What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-08 compared with 2021-03-18 · 220 added, 123 removed, 570 unchanged (38% of the section changed)

16 unchanged sentences

In our opinion, the consolidated 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 each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America.

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the consolidated financial statements, the Company has not generated any product revenues and has not achieved profitable operations.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

Management's plans in regard to these matters are also described in Note 1.

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty

Basis for Opinion

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We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB.

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

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

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

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

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

Revenue Recognition

As described in Notes 2 and 9 to the consolidated financial statements, the Company’s revenue is generated from licensing their product, completion of the global pivotal Pegzilarginase Effect on Arginase 1 Deficiency Clinical Endpoints

Phase 3 trial (“PEACE Trial”) and related Biologics License Application (“BLA”) package and performance of a Pediatric Investigation Plan trial (“PIP Trial”) in connection with the exclusive license and supply agreement entered into with Immedica Pharma AB.

Total revenue was $18.7 million for the year ended December 31, 2021.

The Company recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) each performance obligation is satisfied at a point in time or over time, and if over time, recognition is based on the use of an output or input method.

The development fee allocated to the PEACE Trial, BLA package and PIP Trial performance obligations will be recognized over time using an input method of costs incurred related to the performance obligations.

Revenue allocated to the License performance obligation is recognized at a point in time and upon transfer of the License to Immedica Pharma AB.

Management assesses whether the goods or services promised within each contract are distinct to identify those that are performance obligations.

This assessment involves subjective determinations and requires management to make judgments about the individual promised goods or services and whether such are separable from the other aspects of the contractual relationship.

The transaction price is determined and allocated to the identified performance obligations in proportion to their stand-alone selling prices (“SSP”) on a relative SSP basis.

SSP is based on observable prices of the performance obligations or, when such prices are not observable, are estimated.

If an arrangement includes development, regulatory or commercial milestone payments, management evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method.

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

Milestone payments that are not within the Company’s control or the licensee’s control, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received.

The principal considerations for our determination that performing procedures relating to revenue recognition is a critical audit matter are the significant judgment by management when identifying the individual performance obligations, estimating the SSP and determining the transaction price allocated to the identified performance obligations.

This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to the identification of the individual performance obligations, estimation of the SSP and the allocation of the transaction price to the identified performance obligations.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included, among others (i) reading the executed agreement entered into with Immedica Pharma AB;

(ii) evaluating management’s identification of the individual performance obligations based on the terms and conditions of the agreement;

(iii) evaluating and testing management’s process for estimating the SSP and allocation to the individual performance obligations;

(iv) vouching the cash for the upfront fixed payment;

and (v) testing actual costs incurred and their eligibility for billing under the development performance obligations for a sample of costs.

Testing the estimation of SSP involved testing the completeness and accuracy of the data utilized by management.

/s/ PricewaterhouseCoopers LLP

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Marketable securities

License and development receivable

Prepaid expenses and other current assets

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Operating lease liabilities

Deferred revenue

Accrued and other current liabilities

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Non-current operating lease liabilities

Deferred revenue, net of current portion

Other non-current liabilities

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500,000,000 shares authorized as of

December 31, 2020 and 2019, 47,959,086 shares and 29,084,437 shares

issued and outstanding as of December 31, 2020 and 2019, respectively

December 31, 2021 and 2020, 49,355,130 shares and 47,959,086

shares issued and outstanding as of December 31, 2021 and 2020,

Additional paid-in capital

Accumulated other comprehensive income

Accumulated other comprehensive (loss) income

Accumulated deficit

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Year Ended December 31,

Development fee

Total revenue

Operating expenses:

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Other expense, net

Total other income

Total other income (expense)

Loss before income tax expense

Income tax expense

Net loss per share, basic and diluted

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Stockholders’

Income (Loss)

(Loss) Income

Balances—December 31, 2018

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of stock options

Issuance of common stock in connection with public

and at-the-market offerings, net of offering costs

Issuance of common stock and pre-funded warrants in

connection with public offering, net of offering costs

Stock-based compensation expense

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Issuance of common stock and pre-funded warrants in

connection with public offering, net of offering costs

connection with public and at-the-market offerings, net

of offering costs

Stock-based compensation expense

Unrealized gain on marketable securities

Foreign currency translation adjustment

Unrealized loss on marketable securities

Balances—December 31, 2020

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of stock options

Issuance of common stock and pre-funded warrants in

connection with public and at-the-market offerings, net

of offering costs

Issuance of common stock in connection with exercise

of pre-funded warrants

Stock-based compensation expense

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Stock-based compensation

Research and development services settled with stock

Non-cash operating lease expense

Changes in operating assets and liabilities:

Accounts receivable - grant

License and development receivable

Prepaid expenses and other assets

Accounts payable

Deferred revenue

Operating lease liabilities

Deferred revenue

Accrued and other liabilities

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Effect of exchange rate on cash, cash equivalents, and restricted cash

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND

NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, AND

RESTRICTED CASH

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As a result of these and other factors and the related uncertainties, there can be no assurance of the Company’s future success.

