and has several compounds in preclinical development.

The Company has one clinical-stage product candidate, SL-172154, and has several compounds in preclinical development.

The Company has incurred losses and negative cash flows from operations since inception and has an accumulated deficit of $ 219.0 million as of December 31, 2022.

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The failure to raise funds as and when needed could have a negative impact on the Company’s financial condition and ability to pursue its clinical operations, research and development and commercialization of its product candidates.

Management believes that the Company’s cash and cash equivalents and short-term investments of $ 268.8 million as of December 31, 2021, are sufficient to fund projected operations of the Company for at least the next twelve months.

Management believes that the Company’s cash and cash equivalents and investments of $ 161.3 million as of December 31, 2022 are sufficient to fund projected operations of the Company for at least the next twelve months.

COVID-19 Pandemic

On March 10, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic.

The virus and actions taken to mitigate its spread have had, and are expected to continue to have, a broad adverse impact on the economies and financial markets of many countries, including the geographical areas in which the Company operates and conducts its business and in which the Company’s partners operate and conduct their business.

The Company is currently following the recommendations of local health authorities to minimize exposure risk for its team members and visitors.

However, the scale and scope of this pandemic is unknown and the duration of the business disruption and related financial impact cannot be reasonably estimated at this time.

While the Company has implemented specific business continuity plans to reduce the potential impact of COVID-19, there is no guarantee that the Company’s continuity plans will be successful.

The Company has already experienced disruptions to its business such as work-from-home orders for offices and similar disruptions have occurred for its partners.

Specifically, the outbreak has caused disruptions in its ability to manufacture clinical trial materials, including the acquisition of raw materials needed for such manufacturing, enrollment and treatment of patients in clinical trials in process, and slowdowns and shutdowns of the laboratories and other service providers that are being relied upon in the development of the Company’s product candidates.

The extent to which the COVID-19 pandemic or any other health epidemic may impact the Company’s results will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and the actions to mitigate its impact, among others.

Accordingly, the COVID-19 pandemic could have a material adverse effect on the Company’s business, results of operations and financial condition.

The COVID-19 pandemic has had, and may continue to have, a broad adverse impact on the economies and financial markets of many countries, including the geographical areas in which the Company operates and conducts its business and in which the Company’s partners operate and conduct their business.

The Company and its third-party vendors and consultants have experienced disruptions to their businesses as a result of the COVID-19 pandemic.

Specifically, the outbreak has caused disruptions in the Company’s ability to manufacture clinical trial materials, including the acquisition of raw materials needed for such manufacturing, enrollment and treatment of patients in clinical trials, and slowdowns and shutdowns of the laboratories and other service providers that are being relied upon in the development of the Company’s product candidates.

The extent to which the COVID-19 pandemic or any other health epidemic may impact the Company’s results will depend on future developments, which are uncertain and cannot be predicted.

Accordingly, the COVID-19 pandemic could have a material and adverse effect on the Company’s business, results of operations and financial condition.

Global Economic Considerations

In addition, the global macroeconomic environment is uncertain, and could be negatively affected by, among other things, increased U.S.

trade tariffs and trade disputes with other countries, instability in the global capital and credit markets, supply chain weaknesses, and instability in the geopolitical environment, including as a result of the Russian invasion of Ukraine and other political tensions, and lingering effects of the COVID-19 pandemic.

Such challenges have caused, and may continue to cause, recession fears, rising interest rates, foreign exchange volatility and inflationary pressures.

At this time, we are unable to quantify the potential effects of this economic instability on our future operations.

Basis of Presentation and Summary of Significant Accounting Policies

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Changes in estimates, if any, are recorded in the period in which they become known and actual results could differ from management’s estimates.

A change in the Company’s estimates occurred in the second quarter of 2021, which impacted the Company’s revenue recognition and related balance sheet accounts.

Fair Value of Financial Instruments

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The Company considers active markets as those in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Management believes that the carrying amounts of the Company’s financial instruments, including short-term investments and accounts payable, approximate fair value due to the short-term nature of those instruments.

Management believes that the carrying amounts of the Company’s financial instruments, including investments and accounts payable, approximate fair value due to the short-term nature of those instruments.

Concentration of Risk

Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of cash, cash equivalents and short-term investments.

Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of cash, cash equivalents and investments.

The Company maintains its cash and cash equivalents at two accredited financial institutions in amounts that exceed federally-insured limits.

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The Company invests in only highly rated debt securities that management believes protects the Company from risk of default and impairment of value.

All of the Company’s revenue is derived from its collaboration agreement with Millennium Pharmaceuticals, Inc., a wholly owned subsidiary of Takeda Pharmaceutical Company Limited (“Takeda”), which was mutually terminated pursuant to the termination agreement, dated November 8, 2021.

The Company is highly dependent on one third-party contract manufacturing organization (“CMO”) to supply drug products for its research and development activities of its programs, including clinical trials and non-clinical studies.

Substantially all of the Company’s revenue through 2021 was derived from its 2017 collaboration agreement (the “Collaboration Agreement”) with Millennium Pharmaceuticals, Inc., a wholly-owned subsidiary of Takeda Pharmaceutical Company Limited (“Takeda”), which was mutually terminated in 2021.

The Company is highly dependent on a limited number of contract manufacturing organizations (“CMOs”) to supply drug products for its research and development activities of its programs, including clinical trials and non-clinical studies.

These programs could be adversely affected by a significant interruption in the supply of such drug products.

The Company is highly dependent on three contract research organizations (“CROs”) and a limited number of third-party service providers to manage and support its clinical trials.

The Company is highly dependent on a limited number of contract research organizations (“CROs”) and third-party service providers to manage and support its clinical trials.

These programs could be adversely affected by a significant disruption in services provided by these CROs and third parties.

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The Company considers all demand deposits with financial institutions and all highly liquid investments with original maturities of 90 days or less at the date of purchase to be cash and cash equivalents.

Cash and cash equivalents consisted of $ 14.6 million held in operating accounts and $ 77.7 million held in money market funds as of December 31, 2021 and $ 2.7 million held in operating accounts, $ 80.2 million held in money market funds and $ 75.0 million held in government obligations as of December 31, 2020.

Short-Term Investments

Short-term investments consist of highly-rated U.S.

Treasury securities with maturities of more than three months but less than one year at the date of purchase.

The Company classifies its short-term investments at the time of purchase as available-for-sale securities.

Available-for-sale securities are carried at fair value.

Credit impairments for available-for-sale debt securities are recorded through an allowance rather than a direct write-down of the security and are recorded through a charge to the statements of operations.

Unrealized gains or losses not related to credit impairments are recorded in accumulated other comprehensive income, a component of stockholders’ equity, until realized.

Cash and cash equivalents consisted of $ 3.5 million held in operating accounts and $ 43.9 million held in money market funds as of December 31, 2022 and $ 14.6 million held in operating accounts and $ 77.7 million held in money market funds as of December 31, 2021.

The Company's investments consist of highly-rated U.S.

Treasury securities and have been classified as available-for-sale and are carried at estimated fair value as determined based upon quoted market prices.

Management determines the appropriate classification of its investment securities at the time of purchase.

The Company may hold securities with stated maturities greater than one year.

All available-for-sale securities are considered available to support current operations and are classified as current assets.

Credit impairments for available-for-sale securities are recorded through an allowance rather than a direct write-down of the security and are recorded through a charge to the statements of operations.

Unrealized gains or losses not related to credit impairments are recorded in accumulated other comprehensive income (loss), a component of stockholders’ equity, until realized.

The Company reviews available-for-sale debt securities for impairments related to credit losses and other factors each quarter.

As of December 31, 2021, there were no impairments related to credit losses of short-term investments.

Deferred Offering Costs

The Company capitalizes certain legal, accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated.

After consummation of the equity financing, these costs will be recorded against gross proceeds.

Series A, Series B and Series B-1 Redeemable Convertible Preferred Stock

The Company records shares of redeemable convertible preferred stock at their respective fair values on the date of issuance, net of issuance costs.

The redeemable convertible preferred stock is recorded outside of stockholders’ equity on the balance sheet because the shares contain liquidation features that are not solely within the Company’s control.

Upon the completion of the Company’s initial public offering (“IPO”) in the fourth quarter of 2020, all outstanding shares of the Company’s redeemable convertible preferred stock were converted into common stock.

As of December 31, 2022, there were no impairments related to credit losses of investments.

Prepaid Expenses and Other Current Assets

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An impairment loss is recognized to the extent an asset group is not recoverable and the carrying amount exceeds the projected discounted future cash flows arising from these assets.

There were no impairments of long-lived assets for the years ended December 31, 2021 and 2020.

Deferred Rent

The Company records rent expense on a straight-line basis over the term of the leases and, accordingly records the difference between cash payments and the recognition of rent expense as a deferred rent asset or liability.

Incentives granted under the Company’s leases, including allowances to fund leasehold improvements, are deferred and recognized as adjustments to rent expense on a straight-line basis over the term of the leases.

In the year ended December 31, 2022, the Company recorded $ 0.7 million of impairment losses related to lab equipment that was determined to no longer be needed, which is included in the Company's research and development costs.

There were no impairments of long-lived assets for the year ended December 31, 2021.

The Company determines if an arrangement is a lease at inception.

Right-of-use (“ROU”) assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease.

The classification of the Company's leases as operating or finance leases, along with the initial measurement and recognition of the associated ROU assets and lease liabilities, are performed at the lease commencement date.