Based upon the Company’s current operating plans, the Company believes that it has sufficient resources to fund operations into 2023 with its existing cash, cash equivalents, and marketable securities.

The Company will need to secure additional funding in the future, in order to carry out all of its planned research and development activities.

If the Company is unable to obtain additional financing or generate license or product revenue, the lack of liquidity could have a material adverse effect on the Company’s future prospects.

In accordance with ASC 205-40, Going Concern, the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued.

Based upon the Company’s current operating plans, the Company believes that it has sufficient resources to fund operations into the first quarter of 2023 with its existing cash, cash equivalents, and marketable securities.

Accordingly, based on its recurring losses from operations incurred since inception, the expectation of continued operating losses, and the need to raise additional capital to finance its future operations, the Company determined that there is substantial doubt about the Company’s ability to continue as a going concern within twelve months of the issuance date of these financial statements.

The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty and assumes the Company will continue as a going concern through the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

The Company plans to address this condition through the sale of common stock in public offerings and/or private placements, debt financings, or through other capital sources, including collaborations with other companies or other strategic transactions.

Although the Company has been successful in raising capital in the past, there is no assurance that it will be successful in obtaining such additional financing on terms acceptable to the Company, if at all, nor is it considered probable under the accounting standards.

If the Company is unable to obtain sufficient funding on acceptable terms, it could be forced to delay, reduce or eliminate some or all of its research and development programs or commercialization activities, which could materially adversely affect its business prospects or its ability to continue operations.

Basis of Presentation

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GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.

Such management estimates include those related to accruals of research and development related costs, stock-based compensation, and certain company income tax related items.

Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances.

Management bases its estimates on historical experience and on various other market-specific and relevant assumptions

that management believes to be reasonable under the circumstances , the results of which form the basis for making judgements about the carrying value of assets, liabilities, and equity and the amount of revenues and expenses .

Actual results could differ significantly from those estimates.

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Management determines the appropriate classification of its investments in debt securities at the time of purchase.

The Company may or may not hold securities with stated maturities greater than one year until maturity.

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

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

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The Company has lease agreements with lease and non-lease components.

As allowed under Topic 842, the Company has elected to not separate lease and non-lease components for any leases involving real estate and office equipment classes of assets and, as a result, accounts for the lease and non-lease components as a single lease component.

The Company has also elected to not apply the recognition requirement of Topic 842 to leases with a term of 12 months or less for all classes of assets.

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The accounting standards define fair value, establish a framework for measuring fair value, and require disclosures about fair value measurements.

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market

participants at the measurement date.

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the principal or most advantageous market in which the Company would transact are considered along with assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.

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Financial instruments carried at fair value include cash, cash equivalents, marketable securities, and restricted cash.

The carrying amount of accounts payable and accrued liabilities approximate fair value due to their relatively short maturities.

The carrying amounts of accounts payable and accrued liabilities approximate fair value due to their relatively short maturities.

Revenue Recognition

The Company’s sole source of revenue was grant revenue related to a $ 19.8 million research grant received from the Cancer Prevention and Research Institute of Texas (“CPRIT”), covering a four-year period from June 1, 2014 through May 31, 2018.

Grant revenue was recognized when qualifying costs were incurred and there was reasonable assurance that the conditions of the award had been met for collection.

Proceeds received prior to the costs being incurred or the conditions of the award being met were recognized as deferred revenue until the services were performed and the conditions of the award were met (see Note 9).

Under ASC Topic 606, “Revenue from Contracts with Customers” (“Topic 606”), an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps:

(i) identify the contract(s) with a customer;

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price, including variable consideration, if any;

(iv) allocate the transaction price to the performance obligations in the contract;

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

The Company assesses its license arrangements within the scope of Topic 606 in accordance with this framework as follows:

License revenue

The Company assesses whether the goods or services promised within each contract are distinct to identify those that are performance obligations.

In assessing whether a promised good or service is distinct, and therefore a performance obligation, the Company considers factors such as the research, stage of development of the licensed product, manufacturing and commercialization capabilities of the customer and the availability of the associated expertise in the general marketplace.