The measurement of lease liabilities is based on the present value of future lease payments over the lease term.

As the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments.

The ROU asset is based on the measurement of the lease liability and also includes any lease payments made prior to or on lease commencement and excludes lease incentives and initial direct costs incurred, as applicable.

The lease terms may include options to extend or terminate the lease when it is reasonably certain the Company will exercise any such options.

Rent expense for the Company's operating leases is recognized on a straight-line basis over the lease term.

The Company has elected to not apply the recognition requirement of Accounting Standards Codification (“ASC”) 842, Leases (“ASC 842”) of the Financial Accounting Standards Board (“FASB”) to leases with a term of 12 months or less for all classes of assets.

Commitments and Contingencies

The Company follows ASC 450-20, Contingencies of the FASB to report accounting for contingencies.

Certain conditions may exist as of the date the condensed financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur.

The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment.

In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s condensed financial statements.

If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.

Revenue Recognition

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When accounting for an arrangement that contains multiple performance obligations, the Company must develop judgmental assumptions, which may include market conditions, reimbursement rates for personnel costs, development timelines and probabilities of regulatory success to determine the stand-alone selling price for each performance obligation identified in the contract.

Upon the amendment of an existing agreement, the Company evaluates whether the amendment represents a modification to an existing contract which would be recorded through a cumulative catch-up to revenue, or a separate contract.

Upon the amendment of an existing agreement, the Company evaluates whether the amendment represents a modification to an existing contract that would be recorded through a cumulative catch-up to revenue, or a separate contract.

If it is determined that it is a separate contract, the Company will evaluate the necessary revenue recognition through the five-step process described below.

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The Company then allocates the transaction price to each performance obligation based on the relative standalone selling price and recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) control is transferred to the customer and the performance obligation is satisfied.

For performance obligations which consist of licenses and other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress.

For performance obligations that consist of licenses and other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress.

The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

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The Company will record costs associated with development and process optimization activities as research and development expenses in the statements of operations and comprehensive loss consistent with ASC 730, Research and Development.

The Company considered the guidance in ASC 808, Collaborative Agreements and will recognize the payments received from these agreements as revenue when the related costs are incurred.

The Company considered the guidance in ASC 808, Collaborative Arrangements and will recognize the payments received from these agreements as revenue when the related costs are incurred.

Research and Development Costs

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Accruals are recorded based on estimates of services received and efforts expended pursuant to agreements established with CROs, CMOs and other outside service providers.

These estimates are typically based on contracted amounts applied to the proportion of work performed and determined through an evaluation of the progress or stage of completion of the services.

These estimates are typically based on contracted amounts applied to the proportion of work performed and determined through an evaluation of the progress or

stage of completion of the services.

In the event advance payments are made to a CRO, CMO or outside service provider, the payments will be recorded as a prepaid asset which will be amortized as the contracted services are performed.

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Inputs, such as the services performed, the number of patients enrolled or the study duration, may vary from the Company’s estimates, resulting in adjustments to research and development expense in future periods.

The Company makes significant judgements and estimates in determining the accrual and/or prepaid balance in each reporting period and changes in these estimates may result in material changes to the Company’s accruals that could materially affect the Company’s results of operations.

The Company makes significant judgments and estimates in determining the accrual and/or prepaid balance in each reporting period and changes in these estimates may result in material changes to the Company’s accruals that could materially affect the Company’s results of operations.

Stock-Based Compensation

The Company recognizes the grant-date fair value of stock-based awards issued to employees and nonemployee Board members as compensation expense on a straight-line basis over the vesting period of the award.

The Company recognizes the cost of stock-based awards issued to employees and nonemployees as compensation expense on a straight-line basis over the vesting period of the award, net of estimated forfeitures.

Forfeiture estimates are based on historical cancellation data.

The Company uses the Black-Scholes option pricing model to determine the grant-date fair value of stock options.

The fair values of restricted stock units (“RSUs”) are based on the fair value of the Company’s common stock on the date of the grant.

The Company also grants stock options that vest upon achievement of certain market-based conditions.

The Company uses the Monte Carlo pricing model to estimate the fair value of options that have market-based conditions.

The Company adjusts expense for forfeitures in the periods they occur.

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Basic loss per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during each period.

Diluted loss per share of common stock includes the effect, if any, from the potential exercise or conversion of securities, such as redeemable convertible preferred stock, convertible notes, stock options and unvested shares of restricted stock, which would result in the issuance of incremental shares of common stock.

Diluted loss per share of common stock includes the effect, if any, from the potential exercise or conversion of securities, such as redeemable convertible preferred stock, or convertible notes (if any), stock options and unvested shares of restricted stock, which would result in the issuance of incremental shares of common stock.

For diluted net loss per share, the weighted-average number of shares of common stock is the same for basic net loss per share due to the fact that when a net loss exists, dilutive securities are not included in the calculation as the impact is anti-dilutive.

The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares of common stock outstanding, as they would be anti-dilutive:

The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares of common stock outstanding as of December 31, 2022 and 2021, as they would be anti-dilutive:

As of December 31,

Stock options 4,209,255 2,448,676

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Other comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources.

Other comprehensive income (loss) is comprised of the net loss and unrealized gains and losses on short-term investments.

Other comprehensive income (loss) is comprised of the net loss and unrealized gains and losses on investments.

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (the “FASB”) issued ASU No.

2019-12, Income Taxes:

Simplifying the Accounting for Income Taxes .

The ASU removes certain exceptions to the general principles in ASC 740, Income Taxes and also clarifies and amends existing guidance to improve consistent application.

This ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within that fiscal year, with early adoption permitted.

The Company adopted this pronouncement effective January 1, 2021 and it did not have a material impact on the financial statements or related disclosures.

Recently Issued Accounting Pronouncements (not yet adopted)

In February 2016, the FASB issued ASU No.

2016-02, Leases which requires a lessee to record a right-of-use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months.

A modified retrospective

transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.

The FASB deferred the effective date of this ASU until the annual periods beginning after December 15, 2021.

The Company expects that the most significant effects of adopting this standard will primarily relate to (a) the recognition of right of use assets and lease liabilities on the balance sheet in relation to its existing operating lease agreements in Austin, Texas and Durham, North Carolina;

and (b) providing significant new disclosures about leasing activities.

The Company is currently evaluating the expected impact that the standard could have on its financial statements and related disclosures.

Short-Term Investments

The following table represents the Company’s available for sale short-term investments by major security type (amounts in thousands):

In February 2016, the FASB issued ASC 842, which requires a lessee to record a ROU asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months.

A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.

The FASB deferred the effective date of this Accounting Standards Update until the annual periods beginning after December 15, 2021.

The Company adopted this pronouncement effective January 1, 2022.

See Note 6 for the impact on the financial statements.

No prior period amounts were adjusted and such prior period amounts continue to be reported in accordance with previous lease guidance, ASC 840, Leases (“ASC 840”).

The Company elected to use all of the available practical expedients permitted under the transition guidance within the new standard, which, among other things, allowed the Company to carry forward the historical lease classification of those leases in place as of January 1, 2022.

The following table summarizes the impact of the adoption of ASC 842 on the accompanying balance sheet as of January 1, 2022 (in thousands):

December 31, 2021 Effect of the Adoption of ASC 842 January 1, 2022

Other assets (1) $ 381 $ 2,945 $ 3,326

Lease liabilities:

Accrued expenses and other current liabilities (2) $ 14,574 $ 255 $ 14,829

Non-current operating lease liabilities $ — $ 4,903 $ 4,903

Deferred rent (3) $ 2,213 $ ( 2,213 ) $ —

1 Operating lease right-of-use assets are classified within other assets.

2 Current operating lease liabilities are classified within accrued expenses and other current liabilities.

Current deferred rent was classified within accrued expenses as of December 31, 2021.

3 Non-current deferred rent was classified within deferred rent as of December 31, 2021.

The following table represents the Company’s available for sale investments by major security type (amounts in thousands):

December 31, 2022

Gross Unrealized

Short-term investments:

government securities $ 114,778 $ ( 877 ) $ 113,901

Total short-term investments $ 177,096 $ ( 560 ) $ 176,536

Total investments $ 114,778 $ ( 877 ) $ 113,901

December 31, 2021

Gross Unrealized

Short-term investments:

government securities $ 177,096 $ ( 560 ) $ 176,536

Total short-term investments $ 177,614 $ ( 63 ) $ 177,551

The Company’s short-term investment instruments and cash and cash equivalents are classified using Level 1 inputs within the fair value hierarchy and are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.

Total investments $ 177,096 $ ( 560 ) $ 176,536

The Company’s investment instruments and cash and cash equivalents are classified using Level 1 inputs within the fair value hierarchy and are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.

Debt securities have an average maturity of 0.37 years as of December 31, 2022.

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Leasehold improvements 7,086 3,709

Construction in progress 2,521 355

Furniture and fixtures 452 459

Office equipment 191 206

Construction in progress 104 2,521

23,380 12,718

Accumulated depreciation and amortization ( 5,709 ) ( 2,780 )

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Compensation and related benefits 3,967 3,320

Other 1,001 419

Total accrued expenses $ 14,574 $ 7,352

Litigation settlement 1,400 —

Other current liabilities 1,172 1,001

Total accrued expenses and other current liabilities $ 17,795 $ 14,574

Commitments and Contingencies

Operating Leases

As of December 31, 2021, future minimum payments, by year and in aggregate, under non-cancelable operating leases consist of the following (amounts in thousands):

The Company leases certain office space, laboratory facilities, and equipment.