The Company also considers the intended benefit of the contract in assessing whether a promised good or service is separately identifiable from other promises in the contract.

If a promised good or service is not distinct, the Company is required to combine that good or service with other promised goods or services until it identifies a bundle of goods or services that is distinct.

Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options.

The Company assesses if these options provide a material right to the customer and if so, they are considered performance obligations.

The transaction price is determined and allocated to the identified performance obligations in proportion to their stand-alone selling prices (“SSP”) on a relative SSP basis.

SSP is based on observable prices of the performance obligations or, when such prices are not observable, are estimated.

The estimation of SSP may include factors such as forecasted revenues or costs, development timelines, discount rates, probabilities of technical and regulatory success, and considerations such as market conditions and entity-specific factors.

In certain circumstances, the Company may apply the residual method to determine the SSP of a good or service if the SSP is considered highly variable or uncertain.

The Company validates the SSP for performance obligations by evaluating whether changes in the key assumptions used to determine the SSP will have a significant effect on the allocation of arrangement consideration between multiple performance obligations.

If the consideration promised in a contract includes a variable amount, the Company estimates the amount of consideration to which it will be entitled in exchange for transferring the promised goods or services to a customer.

The Company determines the amount of variable consideration by using the expected value method or the most likely amount method.

The Company includes the amount of estimated variable consideration in the transaction price to the extent that it is probable that a significant reversal of cumulative revenue recognized will not occur.

At the end of each subsequent reporting period, the Company re-evaluates the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjusts its estimate of the overall transaction price.

Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment.

If an arrangement includes development, regulatory or commercial milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method.

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

In determining the transaction price, the Company adjusts consideration for the effects of the time value of money if the timing of payments provides the Company with a significant benefit of financing.

The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the licensee and the transfer of the promised goods or services to the licensees will be one year or less.

For arrangements with licenses of intellectual property that include sales-based royalties, including milestone payments based on the level of sales, and if the license is deemed to be the predominant item to which the royalties relate, the Company recognizes royalty revenue and sales-based milestones at the later of (i) when the related sales occur, or (ii) when the performance obligation to which the royalty has been allocated has been satisfied.

The Company’s contracts may be modified for changes in the customer’s requirements.

If contract modifications are for additional goods and services that are distinct from the existing contract, the modification will be accounted for as either a separate contract or a termination of the existing contract, depending on whether the additional goods or services reflects the SSP.

If the additional goods or services in a contract modification are not distinct from the existing contract, they are accounted for as if they were part of the original contract.

The effect of the contract modification on the transaction price and the measure of progress for the performance obligation to which it relates is recognized as an adjustment to revenue on a cumulative catch-up basis.

The cumulative catch-up adjustment is calculated using an updated measure of progress applied to the sum of (1) the remaining consideration allocated to the partially satisfied performance obligation and (2) the revenue already recognized on that performance obligation.

The revenue recognized for fully satisfied goods or services and distinct from the remaining performance obligations is not altered by the modification.

Collaborative arrangements

The Company analyzes its license arrangements to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities and therefore within the scope of ASC Topic 808, Collaborative Arrangements (“Topic 808”).

This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement.

For arrangements within the scope of Topic 808 that contain multiple elements, the Company first determines which elements of the collaboration are deemed to be within the

scope of Topic 808 and which elements of the collaboration are more reflective of a vendor-customer relationship and therefore within the scope of Topic 606.

For elements of collaboration arrangements that are accounted for pursuant to Topic 808, an appropriate recognition method is determined and applied consistently, either by analogy to authoritative accounting literature or by applying a reasonable and rational policy election.

For those elements of the arrangement that are accounted for pursuant to Topic 606, the Company applies the five-step model described above.

Research and Development Costs

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Compensation expense for employee and non-employee share-based payment awards with performance conditions is recognized when the performance condition is deemed probable.

The Company and its nine wholly owned subsidiary corporations use the asset and liability method of accounting for income taxes.

The Company and its ten wholly owned subsidiary corporations use the asset and liability method of accounting for income taxes.

Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statements and the tax bases of assets and liabilities.

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The Company’s policy is to recognize interest and penalties related to the unrecognized tax benefits as a component of income tax expense, if applicable.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted and signed into law in response to COVID-19.

The CARES Act includes changes to the tax provisions that benefit business entities and makes certain technical corrections to the 2017 Tax Cuts and Jobs Act.

The tax relief measures for businesses include a five-year net operating loss carryback, suspension of annual deduction limitation of 80 % of taxable income from net operating losses generated in a tax year beginning after December 31, 2017, changes in the deductibility of interest, acceleration of alternative minimum tax credit refunds, payroll tax relief, technical corrections on net operating loss carryforwards for fiscal year taxpayers and allowing accelerated deductions for qualified improvement property.