These leases require monthly lease payments that may be subject to annual increases throughout the lease term.

Certain of these leases also include renewal options at the election of the Company to renew or extend the lease.

These optional periods have not been considered in the determination of the ROU assets or lease liabilities associated with these leases as the Company did not consider it reasonably certain it would exercise the options.

The Company performed evaluations of its contracts and determined it has operating leases.

The following table summarizes the Company’s recognition of its operating leases (in thousands):

Balance Sheet Classification December 31, 2022

Other assets $ 2,635

Accrued expenses and other current liabilities $ 701

Non-current operating lease liabilities 4,202

Total liabilities $ 4,903

The following table summarizes the weighted-average remaining lease term and discount rates for the Company’s operating leases:

December 31, 2022

Lease term (years) 5.5

Discount rate 8.64 %

The Company incurred rent expense for its operating leases of $ 0.8 million and $ 0.7 million during the years ended December 31, 2022 and 2021, respectively, included within operating expenses in the statements of operations and

comprehensive loss.

Cash paid for amounts included in the measurement of operating lease liabilities for the year ended December 31, 2022 was $ 1.0 million and was included in net cash used in operating activities in the statement of cash flows.

The maturities of the Company’s operating lease liabilities as of December 31, 2022 were as follows (in thousands):

Thereafter 873

Total lease payments $ 6,175

Imputed interest ( 1,272 )

Total $ 4,903

As of December 31, 2021, future annual minimum lease payments, as defined under the previous lease accounting guidance of ASC 840, due under non-cancelable operating leases at December 31 of each year are as follows (in thousands):

Thereafter 1,722

Total minimum lease payments $ 7,162

The Company recognized rent expense of $ 0.7 million and $ 0.4 million for the years ended December 31, 2021 and 2020, respectively.

Heat License Agreement

In connection with a license agreement with Heat Biologics Inc.

(“Heat”), the Company is required to make payments of up to $ 20.6 million in aggregate for the achievement of specified development, regulatory and commercial sales milestones for certain licensed products.

The Company is required to pay Heat a percentage of upfront fees or other non-royalty payments not tied to milestone events that it receives in connection with certain sublicenses of the licensed patents.

The Company is also required to pay Heat a royalty on all of its worldwide net sales, those of its affiliates and sublicenses of certain licensed patents in the low single digits.

The Company has not recorded a liability for the payments aforementioned given the achievement of specified development, regulatory and commercial sales milestones for certain licensed products is not probable as of the balance sheet date.

Nighthawk Biosciences, Inc.

License Agreement

In connection with a license agreement with Nighthawk Biosciences, Inc.

(“Nighthawk”), the Company is required to make payments of up to $ 20.6 million in aggregate for the achievement of specified development, regulatory and commercial sales milestones for certain licensed products.

The Company is required to pay Nighthawk a percentage of upfront fees or other non-royalty payments not tied to milestone events that it receives in connection with certain sublicenses of the licensed patents.

The Company is also required to pay Nighthawk a royalty on all of its worldwide net sales, those of its affiliates, and sublicenses of certain licensed patents in the low single digits.

The Company has no t recorded a liability for the aforementioned payments given the achievement of specified development, regulatory and commercial sales milestones for certain licensed products is not probable as of the balance sheet date.

From time to time, the Company may become involved in various legal actions arising in the ordinary course of business.

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District Court for the Eastern District of New York against us and certain of the Company’s officers and directors.

In each complaint, the plaintiff cites the volatility in the Company’s common stock and alleges that the defendants made or are responsible for false or misleading statements regarding the Company’s collaboration agreement with Takeda.

The plaintiffs in both lawsuits seek a ruling that the case may proceed as a class action, and seeks unspecified damages and attorneys’ fees, expert fees and costs.

The Company and the individual defendants deny any allegations of wrongdoing and intend to vigorously defend against these lawsuits.

The cases were consolidated on June 2, 2022, and the plaintiffs filed an amended complaint on July 1, 2022.

The amended complaint cites the volatility in the Company’s common stock and alleges that the defendants made or are responsible for misleading omissions regarding the Company’s clinical trial results and the Collaboration Agreement with Takeda.

The parties reached a settlement in principle of the plaintiffs’ claims in the amount of $ 1.4 million on November 2, 2022.

The settlement is subject to a definitive settlement agreement, notice to stockholders and court approval.

The parties filed their motion for preliminary approval of the settlement agreement with the court on December 14, 2022, and, as of February 22, 2023, that motion is pending.

The Company has accrued the settlement amount in accrued expenses and other current liabilities as of December 31, 2022.

Contractual Obligations

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The contracts also contain variable costs and milestones that are hard to predict, as they are based on such things as patients enrolled and clinical trial sites.