The CARES Act also provides other non-tax benefits to assist those impacted by the pandemic.

The Company evaluated the impact and determined the CARES Act did not have a material impact on its consolidated financial condition or results of operations as of and for the year ended December 31, 2020.

As of December 31, 2021 and 2020, the Company had no unrecognized tax benefits and there was no interest or penalties incurred by the Company in the years ended December 31, 2021, 2020, or 2019.

Comprehensive Loss

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The Company’s other comprehensive income (loss) is currently comprised of changes in unrealized losses and gains on available-for-sale securities and foreign currency translation adjustments reflecting the cumulative effect of changes in exchange rates between the foreign entity’s functional currency and the reporting currency.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets and certain other instruments.

For available-for-sale debt securities with unrealized credit losses, the credit losses will be recognized as allowances rather than as reductions in the amortized cost of the securities.

On January 1, 2020, the Company adopted ASU 2016-13 using the modified retrospective approach and no cumulative effect adjustment to accumulated deficit was needed as of the adoption date.

Additionally, no prior period amounts were adjusted and continue to be reported in accordance with the legacy other-than-temporary impairment model.

The adoption of ASU 2016-13 did not have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU No.

2018-15, Intangibles – Goodwill and Other – Internal Use Software (Subtopic 350-40), to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).

The amendments in the update require an entity in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense.

Capitalized implementation costs are recorded in prepaid expenses and other current assets or other non-current assets on the statement of financial position and the related amortization expense is recorded in operating expenses in the results of operations.

On January 1, 2020, the Company adopted ASU 2018-15 on a prospective basis and no prior period amounts were adjusted.

The adoption of ASU 2018-15 did not have a material impact on the Company’s consolidated financial statements.

Fair Value Measurements

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Money market funds

treasury securities

government agency securities

Commercial paper

Corporate bonds

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Money market funds

Reverse repurchase agreements

Commercial paper

treasury securities

government agency securities

Corporate bonds

Total financial assets

The Company measures the fair value of money market funds and U.S.

treasury securities on quoted prices in active markets for identical asset or liabilities.

The Company measures the fair value of money market funds on quoted prices in active markets for identical asset or liabilities.

The Level 2 assets include U.S.

treasury securities, U.S.

government agency securities, reverse repurchase agreements, commercial paper, and corporate bonds and are valued based on quoted prices for similar assets in active markets and inputs other than quoted prices that are derived from observable market data.

government agency securities, commercial paper, and corporate bonds and are valued based on quoted prices for similar assets in active markets and inputs other than quoted prices that are derived from observable market data.

The Company evaluates transfers between levels at the end of each reporting period.

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Money market funds

treasury securities

government agency securities

Commercial paper

Total cash equivalents

Marketable securities:

treasury securities

Commercial paper

Corporate bonds

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Money market funds

Reverse repurchase agreements

Commercial paper

treasury securities

government agency securities

Total cash equivalents

Marketable securities:

Commercial paper

treasury securities

Corporate bonds

Total marketable securities

The reverse repurchase agreements are settled in cash nightly, and as such are classified as cash equivalents.

The following table summarizes the available-for-sale securities in an unrealized loss position for which an allowance for credit losses has not been recorded as of December 31, 2021 and 2020, aggregated by major security type and length of time in a continuous unrealized loss position:

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12 Months or Longer

treasury securities

government agency securities

Commercial paper

Corporate bonds

Total marketable securities

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12 Months or Longer

Corporate bonds

treasury securities

government agency securities

Total marketable securities

As of December 31, 2021 and 2020, the Company held 29 and 16 debt securities, respectively, that were in an unrealized loss position.

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The Company posted a customary letter of credit in the amount of $ 1.5 million as security, which is subject to automatic reductions per the terms of the Las Cimas Lease.

A tenant allowance of up to $ 1.0 million is provided by the lessor.

As of December 31, 2020, the Company has been reimbursed $ 0.9 million of the tenant allowance.

A tenant allowance of up to $ 1.0 million was provided by the lessor and fully reimbursed to the Company.

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

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Imputed interest

Tenant allowance

Stockholders’ Equity

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Follow-on Public Offerings

In April 2018, the Company issued and sold 5,046,510 shares of common stock in an underwritten public offering pursuant to a shelf registration statement on Form S-3 at a public offering price of $ 8.00 per share, including 546,510 shares of common stock issued upon the partial exercise by the underwriters of their option to purchase additional shares.