The timing of payments and actual amounts paid under CMO and CRO agreements may be different depending on the timing of receipt of goods or services or changes to agreed-upon terms or amounts for some obligations.

The timing of payments and actual amounts paid under CMO

and CRO agreements may be different depending on the timing of receipt of goods or services or changes to agreed-upon terms or amounts for some obligations.

Such agreements are cancellable upon written notice by the Company and, therefore, are not long-term liabilities.

Preferred Stock

During the year ended December 31, 2020, the Company entered into various stock purchase agreements with new and existing investors pursuant to which the Company sold an aggregate 550,571 shares of Series B redeemable convertible

preferred stock and 1,319,964 shares of Series B-1 redeemable convertible preferred stock at $ 62.88051 per share for net proceeds of $ 117.0 million.

The Company’s Series A, Series B and Series B-1 redeemable convertible preferred stock converted into common stock upon the completion of the Company’s IPO in 2020 and the rights, preferences, and terms are no longer applicable .

Collaboration Agreement - Related Party

The Company recognized revenue for the allocated up-front payments using a cost-based input measure.

In applying the cost-based input method of revenue recognition, the Company used actual costs incurred relative to budgeted costs expected to be incurred for the combined performance obligation.

In August 2017, the Company entered into a Collaboration Agreement with Takeda related to the development of certain ARC molecules, as amended in April 2018, October 2018 and March 2020 (the “Collaboration Agreement”).

Collaboration Agreements

The Company recognizes revenue for the allocated up-front payments using a cost-based input measure.

In applying the cost-based input method of revenue recognition, the Company uses actual costs incurred relative to budgeted costs expected to be incurred.

In the second quarter of 2022, the Company executed a collaboration agreement with a third party and completed the work in the fourth quarter of 2022.

The company recognized $ 0.7 million, which represents all of the revenue associated with this agreement, in the year ended December 31, 2022.

Collaboration Agreement - Takeda

In August 2017, the Company entered into a Collaboration Agreement with Takeda related to the development of certain ARC molecules, as amended in April 2018, October 2018 and March 2020.

The Collaboration Agreement was mutually terminated pursuant to a termination agreement dated November 8, 2021 (the “Termination Agreement”).

Under the terms of the Termination Agreement, the Company is not required to satisfy any remaining performance obligations, the Company will not make any payments to or receive any future milestone or royalty payments from Takeda, and all options to license and rights of first negotiation held by Takeda under the Collaboration Agreement were terminated.

The remaining deferred revenue was recognized as revenue in the fourth quarter of 2021.

The Company received cash of $ 3.6 million and $ 14.0 million in the years ended December 31, 2021 and 2020, respectively, and recognized total revenue of $ 82.0 million through December 31, 2021 under the Collaboration Agreement.

Stock-Based Compensation

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Under the 2020 Plan, the share reserve automatically increases on January 1st of each year beginning in 2021 and ending with a final increase on January 1, 2030 in an amount equal to 4 % of the Company’s outstanding common shares on December 31st of the preceding calendar year.

The Board of Directors may provide that there will be no increase in the share reserve for any such year or that the increase in the share reserve may be smaller than would otherwise occur.

As of December 31, 2021, there were 3,912,408 shares available for future grants under the 2020 Plan and on January 1, 2022, the share reserve automatically increased by 1,693,555 shares.

The 2020 Plan permits the granting of options and restricted stock.

The terms of the agreements under the 2020 Plan are determined by the Company’s Board of Directors.

The Company’s awards vest based on the terms in the agreements and generally vest over four years and have a term of 10 years.

The Board of Directors (the “Board”) may provide that there will be no increase in the share reserve for any such year or that the increase in the share reserve may be smaller than would otherwise occur.

On January 1, 2023, the share reserve automatically increased by 1,695,623 shares.

As of December 31, 2022, there were 3,497,307 shares available for future grants.

The 2020 Plan permits the granting of options, stock appreciation rights, RSUs, performance stock, and performance cash awards.

The terms of the agreements under the 2020 Plan are determined by the Board.

The Company’s awards generally vest over four years and have a term of 10 years.

In 2022, the Company granted 178,150 awards that vest based on the Company achieving a closing share price of equal to or greater than $ 18.00 for 30 consecutive trading days on or before the four th anniversary of the grant date, and 226,543 awards that vest over two years .

2020 Employee Stock Purchase Plan

The 2020 Employee Stock Purchase Plan (“2020 ESPP”) became effective in connection with the Company’s IPO.

The 2020 Employee Stock Purchase Plan (“2020 ESPP”) became effective in connection with the Company’s initial public offering (“IPO”).

A total of 395,795 shares of common stock were reserved for issuance under the 2020 ESPP.