The net proceeds to the Company from this public offering were $ 37.7 million, after deducting underwriting discounts and commissions of $ 2.4 million and offering costs of $ 0.3 million.

In February 2019, the Company issued and sold 4,625,000 shares of common stock at a public offering price of $ 8.00 per share and pre-funded warrants to purchase up to 4,000,000 shares of common stock at a public offering price of $ 7.9999 per warrant in an underwritten public offering pursuant to a shelf registration statement on Form S-3.

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The warrants were recorded as a component of stockholders’ equity within additional paid-in capital and have no expiration date.

Per the terms of the warrant agreements, the outstanding warrants to purchase shares of common stock may not be exercised if the holder’s ownership of the Company’s common stock would exceed 4.99 % (“Maximum Ownership Percentage”).

By written notice to the Company, the holders of the pre-funded warrants purchased in February 2019 may increase or decrease the Maximum Ownership Percentage, and the holders of the pre-funded warrants purchased in April 2020 may increase or decrease the Maximum Ownership Percentage to any other percentage not in excess of 19.99 %.

By written notice to the Company, each holder may increase or decrease the Maximum Ownership Percentage to any other percentage (not in excess of 19.99 % for the majority of such warrants).

The revised Maximum Ownership Percentage would be effective 61 days after the notice is received by the Company.

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At-The-Market Offering

In May 2017, the Company entered into a sales agreement with JonesTrading Institutional Services LLC, as sales agent and underwriter, to issue and sell shares of its common stock for an aggregate offering price of $ 20.0 million under an at-the-market (“2017 ATM’) offering program.

In October 2018, the Company issued and sold 1,845,820 shares of common stock in a single transaction under the 2017 ATM, for gross proceeds $ 17.0 million, resulting in net proceeds of $ 16.4 million, after deducting underwriting discounts, commissions, and offering costs.

The 2017 ATM agreement was subsequently terminated in December 2018.

In April 2020, the Company entered into a new sales agreement with JonesTrading Institutional Services LLC, as sales agent, to issue and sell shares of its common stock for an aggregate offering price of $ 60.0 million under an at-the-market (“2020 ATM”) offering program.

In the fourth quarter of 2020, the Company issued and sold 3,245,077 shares of common stock under the 2020 ATM for gross proceeds of $ 25.3 million, resulting in net proceeds of $ 24.6 million, after deducting underwriting discounts, commissions, and offering costs.

As of the date of the filing of this report, $ 34.7 million of our common stock remained available for sale pursuant to the 2020 ATM.

Grant Revenues

In June 2015, the Company entered into a Cancer Research Grant Contract (“Grant Contract”) with CPRIT, under which CPRIT awarded a grant not to exceed $ 19.8 million for use in developing cancer treatments by exploiting the metabolism of cancer cells.

The Grant Contract covered a four-year period from June 1, 2014 through May 31, 2018 .

Upon commercialization of the product, the terms of the Grant Contract require the Company to pay tiered royalties in the low to mid-single digit percentages.

Such royalties reduce to less than one percent after a mid-single-digit multiple of the grant funds have been paid to CPRIT as royalties.

The contract ended in May 2018 with the full $ 19.8 million grant recognized as revenue over the life of the award.

For the years ended December 31, 2020 and 2019, the Company recognized no grant revenue.

For the year ended December 31, 2018, the Company recognized $ 3.9 million in grant revenues for qualified expenditures under the grant.

Strategic License Agreements

Immedica Pharma AB License and Development Agreement

On March 21, 2021 , the Company entered into an exclusive license and supply agreement with Immedica Pharma AB (“Immedica”).

By entering into this agreement, the Company agreed to provide Immedica the following goods and services:

Deliver an exclusive, sublicensable, license and know-how (the “License”) to develop and commercialize pegzilarginase (the “Product”), in the territory comprising the members states of the European Economic Area, United Kingdom, Switzerland, Andorra, Monaco, San Marino, Vatican City, Turkey, Saudi Arabia, United Arab Emirates, Qatar, Kuwait, Bahrain, and Oman (the “Territory”);

Complete the global pivotal PEACE (Pegzilarginase Effect on Arginase 1 Deficiency Clinical Endpoints) Phase 3 trial (“PEACE Trial”) and related Biologics License Application (“BLA”) package to file with the United States Food and Drug Administration (“FDA”), which will be leveraged by Immedica in obtaining the necessary regulatory approvals in the Territory;

Perform a Pediatric Investigation Plan trial (“PIP Trial”) in order for Immedica to be able to receive certain regulatory approvals within the Territory.

In addition, the Company and Immedica formed a Joint Steering Committee (“JSC”) to provide oversight to the activities performed under the agreement;

however, the substance of the Company’s participation in the JSC does not represent an additional promised service, but rather, a right of the Company to protect its own interests in the arrangement.

Further, the Company agreed to supply to Immedica, and Immedica agreed to purchase from the Company, substantially all commercial requirements of the Product.

The terms of the agreement do not provide for either (i) an option to Immedica to purchase the Product from the Company at a discount from the standalone selling price or (ii) minimum purchase quantities.

Finally, Immedica will bear (i) all costs and expenses for any development or commercialization of the Product in the Territory subject to the License exclusive of the Company’s promised goods and services summarized above and (ii) all costs and fees associated with applying for regulatory approval of the Product in the Territory.

The Company received a non-refundable payment of $ 21.5 million and Immedica agreed to provide payment of 50 % of the Company’s costs incurred in performing the PIP Trial up to a maximum of $ 1.8 million.

In addition, the Company has the ability to receive additional payments under the agreement of up to approximately $ 125.0 million in regulatory and commercial milestone payments, assuming an exchange rate of $ 1.13 to € 1.00 .

The Company is also entitled to receive royalties in the mid- 20 percent range on net sales of the Product in the Territory.

The Company concluded that Immedica meets the definition to be accounted for as a customer because the Company is delivering intellectual property and other services within the Company’s normal course of business, in which the parties are not jointly sharing the risks and rewards.

Therefore, the Company concluded that the promises summarized above represent transactions with a customer within the scope of ASC 606.

The Company determined that the following promises represent distinct promised services, and therefore, performance obligations:

(i) the License, (ii) the PEACE Trial and BLA package, and (iii) the PIP Trial.

Specifically, in making these determinations, the Company considered the following factors:

As of inception of the agreement, the Company had completed the Phase 1/2 clinical trial related to the Product and were conducting the ongoing PEACE Trial.

Accordingly, the Company is not promising, nor expecting, to perform additional research and development activities pursuant to the agreement that would either significantly modify, customize or be considered highly interdependent or interrelated with pegzilarginase.

The License represents functional intellectual property given the functionality of the License is not expected to change substantially as a result of the company’s ongoing activities.

The services necessary to complete the PEACE Trial, BLA package and PIP Trial could be performed by other parties.

Given that Immedica is not obligated to purchase any minimum amount or quantities of the Product, the supply of the Product for commercial use to Immedica was determined to be an option for Immedica, rather than a performance obligation of the Company at contract inception and will be accounted for if and when exercised.

The Company also

determined that Immedica’s option to purchase the Product does not create a material right as the expected pricing is not at a discount.

The Company determined that the upfront fixed payment amount of $ 21.5 million must be included in the transaction price.

Additionally, the Company determined that 50 % of the probable estimated costs to be incurred in relation to the PIP Trial exceeds $1.8 million and, as such, it is probable that a significant reversal of such revenue will not occur in a future period.

Therefore, the Company included an estimated $1.8 million that will be due in relation to the PIP Trial in the transaction price.

In total, the transaction price was determined to be $ 23.3 million at inception of the arrangement.

The Company allocated $ 7.2 million and $ 4.1 million of the transaction price to the PEACE Trial and BLA package and PIP Trial performance obligations, respectively, based on the SSP, which was based on the estimated costs that a third-party would charge in performing such services on a stand-alone basis.

The SSP for the License was established using a residual value approach due to the uniqueness of and lack of observable data related to the License and without a specific analog from which to make reliable estimates, resulting in an allocation of $ 12.0 million.

The potential regulatory milestone payments that the Company is eligible to receive were excluded from the transaction price, as the milestone amounts were fully constrained based on the probability of achievement, since the milestones relate to successful achievement of certain regulatory approvals, which might not be achieved.

The Company determined that the royalties and commercial milestone payments relate predominantly to the license of intellectual property and are therefore excluded from the transaction price under the sales- or usage-based royalty exception of ASC 606.

The Company will reevaluate the transaction price, including all constrained amounts, at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur, the Company will adjust its estimate of the transaction price as necessary.

The Company will recognize the royalties and commercial milestone payments as revenue when the associated sales occur, and relevant sales-based thresholds are met.

The Company assessed the arrangement with Immedica and concluded that a significant financing component does not exist.

The Company recognized revenue allocated to the License performance obligation at a point in time and upon transfer of the License.

The Company completed the transfer of the know-how necessary for Immedica to benefit from the License in June 2021 and recognized $ 12.0 million of revenue at that time.

In July 2021, the Company entered into a memorandum of understanding with Immedica to provide certain additional services in relation to the PEACE Trial and BLA package performance obligation in exchange for the reimbursement of up to $ 3.0 million of the actual costs incurred in relation to such incremental services.

The Company accounted for this as a modification of the existing contract as the incremental services were determined to be not distinct from the PEACE Trial and BLA package performance obligation.

The Company calculated the remaining transaction price and allocated the consideration over the remaining performance obligations.

The impact of the cumulative catch-up adjustment related to the modification and recorded in the year ended December 31, 2021 was not material to the Company’s financial statements.

For the year ended December 31, 2021 , the Company recognized revenue of $ 6.7 million related to the PEACE Trial and BLA package performance obligation and $ 12.0 million related to the transfer of the License.

The Company recognized no revenue for the years ended December 31, 2020 and 2019 .

As of December 31, 2021 , the Company has recorded deferred revenue of $ 3.6 million associated with the license and supply agreement with Immedica, of which $ 2.4 million is classified as current.

The Company had no deferred revenue recorded as of December 31, 2020.

Contract Balances from Customer Contract

The timing of revenue recognition, billings and cash collections results in contract assets and contract liabilities on the balance sheets.

The Company recognizes license and development receivables based on billed services, which are derecognized upon reimbursement.

When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded.

Contract liabilities are recognized as revenue after control of the goods or services is transferred to the customer and all revenue recognition criteria have been met.

The following table presents changes in the Company’s contract liabilities for the periods presented (in thousands):

Year Ended December 31, 2021

Contract liabilities:

Deferred revenue

The Company had no contract assets during the years ended December 31, 2021 , 2020 and 2019 and no contract liabilities during the years ended December 31, 2020 and 2019 .

University of Texas at Austin License Agreement

In December 2013 , two of the Company’s wholly owned subsidiaries AECase, Inc.

and AEMase, Inc.

each entered into an exclusive, worldwide license agreement, including the right to grant sublicenses, with the University of Texas at Austin (the “University”) for certain intellectual property owned by the University related to cystinase and methioninase.

In January 2017, the Company and the University entered into an Amended and Restated Patent License Agreement (the “Restated License”), which consolidated the two license agreements, revised certain obligations, and licensed additional patent applications and invention disclosures to us.

The Restated License was amended in August 2017, December 2017, and December 2018 to revise diligence milestones and license additional patent applications, including our program candidates under the AGLE177 and Cystinuria Programs.

Pursuant to the terms of the Restated License, the Company may be required to pay the University up to $ 6.4 million in milestone payments based on the achievement of certain development milestones, including clinical trials and regulatory approvals, the majority of which are due upon the achievement of later development milestones, including a $ 5.0 million payment due on regulatory approval of a product and a $ 0.5 million payment payable on final regulatory approval of a product for a second indication.

In addition, the Company is required to pay the University a low single-digit royalty on worldwide-net sales of products covered under the Restated License, together with a revenue share on non-royalty consideration received from sublicensees.

The rate of the revenue share ranges from 6.5 % to 25 % depending on the date the sublicense agreement is signed.

For the years ended December 31, 2021, 2020 and 2019, the Company paid $ 0.1 million in license fees annually.

Stock-Based Compensation

7 unchanged sentences

Under the 2016 Plan, the Company may grant stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance awards, and stock bonuses.

The 2016 Plan provides for an initial reserve of 1,100,000 shares of common stock, plus 509,869 shares of common stock remaining under the 2015 Plan, and any share awards that subsequently are forfeited or lapse unexercised under the 2015 Plan.

The 2016 Plan provides for an initial reserve of 1,100,000 shares of common stock, plus 509,869 shares of common stock remaining under the 2015 Plan, and any share awards that subsequently are

forfeited or lapse unexercised under the 2015 Plan.

The shares reserved exclude shares of common stock reserved for issuance under the 2015 Plan.

31 unchanged sentences

There were no stock options issued to non-employees during the years ended December 31, 2021, 2020, and 2019.

For the years ended December 31, 2020 and 2018, 1,663 and 6,626 non-employee stock options, respectively, vested in the period.

For the year ended December 31, 2019, no non-employee stock options vested in the period.

For the year ended December 31, 2020, 1,663 non-employee stock options vested in the period.

For the years ended December 31, 2021 and 2019, no non-employee stock options vested in the period.

Restricted Common Stock Units

The Company granted 228,200 restricted stock units (“RSUs”) during the year ended December 31, 2020 to certain employees with regulatory, commercial, and clinical milestones in addition to a service condition.

As of December 31, 2020, the performance conditions of these RSUs were not probable of being achieved.

If and when the performance milestones are deemed probable of being achieved within the required time frame, the Company may recognize up to $ 1.9 million of stock-based compensation.

There were no RSUs granted for the years ended December 31, 2021 and 2019.

As of December 31, 2021, the performance conditions of the granted RSUs were not probable of being achieved.

If and when the performance milestones are deemed probable of being achieved within the required time frame, the Company may recognize up to $ 1.6 million of stock-based compensation for the remaining unvested RSUs as of December 31, 2021.

The following table summarizes employee restricted stock activity for the year ended December 31, 2021:

3 unchanged sentences

Unvested restricted stock units as of December 31, 2021

There were no RSUs granted to non-employees during the year ended December 31, 2020.

There were no RSUs granted to non-employees during the years ended December 31, 2021, 2020, and 2019.

Stock-Based Compensation Expense

10 unchanged sentences

Compensation expense for employee and non-employee share-based payment awards with performance conditions is recognized when the performance condition is deemed probable of achievement.

In November 2018, one of the board of directors resigned.

Upon his resignation, the Company’s board of directors approved the immediate vesting of all unvested stock options and restricted stock and an extension in the exercise period for all outstanding equity awards from 90 days to 180 days.

The result was a modification of 86,252 outstanding stock options and 43,290 restricted stock awards.

The incremental fair value of $ 0.3 million, in connection with the modification of the awards, was recognized as stock compensation expense upon resignation with no future service or performance conditions required.

As of December 31, 2021, the Company had an aggregate of $ 15.1 million of unrecognized stock-based compensation expense for options outstanding, which is expected to be recognized over a weighted average period of 2.6 years.

34 unchanged sentences

During the years ended December 31, 2021, 2020, 2019, the Company provided $ 0.6 million, $ 0.5 million, and $ 0.3 million, respectively, in contributions to the plan.

The following table summarizes the (loss) income before income tax expense by jurisdiction for the periods indicated:

Year Ended December 31,

Loss before income tax expense

For the year ended December 31, 2021, the Company recognized an income tax expense of $ 0.1 million, related to foreign subsidiaries income tax expense and the Texas margins tax.

For the years ended December 31, 2020 and 2019, the Company recognized no provision or benefit from income taxes.

6 unchanged sentences

State tax credits

Effect of tax rate on foreign jurisdiction

Change in the valuation allowance

Income tax expense /(benefit)

Income tax expense

The components of the deferred tax assets and liabilities consist of the following (in thousands):

18 unchanged sentences

tax credit carryforwards of $ 18.6 million and $ 14.8 million, respectively, and state tax credit carryforwards of $ 1.0 million and $ 0.8 million, respectively.

The net operating loss and tax credit carryforwards of $ 58.4 million and $ 11.1 million, respectively, will begin to expire in 2033 , if not utilized.

The net operating loss and tax credit carryforwards of $ 58.4 million, respectively, will begin to expire in 2033 , if not utilized.

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

1 unchanged sentence

If the Company has experienced an ownership change at any time since its formation, utilization of the NOL or R&D credit carryforwards would be subject to an annual limitation under Section 382 or 383 of the Internal Revenue Code, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term, tax-exempt rate, and then could be subject to additional adjustments, as required.

Additionally, the separate return limitation year (“SRLY”) rules may apply to losses of the Company’s seven wholly owned U.S.

Additionally, the separate return limitation year (“SRLY”) rules may apply to losses of the Company’s eight wholly owned U.S.

subsidiary corporations.

19 unchanged sentences

Unvested restricted stock units

Research and License Agreements

License Agreements

In December 2013 , two of the Company’s wholly owned subsidiaries AECase, Inc.

and AEMase, Inc.

The rate of the revenue share ranges from 6.5 % to 25 % depending on the date the sublicense agreement is signed.

For the years ended December 31, 2020, 2019 and 2018, the Company paid $ 0.1 million in license fees annually.

Selected Quarterly Financial Data (Unaudited)

Selected quarterly results from operations for the years ended December 31, 2020 and 2019 are as follows (in thousands, except per share amounts):

2020 Quarter Ended

September 30,

Loss from operations

Basic and diluted net loss per common share

2019 Quarter Ended

September 30,

Loss from operations

Basic and diluted net loss per common share

Subsequent Events

On December 9, 2020 certain pre-funded warrant holders notified the Company that pursuant to the terms of its warrant to purchase common stock they would like to raise the amount of the Maximum Ownership Percentage to 9.9 % from its current level of 4.99 %.

This change became effective on February 8, 2021.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data