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The Board may act prior to January 1st of a given year to provide that there will be no January 1st increase of the share reserve for such year or that the increase in the share reserve for such year will be a smaller number of shares of common stock than would otherwise occur pursuant to the preceding sentence.

As of December 31, 2021 there were 393,689 shares available for future purchases and on January 1, 2022, the share reserve automatically increased by 423,388 shares.

Under the 2020 ESPP, the Company issued 2,106 shares of common stock for aggregate cash proceeds of $ 0.1 million during the year ended December 31, 2021.

There were no shares of common stock issued during the year ended December 31, 2020.

The Company recorded stock-based compensation expense in the following expense categories of its accompanying audited statements of operations and comprehensive loss (amounts in thousands):

On January 1, 2023, the share reserve increased by 423,905 shares.

During the years ended December 31, 2022 and 2021, the Company issued 13,088 and 2,106 shares of common stock for aggregate cash proceeds of $ 0.1 million and $ 0.1 million, respectively.

The Company recorded stock-based compensation expense in the following expense categories of its accompanying audited statements of operations and comprehensive loss (in thousands):

Year Ended December 31,

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Total stock-based compensation $ 6,462 $ 5,467

The following table summarizes option activity under the 2020 Plan and the 2016 Stock Incentive Plan:

The following table summarizes option activity under the 2020 Plan:

Options Weighted

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Remaining Life

Balance at January 1, 2021 2,742,022 $ 7.95 8.82

Balance at December 31, 2021 2,448,676 $ 10.96 8.08

Granted 1,938,675 5.68

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Options granted during the years ended December 31, 2022 and 2021 had weighted-average grant-date fair values of $ 4.03 and $ 16.38 per share, respectively.

As of December 31, 2021, the unrecognized compensation cost was $ 11.4 million and will be recognized over an estimated weighted-average amortization period of 2.48 years.

The aggregate intrinsic value of options exercised as of December 31, 2021 and 2020 was $ 10.8 million and $ 49.7 million, respectively.

As of December 31, 2022, the unrecognized compensation cost for options issued was $ 12.9 million and will be recognized over an estimated weighted-average amortization period of 2.29 years.

The total intrinsic value of options exercised during the years ended December 31, 2022 and 2021 was $ 0.1 million and $ 11.8 million, respectively.

The aggregate intrinsic value of options outstanding and exercisable as of December 31, 2022 was $ 0.2 million.

The fair value of each option is estimated on the date of grant using a Black-Scholes option pricing model which takes into account inputs such as the exercise price, the estimated fair value of the underlying common stock at grant date, expected term, expected stock price volatility, risk-free interest rate and dividend yield.

Restricted Stock Units

The following table summarizes employee RSU activity for the year ended December 31, 2022:

Awards Weighted

Grant Date Fair Value

Unvested RSUs as of December 31, 2021 — $ —

Granted 331,653 7.24

Forfeited ( 22,176 ) 7.43

Balance at December 31, 2022

309,477 $ 7.22

The Company recognized $ 0.6 million of stock-based compensation related to RSUs as of December 31, 2022.

As of December 31, 2022, the unrecognized compensation cost for RSUs issued was $ 1.7 million and will be recognized over an estimated weighted-average amortization period of 3.06 years.

The fair values of RSUs are based on the fair value of the Company's common stock on the date of the grant.

Fair Value of Stock Options and Shares Issued

The Company accounts for stock-based compensation by measuring and recognizing as compensation expense the fair value of all share-based payment awards made to employees, including employee stock options and restricted stock awards.

The Company uses the Black-Scholes option pricing model to estimate the fair value of employee stock options that only have service or performance conditions.

The Company uses the Monte Carlo pricing model to estimate the fair value of options that have market-based conditions.

The inputs to both pricing models require a number of management estimates such as the expected term, volatility, risk-free interest rate and dividend yield.

The fair value of stock options was determined using the methods and assumptions discussed below.

• The expected term of employee stock options with service-based vesting is determined using the “simplified” method, whereby the expected life equals the arithmetic average of the vesting term and the original contractual term of the option due to the Company’s lack of sufficient historical data.

• The expected stock price volatility is based on historical volatilities of comparable public entities within the Company’s industry.

• The expected stock price volatility assumption is based on the historical volatilities of the common stock of a peer group of publicly traded companies as well as the historical volatility of the Company's common stock since the Company began trading subsequent to the IPO in October 2020 over the period corresponding to the expected life as of the grant date.

The historical volatility data was computed using the daily closing prices during the equivalent period of the calculated expected term of the stock-based awards.

The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of the Company's stock price becomes available, or until circumstances change, such that the identified entities are no longer comparable companies.

In the latter case, other suitable, similar entities whose share prices are publicly available would be utilized in the calculation.

• The risk-free interest rate is based on the interest rate payable on U.S.

Treasury securities in effect at the time of grant for a period that is commensurate with the expected term.

• The expected dividend yield is 0 % because the Company has not historically paid, and does not expect, for the foreseeable future, to pay a dividend on its common stock.

• Prior to the Company’s IPO, its Board periodically estimated the fair value of the Company’s common stock considering, among other things, contemporaneous valuations of its common stock prepared by an unrelated third-party valuation firm.

• The expected dividend yield is 0 % because the Company has not historically paid, and does not expect, for the foreseeable future, to pay dividends on its common stock.

• Prior to the Company’s IPO, the Board periodically estimated the fair value of the Company’s common stock considering, among other things, contemporaneous valuations of its common stock prepared by an unrelated third-party valuation firm.

Subsequent to the Company’s IPO, options are issued with a strike price no less than the market price on date of grant.

The grant-date fair value of options granted under the Company’s 2020 Plan were estimated throughout the year using the Black-Scholes option-pricing model using the following weighted-average assumptions:

The grant-date fair value of options calculated using the Black-Scholes option pricing model granted under the Company’s 2020 Plan were estimated using the following weighted-average assumptions:

Year Ended December 31,

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Expected dividends — —

The restricted shares are considered the issuance of share-based payments as opposed to the sale of stock and as such, the Company has recognized compensation expense for these awards based on the fair value of the award on the date of grant.

The following table summarizes the activity relating to these shares:

Outstanding at December 31, 2020 11,752

Vested ( 11,752 )

Outstanding at December 31, 2021 —

The grant-date fair value of shares issued under the Company’s 2020 ESPP were estimated throughout the year using the Black-Scholes option-pricing model using the following weighted-average assumptions:

The grant-date fair value of options calculated using the Monte Carlo option pricing model granted under the Company’s 2020 Plan were estimated using the following assumptions:

Year Ended December 31,

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Expected dividends —

There were no options granted that have market-based conditions during the year ended December 31, 2021.

The grant-date fair value of shares issued calculated using the Black-Scholes option pricing model under the Company’s 2020 ESPP were estimated using the following weighted-average assumptions:

Year Ended December 31,

Expected term - years 0.50 0.50

Expected volatility 82.9 % 81.3 %

Risk-free interest rate 2.5 % 0.9 %

Expected dividends — —

The Company recorded no federal provision for income taxes as of December 31, 2022 and 2021 due to reported net losses since inception.

The difference between the Company’s provision for income taxes and the amounts computed by applying the statutory federal income tax rate to income before income taxes is as follows for the years ended December 31, 2021 and 2020 (amounts in thousands):

A reconciliation of the expected income tax expense (benefit) computed using the federal statutory income tax rate to the Company’s effective income tax rate is as follows for the years ended December 31, 2022 and 2021 (amounts in thousands):

Year Ended December 31,

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Change in valuation allowance 24,713 13,045

Return to provision adjustments — ( 745 )

General business credits ( 4,883 ) ( 3,108 )

Other permanent differences — 119

Stock compensation 602 ( 1,923 )

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Credit carryforwards 10,101 6,194

Deferred revenue — 2,631

Capital loss carryforwards 583 484

Capitalized R&D expense 15,017 —

Lease liabilities 1,030 —

Gross deferred tax asset 56,709 31,437

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Prepaid expenses ( 436 ) ( 528 )

Lease assets ( 553 ) —

Total deferred tax liability ( 1,665 ) ( 1,106 )

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The Company has established a valuation allowance equal to the net deferred tax asset due to uncertainties regarding the realization of the deferred tax asset based on the Company’s lack of earnings history.

The valuation allowance increased by $ 13.0 million and $ 8.7 million during the years ended December 31, 2021 and 2020, respectively, primarily due to continuing loss from operations, general business credit carryforwards, and accrued expenses.

The valuation allowance increased by

$ 24.7 million and $ 13.0 million during the years ended December 31, 2022 and 2021, respectively, primarily due to continuing loss from operations, general business credit carryforwards, and accrued expenses.

As of December 31, 2022 and 2021, the Company had gross U.S.

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The NOL, capital loss, and tax credit carryforwards will begin to expire in 2024, if not utilized.

The NOL, capital loss, and credit carryforwards are subject to Internal Revenue Service adjustments until the statute closes on the year the net operating loss or credit carryforwards are utilized.

The NOL, capital loss, and credit carryforwards are subject to Internal Revenue Service adjustments until the statute closes on the year the NOL or credit carryforwards are utilized.

Section 382 of the Internal Revenue Code limits the utilization of U.S.

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There are currently no federal or state income tax audits in progress.

Related Party

As of December 31, 2020, Takeda held an approximate 5.0 % ownership interest in the Company’s outstanding shares.

Considering the resignation of the Takeda director and percent ownership of the Company’s common stock as of December 31, 2020, the Company no longer considers Takeda a related party.

Subsequent Events

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

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk