10-Q
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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-39045

 

IGM Biosciences, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

77-0349194

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

325 E. Middlefield Road

Mountain View, CA

94043

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (650) 965-7873

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.01 per share

 

IGMS

 

The Nasdaq Global Select Market

 

 

 

 

 

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

As of May 1, 2024, the registrant had 33,636,592 shares of common stock, $0.01 par value per share, and 25,386,983 shares of non-voting common stock, $0.01 par value per share, outstanding.

 


Table of Contents

 

Table of Contents

 

Page

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

1

Condensed Consolidated Balance Sheets

1

Condensed Consolidated Statements of Operations

2

 

Condensed Consolidated Statements of Comprehensive Loss

3

Condensed Consolidated Statements of Stockholders’ Equity

4

Condensed Consolidated Statements of Cash Flows

5

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

26

 

PART II.

 

OTHER INFORMATION

26

Item 1.

Legal Proceedings

26

Item 1A.

Risk Factors

26

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

74

Item 3.

Defaults Upon Senior Securities

74

Item 4.

Mine Safety Disclosures

74

Item 5.

Other Information

74

Item 6.

Exhibits

75

Signatures

76

 

 

 

 


Table of Contents

 

 

Special Note Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical facts contained in this report are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other important factors that are in some cases beyond our control and may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will” or “would,” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about: the therapeutic applications for our IgM antibodies; the advantages of the properties of our IgM bispecific antibodies; the timing of the initiation, progress and potential results of our preclinical studies, clinical trials and our discovery programs; our ability to utilize our IgM antibody platform to generate and advance additional product candidates; our ability to advance product candidates into, and successfully complete, clinical trials; the timing or likelihood of regulatory filings and approvals; our estimates of the number of patients who suffer from the diseases we are targeting and the number of patients that may enroll in our clinical trials; the commercializing of our product candidates, if approved; whether, and for how long, we will rely on third parties to manufacture our product candidates for preclinical and clinical testing and to package, label, store and distribute our investigational product candidates; our ability and the potential to successfully manufacture and supply our product candidates for clinical trials and for commercial use, if approved; potential business disruptions affecting drug discovery, our preclinical studies or the initiation, patient enrollment, development and operation of our clinical trials; the sufficiency of our backup to our master cell banks; expectations regarding our collaboration agreement with Genzyme Corporation, a wholly owned subsidiary of Sanofi (Sanofi), including all financial aspects of the collaboration, the potential benefits and results of the collaboration, as well as plans and objectives with respect to the collaboration; future strategic arrangements and/or collaborations and the potential benefits of such arrangements; our expectations regarding the impact of macroeconomic conditions, such as inflation, supply chain disruptions and economic volatility, on our business; our expectations regarding the impact of health epidemics, such as the COVID-19 pandemic, and other catastrophic events on our business; our anticipated use of our existing resources; our estimates regarding expenses, future revenue, capital requirements and needs for additional financing and our ability to obtain additional capital; the sufficiency of our existing cash, cash equivalents, and marketable securities to fund our future operating expenses and capital expenditure requirements; our expectations regarding the impact of recently issued accounting standards; our ability to retain the continued service of our key personnel and to identify, hire and retain additional qualified professionals; the implementation of our business model, strategic plans for our business and product candidates, including our expectations regarding our strategic refocusing announced in December 2023; the scope of protection we are able to establish and maintain for intellectual property rights, including our IgM platform, product candidates and discovery programs; our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately; the pricing, coverage and reimbursement of our product candidates, if approved; developments relating to our competitors and our industry, including competing product candidates and therapies; and the ability of our clinical trials to demonstrate the safety and efficacy of our product candidates, and other positive results.

We have based these forward-looking statements largely on our current expectations and projections about our business, the industry in which we operate and financial trends that we believe may affect our business, financial condition, results of operations, and prospects, and these forward-looking statements are not guarantees of future performance or development. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties, and assumptions described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, or otherwise.

 

 


Table of Contents

 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

IGM Biosciences, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

79,173

 

 

$

112,520

 

Restricted cash

 

 

325

 

 

 

592

 

Marketable securities

 

 

214,595

 

 

 

225,157

 

Prepaid expenses and other current assets

 

 

8,660

 

 

 

9,328

 

 Total current assets

 

 

302,753

 

 

 

347,597

 

Property, plant and equipment, net

 

 

37,300

 

 

 

38,232

 

Operating lease right-of-use assets

 

 

34,474

 

 

 

35,773

 

Other non-current assets

 

 

1,605

 

 

 

1,809

 

 Total assets

 

$

376,132

 

 

$

423,411

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

3,995

 

 

$

1,326

 

Accrued liabilities

 

 

23,652

 

 

 

31,544

 

Lease liabilities

 

 

6,628

 

 

 

5,834

 

Deferred revenue

 

 

3,655

 

 

 

3,777

 

Total current liabilities

 

 

37,930

 

 

 

42,481

 

Lease liabilities, non-current

 

 

34,300

 

 

 

34,672

 

Deferred revenue, non-current

 

 

142,649

 

 

 

143,024

 

Total liabilities

 

 

214,879

 

 

 

220,177

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Preferred stock, $0.01 par value; 200,000,000 shares authorized as of March 31, 2024 and
   December 31, 2023;
no shares issued and outstanding as of March 31, 2024 and
   December 31, 2023

 

 

 

 

 

 

Common stock, $0.01 par value; 1,000,000,000 shares authorized as of March 31, 2024 and
   December 31, 2023;
33,563,902 and 33,180,749 shares issued and outstanding as of
   March 31, 2024 and December 31, 2023, respectively

 

 

335

 

 

 

331

 

Non-voting common stock, $0.01 par value; 200,000,000 shares authorized
   as of March 31, 2024 and December 31, 2023;
25,386,983 and 25,500,383 shares issued
   and outstanding as of March 31, 2024 and December 31, 2023, respectively

 

 

254

 

 

 

255

 

Additional paid-in-capital

 

 

1,031,850

 

 

 

1,023,739

 

Accumulated other comprehensive (loss) income

 

 

(128

)

 

 

151

 

Accumulated deficit

 

 

(871,058

)

 

 

(821,242

)

Total stockholders’ equity

 

 

161,253

 

 

 

203,234

 

Total liabilities and stockholders’ equity

 

$

376,132

 

 

$

423,411

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

1


Table of Contents

 

IGM Biosciences, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except share and per share data)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Collaboration revenue

 

$

497

 

 

$

522

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

 

43,815

 

 

 

50,894

 

General and administrative

 

 

10,538

 

 

 

13,002

 

Total operating expenses

 

 

54,353

 

 

 

63,896

 

Loss from operations

 

 

(53,856

)

 

 

(63,374

)

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

Interest income

 

 

4,040

 

 

 

4,172

 

Other expense

 

 

 

 

 

(20

)

Total other income (expense)

 

 

4,040

 

 

 

4,152

 

Loss before income tax expense

 

 

(49,816

)

 

 

(59,222

)

Income tax expense

 

 

 

 

 

(87

)

Net loss

 

$

(49,816

)

 

$

(59,309

)

 

 

 

 

 

 

Net loss per share, basic and diluted

 

$

(0.83

)

 

$

(1.33

)

Weighted-average common shares outstanding, basic and diluted

 

 

60,114,409

 

 

 

44,466,764

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

2


Table of Contents

 

IGM Biosciences, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(in thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Net loss

 

$

(49,816

)

 

$

(59,309

)

Other comprehensive income (loss):

 

 

 

 

 

 

Unrealized (loss) gain on marketable securities

 

 

(279

)

 

 

354

 

Comprehensive loss

 

$

(50,095

)

 

$

(58,955

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3


Table of Contents

 

IGM Biosciences, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(in thousands, except share amounts)

 

 

 

 

 

 

 

 

Non-Voting

 

 

Additional

 

 

Accumulated
Other

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Common Stock

 

 

Paid-In-

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance—December 31, 2023

 

 

33,180,749

 

 

$

331

 

 

 

25,500,383

 

 

$

255

 

 

$

1,023,739

 

 

$

151

 

 

$

(821,242

)

 

$

203,234

 

Conversion of non-voting common stock into voting common stock

 

 

113,400

 

 

 

1

 

 

 

(113,400

)

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options, net of shares withheld for taxes and exercise costs

 

 

113,314

 

 

 

1

 

 

 

 

 

 

 

 

 

191

 

 

 

 

 

 

 

 

 

192

 

Issuance of common stock for vested restricted stock units

 

 

156,439

 

 

 

2

 

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

Unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(279

)

 

 

 

 

 

(279

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,922

 

 

 

 

 

 

 

 

 

7,922

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(49,816

)

 

 

(49,816

)

Balance—March 31, 2024

 

 

33,563,902

 

 

$

335

 

 

 

25,386,983

 

 

$

254

 

 

$

1,031,850

 

 

$

(128

)

 

$

(871,058

)

 

$

161,253

 

 

Balance—December 31, 2022

 

 

29,394,436

 

 

$

294

 

 

 

13,687,883

 

 

$

137

 

 

$

862,359

 

 

$

(701

)

 

$

(574,826

)

 

$

287,263

 

Exercise of stock options

 

 

40,774

 

 

 

 

 

 

 

 

 

 

 

 

75

 

 

 

 

 

 

 

 

 

75

 

Issuance of common stock for vested restricted stock units

 

 

64,863

 

 

 

1

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

354

 

 

 

 

 

 

354

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,047

 

 

 

 

 

 

 

 

 

11,047

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(59,309

)

 

 

(59,309

)

Balance—March 31, 2023

 

 

29,500,073

 

 

$

295

 

 

 

13,687,883

 

 

$

137

 

 

$

873,480

 

 

$

(347

)

 

$

(634,135

)

 

$

239,430

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4


Table of Contents

 

IGM Biosciences, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(49,816

)

 

$

(59,309

)

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

 

 

 

 

 

 

Depreciation

 

 

2,176

 

 

 

1,664

 

Stock-based compensation expense

 

 

7,922

 

 

 

11,047

 

Purchase of net discount on marketable securities

 

 

1,132

 

 

 

1,705

 

Net accretion of discounts on marketable securities

 

 

(2,263

)

 

 

(2,487

)

Non-cash lease expense

 

 

1,416

 

 

 

1,323

 

Changes in assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

987

 

 

 

(58

)

Other non-current assets

 

 

204

 

 

 

(154

)

Accounts payable

 

 

2,648

 

 

 

1,604

 

Accrued liabilities

 

 

(6,631

)

 

 

(5,102

)

Lease liabilities, net

 

 

305

 

 

 

(708

)

Deferred revenue

 

 

(497

)

 

 

(522

)

Net cash used in operating activities

 

 

(42,417

)

 

 

(50,997

)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(2,484

)

 

 

(3,937

)

Purchases of marketable securities

 

 

(54,789

)

 

 

(89,274

)

Proceeds from maturities and sales of marketable securities

 

 

65,924

 

 

 

163,035

 

Net cash provided by investing activities

 

 

8,651

 

 

 

69,824

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Payment of employee taxes and exercise costs for shares withheld

 

 

1

 

 

 

 

Proceeds from exercise of stock options

 

 

191

 

 

 

75

 

Payment of deferred offering costs

 

 

(40

)

 

 

 

Net cash provided by financing activities

 

 

152

 

 

 

75

 

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

 

 

(33,614

)

 

 

18,902

 

 

 

 

 

 

 

Cash, cash equivalents, and restricted cash

 

 

 

 

 

 

Beginning of period

 

 

113,112

 

 

 

121,920

 

End of period

 

$

79,498

 

 

$

140,822

 

 

 

 

 

 

 

Reconciliation of cash, cash equivalents, and restricted cash

 

 

 

 

 

 

Cash and cash equivalents

 

$

79,173

 

 

$

140,164

 

Restricted cash

 

 

325

 

 

 

658

 

Cash, cash equivalents, and restricted cash

 

$

79,498

 

 

$

140,822

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

Right-of-use assets recognized in exchange for lease obligations

 

$

117

 

 

$

830

 

Unpaid amounts related to purchase of property, plant and equipment

 

$

1,100

 

 

$

2,439

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5


 

IGM Biosciences, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1. Organization

Description of the Business

IGM Biosciences, Inc. (the Company) was incorporated in the state of Delaware in August 1993 under the name Palingen, Inc. and the name was subsequently changed to IGM Biosciences, Inc. in 2010. The Company’s headquarters are in Mountain View, California. IGM Biosciences, Inc. is a biotechnology company engaged in the development of IgM antibody therapeutics for the treatment of cancer and autoimmune and inflammatory diseases.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP), as defined by the Financial Accounting Standards Board (FASB), and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP have been condensed or omitted, and accordingly the balance sheet as of December 31, 2023 has been derived from the audited financial statements at that date but does not include all of the information required by GAAP for complete financial statements. These unaudited interim condensed consolidated financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments which are necessary for a fair statement of the Company’s financial information. The interim results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024 or for any other interim period or for any other future year.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

The accompanying interim unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, 2023, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 7, 2024.

Liquidity

The Company has incurred net operating losses and negative cash flows from operations since its inception and had an accumulated deficit of $871.1 million as of March 31, 2024. As of March 31, 2024, the Company had cash, cash equivalents, and marketable securities of $293.8 million. Management believes that the existing financial resources are sufficient to continue operating activities at least one year past the issuance date of these condensed consolidated financial statements. The Company has historically financed its operations primarily through the sale of common stock and pre-funded warrants in its public offerings and private placement, the sale of convertible preferred stock and issuance of unsecured promissory notes in private placements, and funding received from our collaboration partners. To date, none of the Company’s product candidates have been approved for sale, and the Company has not generated any product revenue since inception. Management expects operating losses to continue and increase for the foreseeable future, as the Company progresses its planned research and development activities for its product candidates. The Company’s prospects are subject to risks, expenses and uncertainties frequently encountered by companies in the biotechnology industry as discussed below. While the Company has been able to raise multiple rounds of financing, there can be no assurance that in the event the Company requires additional financing, such financing will be available on terms which are favorable or at all. Failure to raise sufficient capital when needed or generate sufficient cash flow from operations would impact the ability to pursue business strategies and could require the Company to delay, scale back or discontinue one or more product development programs, or other aspects of the Company's business objectives.

Note 2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Such management estimates include, but are not limited to, those related to revenue recognition, marketable securities, manufacturing accruals, accrued research and development expenses, stock-based compensation, operating lease right-of-use (ROU) assets and liabilities, income tax uncertainties and the valuation of deferred tax assets. The Company bases its estimates on its historical experience and also on assumptions that it believes are reasonable; however, actual results could significantly differ from those estimates. The most significant estimates and assumptions that management considers in the preparation of our financial statements relate to revenue recognition, accrued research and development costs, and leases.

6


Segments

The Company operates and manages its business as one reportable and operating segment, which is the business of developing engineered IgM antibodies for the treatment of cancer and autoimmune and inflammatory diseases. The Company’s chief executive officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for allocating and evaluating financial performance. All long-lived assets are maintained in, and all losses are attributable to, the United States of America.

Concentration of Credit Risk and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash, cash equivalents, and marketable securities. The Company invests in money market funds, U.S. treasury securities, corporate bonds, commercial paper, and U.S. government agency securities. The Company maintains bank deposits in federally insured financial institutions and these deposits may exceed federally insured limits. The Company is exposed to credit risk in the event of a default by the financial institutions holding its cash, cash equivalents, and restricted cash, and bond issuers to the extent recorded on the balance sheets. The Company’s investment policy limits investments to high credit quality securities issued by the U.S. government and its agencies, highly rated banks, and corporate issuers, subject to certain concentration limits and restrictions on maturities. The Company has not experienced any material losses on its deposits of cash, cash equivalents, and marketable securities.

The Company’s future results of operations involve a number of other risks and uncertainties. Factors that could affect the Company’s future operating results and cause actual results to vary materially from expectations include, but are not limited to, the Company’s early stages of clinical drug development; uncertainties related to the use of engineered IgM antibodies, which is a novel and unproven therapeutic approach; the Company’s ability to advance product candidates into, and successfully complete, clinical trials on the timelines it projects; the Company’s ability to adequately demonstrate sufficient safety and efficacy of its product candidates; the Company’s ability to enroll patients in its ongoing and future clinical trials; the Company’s ability to successfully manufacture and supply its product candidates for clinical trials; the occurrence of any event or circumstance that could give rise to the termination of the Company’s collaborations with third parties; the Company’s ability to obtain additional capital to finance its operations; uncertainties related to the projections of the size of patient populations suffering from the diseases the Company is targeting; the Company’s ability to obtain, maintain, and protect its intellectual property rights; developments relating to the Company’s competitors and its industry, including competing product candidates and therapies; general economic and market conditions; and other risks and uncertainties, including those more fully described in the “Risk Factors” section of this Quarterly Report on Form 10-Q.

The Company’s product candidates will require approvals from the U.S. Food and Drug Administration (FDA) and comparable foreign regulatory agencies prior to commercial sales in their respective jurisdictions. There can be no assurance that any product candidates will receive the necessary approvals. If the Company was denied approval, approval was delayed or the Company was unable to maintain approval for any product candidate, it could have a materially adverse impact on the Company.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with original maturities of three months or less from the date of purchase to be cash and cash equivalents. Cash equivalents consist primarily of amounts invested in money market funds, commercial paper, U.S. treasury securities, and U.S. government agency securities and are stated at fair value. Restricted cash consists of the remaining unused portion of a grant received from a non-profit organization which the Company will continue to utilize as it incurs expenses for services performed under the grant agreement.

Marketable Securities

The Company’s marketable securities have been classified and accounted for as available-for-sale securities. Fixed income securities consist of U.S. treasury securities, U.S. government agency securities, corporate bonds, and commercial paper. The specific identification method is used to determine the cost basis of fixed income securities sold. These securities are recorded on the condensed consolidated balance sheets at fair value. Unrealized gains and losses on these securities are included as a separate component of accumulated other comprehensive loss. The cost of marketable securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion are included in other income (expense). All available-for-sale securities are considered available to support current operations and are classified as current assets. The Company presents any credit losses identified as an allowance rather than as a reduction in the amortized cost of the available-for-sale securities.

For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value and recognized in other income (expense) in the condensed consolidated statements of operations. If neither criteria is met, the Company evaluates whether the decline in fair value is related to credit-related factors or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically

7


related to the security, among other factors. Credit-related impairment losses, limited by the amount that the fair value is less than the amortized cost basis, are recorded through an allowance for credit losses in other income (expense).

Any unrealized losses from declines in fair value below the amortized cost basis as a result of non-credit factors are recognized in accumulated other comprehensive income (loss), net of tax as a separate component of stockholders’ equity, along with unrealized gains. Realized gains and losses and declines in fair value, if any, on available-for-sale securities are included in other income (expense) in the condensed consolidated statements of operations.

For purposes of identifying and measuring credit-related impairments, the Company’s policy is to exclude applicable accrued interest from both the fair value and amortized cost basis of the related security. The Company has elected to write-off uncollectible accrued interest receivable balances in a timely manner, which is defined by the Company as when interest due becomes 90 days delinquent. The accrued interest write-off will be recorded by reversing interest income. Accrued interest receivable is recorded to prepaid expenses and other current assets on the condensed consolidated balance sheets.

Property, Plant and Equipment

Property, plant and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is determined using the straight-line method over the estimated useful lives of the respective assets, generally three to five years. Leasehold improvements are depreciated using the straight-line method over the shorter of the lease term or the estimated useful economic lives of the related assets. Assets are held in construction in progress until placed in service, upon which date, we begin to depreciate these assets.

Upon retirement or sale of the assets, the cost and related accumulated depreciation and amortization are removed from the condensed consolidated balance sheets and the resulting gain or loss are recorded to the condensed consolidated statements of operations. Repairs and maintenance are charged to the condensed consolidated statements of operations as incurred.

Leases

The Company determines if an arrangement is a lease at inception. In addition, the Company determines whether leases meet the classification criteria of a finance or operating lease at the lease commencement date considering: (1) whether the lease transfers ownership of the underlying asset to the lessee at the end of the lease term, (2) whether the lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise, (3) whether the lease term is for a major part of the remaining economic life of the underlying asset, (4) whether the present value of the sum of the lease payments and residual value guaranteed by the lessee equals or exceeds substantially all of the fair value of the underlying asset, and (5) whether the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. As of March 31, 2024, the Company's lease population consisted of real estate leases and the Company did not have finance leases.

Operating leases are included in operating lease ROU assets and lease liabilities in the Company’s condensed consolidated balance sheets. 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. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date if the rate implicit in the lease is not readily determinable. The Company determines the incremental borrowing rate based on an analysis of corporate bond yields with a credit rating similar to the Company.

The determination of the Company’s incremental borrowing rate requires management judgment including the development of a synthetic credit rating and cost of debt as the Company currently does not carry any debt. The Company believes that the estimates used in determining the incremental borrowing rate are reasonable based upon current facts and circumstances. Applying different judgments to the same facts and circumstances could result in the estimated amounts to vary. The operating lease ROU assets also include adjustments for prepayments and accrued lease payments and exclude lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. Operating lease cost is recognized on a straight-line basis over the expected lease term. Variable lease costs represent payments that are dependent on usage, a rate or index. Variable lease cost primarily relates to common area maintenance charges. Lease agreements that include lease and non-lease components are accounted for as a single lease component. Lease agreements with a noncancelable term of less than 12 months are not recorded on the Company’s condensed consolidated balance sheets.

Impairment of Long-Lived Assets

The Company evaluates the carrying amount of its long-lived assets, such as property and equipment, whenever events or changes in circumstances indicate that the assets may not be recoverable. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition are less than the carrying amount of the asset. During the three months ended March 31, 2024 and 2023, there were no impairments identified on long-lived assets.

Fair Value Measurement

The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the condensed consolidated financial statements on a recurring basis. Fair value is an exit price,

8


representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:

Level 1—Observable inputs, such as quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

Financial instruments classified within Level 2 of the fair value hierarchy are valued based on other observable inputs, including broker or dealer quotations or alternative pricing sources. When quoted prices in active markets for identical assets or liabilities are not available, the Company relies on non-binding quotes from its investment managers, which are based on proprietary valuation models of independent pricing services. These models generally use inputs such as observable market data, quoted market prices for similar instruments, or historical pricing trends of a security relative to its peers.

Revenue Recognition

For arrangements or transactions between participants determined to be within the scope of Accounting Standard Codification (ASC) Topic 606, “Revenue from Contracts with Customers” (Topic 606) the Company performs the following steps to determine the appropriate amount of revenue to be recognized as the Company fulfills its obligations: (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 has entered into and may enter into additional collaboration agreements in the future under which it may obtain upfront payments, milestone payments, royalty payments, profit sharing, and other fees. Promises under these arrangements may include intellectual property licenses, research and development services, and the participation in joint committees.

At contract inception, the Company assesses the goods or services promised and enforceable in a contract with a customer and identifies those distinct goods and services that represent a performance obligation. In assessing whether a promised good or service is distinct, and therefore a performance obligation, the Company considers factors such as the nature of the research, stage of development of the targets, 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 combines that good or service with other promised goods or services until it identifies a bundle of goods or services that is distinct. Promised goods and services that are not material in the context of the contract are not considered performance obligations. Additional goods or services that are exercisable at a customer’s discretion, including substitution rights, are assessed to determine if they provide a material right to the customer and if so, they are considered performance obligations.

The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. Non-refundable upfront payments are considered fixed consideration and included in the transaction price.

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

If it is determined that multiple performance obligations exist, the transaction price is allocated at the inception of the agreement to all identified performance obligations based on the relative standalone selling prices (SSP), unless the consideration is variable and meets the criteria to be allocated entirely to one or more, but not all, performance obligations in the contract. The relative SSP for each deliverable is estimated using objective evidence if it is available. If SSP is not directly observable the Company estimates the SSP at an amount that would result in the allocation of the transaction price in an amount that depicts the amount of consideration to which the entity expects to be entitled in exchange for transferring the promised goods or services to the customer, using methods such as the

9


expected cost plus margin approach. Once the transaction price has been allocated to a performance obligation using the applicable methodology, it is not subject to reassessment for subsequent changes in standalone selling prices.

Collaboration revenue is recognized when, or as, the Company satisfies a performance obligation. The Company recognizes revenue over time by measuring the progress toward complete satisfaction of the relevant performance obligation using an appropriate input method based on the nature of the good or service promised to the customer. After contract inception, the transaction price is reassessed at every period end and updated for changes such as resolution of uncertain events.

Management may be required to exercise considerable judgment in estimating revenue to be recognized. Judgment is required in identifying performance obligations, estimating the transaction price, including variable consideration, estimating the standalone selling prices of identified performance obligations, and applying the input method for revenue recognition, including the estimated budgets for each performance obligation.

Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in the Company’s condensed consolidated balance sheets. If the related performance obligation is expected to be satisfied within the next twelve months this will be classified in current liabilities. Amounts recognized as revenue prior to receipt are recorded as contract assets in the Company’s condensed consolidated balance sheets. If the Company expects to have an unconditional right to receive consideration in the next twelve months, this will be classified in current assets. A net contract asset or liability is presented for each contract with a customer.

Collaborative Arrangements

The Company analyzes its agreements 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). These assessments are performed throughout the life of the arrangements based on changes in the responsibilities of all parties in the arrangement.

Research and Development Expenses

The Company expenses research and development costs as they are incurred. Research and development expenses consist primarily of: (i) personnel-related expenses, including salaries, benefits and stock-based compensation expense, for personnel in the Company’s research and development functions; (ii) fees paid to third parties such as contractors, consultants and contract research organizations (CROs) for conducting clinical trials, and other costs related to clinical and preclinical testing; (iii) costs related to acquiring and manufacturing research and clinical trial materials, including under agreements with third parties such as contract manufacturing organizations (CMOs), and other vendors; (iv) costs related to the preparation of regulatory submissions; (v) expenses related to laboratory supplies and services; (vi) fees under license agreements where no alternative future use exists; and (vii) depreciation of equipment and facilities expenses.

Accrued Research and Development Expenses

The Company records accruals for estimated costs of research, preclinical studies, clinical trials, and manufacturing, which are significant components of research and development expenses. A substantial portion of the Company’s ongoing research and development activities is conducted by third-party service providers, CROs and CMOs. The Company’s contracts with CROs generally include pass-through fees such as laboratory supplies and services, regulatory expenses, investigator fees, travel costs and other miscellaneous costs, including shipping and printing fees. The Company’s contracts with the CMOs generally include fees such as initiation fees, reservation fees, verification run costs, materials and reagents expenses, taxes, etc. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to the Company under such contracts. The Company accrues the costs incurred under agreements with these third parties based on estimates of actual work completed in accordance with the respective agreements. The Company determines the estimated costs through discussions with internal personnel and external service providers as to the progress, or stage of completion or actual timeline (start-date and end-date) of the services and the agreed-upon fees to be paid for such services. In the event the Company makes advance payments, the payments are recorded as a prepaid expense and recognized as the services are performed.

As actual costs become known, the Company adjusts its accruals. Although the Company does not expect its estimates to be materially different from amounts actually incurred, such estimates for the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in the Company reporting amounts that are too high or too low in any particular period. The Company’s accrual is dependent, in part, upon the receipt of timely and accurate reporting from CROs and other third-party vendors. Variations in the assumptions used to estimate accruals including, but not limited to, the number of patients enrolled, the rate of patient enrollment and the actual services performed, may vary from the Company’s estimates, resulting in adjustments to clinical trial expenses in future periods. Changes in these estimates that result in material changes to the Company’s accruals could materially affect its financial condition and results of operations. Through March 31, 2024, there have been no material differences from the Company’s estimated accrued research and development expenses to actual expenses.

10


Acquired In-Process Research and Development Expenses

The Company has entered into agreements (see Note 5 – License Agreements) with third parties to acquire the rights to develop and potentially commercialize certain products. Such agreements generally require an initial payment by the Company when the contract is executed. The purchase of license rights for use in research and development activities, including product development, are expensed as incurred and are classified as research and development expense. Additionally, the Company may be obligated to make future royalty payments in the event the Company commercializes the technology and achieves a certain sales volume. In accordance with ASC Topic 730, Research and Development (Topic 730), expenditures for research and development, including upfront licensing fees and milestone payments associated with products not yet been approved by the FDA, are charged to research and development expense as incurred. Future contract milestone and/or royalty payments will be recognized as expense after the achievement of the milestone and the corresponding milestone payment is legally due.

Stock-Based Compensation

The Company accounts for stock-based compensation by measuring and recognizing compensation expense for all share-based awards made to employees, non-employees and directors based on estimated grant-date fair values. The Company uses the straight-line method to allocate compensation cost to reporting periods over the requisite service period, which is generally the vesting period. The grant date fair value of restricted stock units is estimated based on the closing stock price of the Company’s common stock on the date of grant. The grant date fair value of stock options granted to employees and directors is estimated using the Black-Scholes option-pricing model. The Company accounts for forfeitures as they occur. The fair value of each purchase right under the employee stock purchase plan (ESPP) is estimated at the beginning of the offering period using the Black-Scholes option pricing model and recorded as expense over the service period using the straight-line method.

Income Taxes

The Company accounts for income taxes using the liability method, whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance when it is more likely than not that some portion, or all of the Company’s deferred tax assets will not be realized.

The Company accounts for income tax contingencies using a benefit recognition model. If it considers that a tax position is more likely than not to be sustained upon audit, based solely on the technical merits of the position, it recognizes the benefit. The Company measures the benefit by determining the amount that is greater than 50% likely of being realized upon settlement, presuming that the tax position is examined by the appropriate taxing authority that has full knowledge of all relevant information. The Company is subject to taxation in the United States federal jurisdiction, and various state jurisdictions. The net operating loss and research and development credit carryforwards that are available for utilization in future years may be subject to examination by federal and state tax authorities. The Company’s policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense. As of March 31, 2024, there were no significant accruals for interest related to unrecognized tax benefits or tax penalties.

Comprehensive Loss

Comprehensive loss represents the net loss for the period and other comprehensive loss. Other comprehensive loss reflects certain gains and losses that are recorded as a component of stockholders’ equity and are not reflected in the condensed consolidated statements of operations. The Company’s other comprehensive loss consists of changes in unrealized gains and losses on available-for-sale securities.

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock (including non-voting common stock and pre-funded warrants) outstanding during the period, without consideration for all other common stock equivalents. Shares of common stock into which the pre-funded warrants may be exercised are considered outstanding for the purposes of computing net loss per share because the shares may be issued for little or no consideration, are fully vested, and are exercisable after the original issuance date. Diluted net loss per share is the same as basic net loss per share, since the effects of potentially dilutive securities are antidilutive given the net loss for each period presented.

Recently Issued Accounting Pronouncements

In October 2023, the FASB issued Accounting Standards Update (ASU) 2023-06, Disclosure Improvements - Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, which will impact various disclosure areas. The amendments in ASU 2023-06 will be effective on the date the related disclosures are removed from Regulation S-X or Regulation S-K by the SEC, and will no longer be effective if the SEC has not removed the applicable disclosure requirement by June 30, 2027. The Company is currently evaluating the impacts of this standard on its related disclosures.

11


In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280), which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This ASU is effective for fiscal years beginning after December 15, 2023 and is applicable to public entities, including those that have a single reportable segment. Early adoption is permitted. The Company is currently evaluating the impacts of this standard on its condensed consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which amends the guidance in ASC 740, Income Taxes. The ASU is intended to improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. The ASU's amendments are effective for public business entities for annual periods beginning after December 15, 2024. Entities are permitted to early adopt the standard for annual financial statements that have not yet been issued or made available for issuance. Adoption is permitted either prospectively or retrospectively. The Company will adopt this ASU on a prospective basis. The Company is currently evaluating the impact of this standard but does not expect any material impacts on its condensed consolidated financial statements and related disclosures.

Note 3. Fair Value Measurement

The Company measures and reports certain financial instruments as assets and liabilities at fair value on a recurring basis. The following tables set forth the fair value of the Company’s financial assets, which consist of cash equivalents and marketable securities measured and recognized at fair value (in thousands):

 

 

 

 

March 31, 2024

 

 

 

Fair Value
Hierarchy Level

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Fair Value

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

Level 1

 

$

31,300

 

 

$

 

 

$

 

 

$

31,300

 

U.S. treasury securities

 

Level 1

 

 

6,999

 

 

 

 

 

 

 

 

 

6,999

 

Commercial paper

 

Level 2

 

 

35,867

 

 

 

 

 

 

(19

)

 

 

35,848

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

Level 1

 

 

163,230

 

 

 

22

 

 

 

(92

)

 

 

163,160

 

Corporate bonds

 

Level 2

 

 

8,937

 

 

 

3

 

 

 

(3

)

 

 

8,937

 

Commercial paper

 

Level 2

 

 

24,308

 

 

 

 

 

 

(16

)

 

 

24,292

 

U.S. government agency securities

 

Level 2

 

 

18,229

 

 

 

 

 

 

(23

)

 

 

18,206

 

Total

 

 

 

$

288,870

 

 

$

25

 

 

$

(153

)

 

$

288,742

 

 

 

 

 

 

December 31, 2023

 

 

 

Fair Value
Hierarchy Level

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Fair Value

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

Level 1

 

$

21,458

 

 

$

 

 

$

 

 

$

21,458

 

U.S. treasury securities

 

Level 1

 

 

25,896

 

 

 

2

 

 

 

 

 

 

25,898

 

Commercial paper

 

Level 2

 

 

54,427

 

 

 

 

 

 

(27

)

 

 

54,400

 

U.S. government agency securities

 

Level 2

 

 

4,951

 

 

 

1

 

 

 

 

 

 

4,952

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

Level 1

 

 

182,289

 

 

 

214

 

 

 

(14

)

 

 

182,489

 

Corporate bonds

 

Level 2

 

 

13,986

 

 

 

 

 

 

(8

)

 

 

13,978

 

Commercial paper

 

Level 2

 

 

20,216

 

 

 

 

 

 

(17

)

 

 

20,199

 

U.S. government agency securities

 

Level 2

 

 

8,491

 

 

 

11

 

 

 

(11

)

 

 

8,491

 

Total

 

 

 

$

331,714

 

 

$

228

 

 

$

(77

)

 

$

331,865

 

The Company evaluates transfers between levels at the end of each reporting period. There were no transfers between Levels 1, 2 and 3 during the three months ended March 31, 2024 and 2023. As of March 31, 2024 and December 31, 2023, there were no financial instruments classified as Level 3.

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 March 31, 2024 and December 31, 2023, aggregated by major security type and length of time in a continuous unrealized loss position:

12


 

 

March 31, 2024

 

 

 

Less than 12 months

 

 

Greater than 12 months

 

 

Total

 

 

 

Fair Value

 

 

Unrealized Losses

 

 

Fair Value

 

 

Unrealized Losses

 

 

Fair Value

 

 

Unrealized Losses

 

U.S. treasury securities

 

$

126,743

 

 

$

(92

)

 

$

 

 

$

 

 

$

126,743

 

 

$

(92

)

Corporate bonds

 

 

5,979

 

 

 

(3

)

 

 

 

 

 

 

 

 

5,979

 

 

 

(3

)

Commercial paper

 

 

60,140

 

 

 

(35

)

 

 

 

 

 

 

 

 

60,140

 

 

 

(35

)

U.S. government agency securities

 

 

18,206

 

 

 

(23

)

 

 

 

 

 

 

 

 

18,206

 

 

 

(23

)

Total

 

$

211,068

 

 

$

(153

)

 

$

 

 

$

 

 

$

211,068

 

 

$

(153

)

 

 

 

December 31, 2023

 

 

 

Less than 12 months

 

 

Greater than 12 months

 

 

Total

 

 

 

Fair Value

 

 

Unrealized Losses

 

 

Fair Value

 

 

Unrealized Losses

 

 

Fair Value

 

 

Unrealized Losses

 

U.S. treasury securities

 

$

28,137

 

 

$

(14

)

 

$

 

 

$

 

 

$

28,137

 

 

$

(14

)

Corporate bonds

 

 

13,978

 

 

 

(8

)

 

 

 

 

 

 

 

 

13,978

 

 

 

(8

)

Commercial paper

 

 

74,599

 

 

 

(44

)

 

 

 

 

 

 

 

 

74,599

 

 

 

(44

)

U.S. government agency securities

 

 

4,771

 

 

 

(11

)

 

 

 

 

 

 

 

 

4,771

 

 

 

(11

)

Total

 

$

121,485

 

 

$

(77

)

 

$

 

 

$

 

 

$

121,485

 

 

$

(77

)

As of March 31, 2024 and December 31, 2023, the Company held 52 and 35 debt securities, respectively, with an unrealized loss position. The Company evaluated its securities for credit losses and considered the decline in market value to be primarily attributable to current economic and market conditions and not to a credit loss or other factors. Additionally, the Company does not intend to sell the securities in an unrealized loss position and does not expect it will be required to sell the securities before recovery of the unamortized cost basis. As of March 31, 2024 and December 31, 2023, an allowance for credit losses has not been recognized. Given the Company's intent and ability to hold such securities until recovery, and the lack of significant change in credit risk of these investments, it does not consider these marketable securities impaired as of March 31, 2024 and December 31, 2023.

There were no realized gains or losses on marketable securities for the three months ended March 31, 2024 and 2023. Interest on marketable securities is included in interest income. As of March 31, 2024 and December 31, 2023, the Company had accrued interest receivable of $0.9 million and $0.8 million, respectively, which was included in prepaid expenses and other current assets on the condensed consolidated balance sheets.

The following table summarizes the contractual maturities of the Company’s cash equivalents and marketable securities as of March 31, 2024 and December 31, 2023 at estimated fair value (in thousands):

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Due in less than one year

 

$

273,175

 

 

$

312,554

 

Due in more than one year

 

 

15,567

 

 

 

19,311

 

Total

 

$

288,742

 

 

$

331,865

 

 

Note 4. Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Accrued research and development materials and services

 

$

15,601

 

 

$

14,625

 

Accrued professional services

 

 

1,981

 

 

 

3,147

 

Accrued compensation

 

 

5,428

 

 

 

13,527

 

Other

 

 

642

 

 

 

245

 

Total accrued liabilities

 

$

23,652

 

 

$

31,544

 

 

Note 5. License Agreements

The Company enters into arrangements to in-license research and development technology rights with third parties relating to its clinical and pre-clinical programs and product candidates. These arrangements may include non-refundable, upfront payments, payments for options to acquire additional rights relating to its product candidates, as well as contingent obligations for potential

13


development, regulatory and commercial performance milestone payments, and royalty payments. The Company’s obligation to make payments for contingent obligations is contingent upon the respective milestones being achieved as well as its continued involvement in the programs and/or the lack of any adverse events which could cause the discontinuance of the programs. The activities under these license agreements are performed with no guarantee of either technological or commercial success.

During the three months ended March 31, 2024 and 2023, the Company recorded $0.6 million and $0.3 million, respectively, as research and development expense in our condensed consolidated statements of operations related to license agreements.

As of March 31, 2024, the Company’s license agreements for technologies optioned by the Company, including the Medivir agreement described below, included potential future payments for development, regulatory, and sales milestones totaling approximately $361.9 million plus royalties on net sales that range from single digits to mid-teens. No milestones were achieved or deemed probable as of March 31, 2024.

Medivir Agreement

In January 2021, the Company entered into an exclusive license agreement with Medivir AB (Medivir) through which the Company received global, exclusive development and commercialization rights for birinapant, a clinical-stage Second Mitochondrial-derived Activator of Caspases (SMAC) mimetic. Under the terms of the agreement, the Company made an upfront payment of $1.0 million upon signing the agreement, and made an additional $1.5 million payment in November 2021 due to the Company's initiation of a Phase 1 clinical trial of aplitabart in combination with birinapant. Under the terms of the agreement, should birinapant be successfully developed and approved, the Company would be obligated to make additional milestone payments up to a total of approximately $348.5 million, plus tiered royalties from the mid-single digits up to mid-teens on net sales. No milestones were achieved or deemed probable as of March 31, 2024.

Note 6. Stockholders' Equity

Common Stock and Non-Voting Common Stock

As of March 31, 2024 and December 31, 2023, the Company’s certificate of incorporation authorized the Company to issue 1,200,000,00 shares of common stock (including 200,000,000 shares of non-voting common stock) and 200,000,000 shares of preferred stock, at a par value of $0.01 per share. Each share of common stock (excluding non-voting common stock) is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the Company’s Board of Directors, subject to prior rights of the preferred stockholders. As of March 31, 2024 and December 31, 2023, no dividends have been declared.

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

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Stock options, issued and outstanding

 

 

7,760,615

 

 

 

6,766,340

 

Restricted stock units

 

 

1,858,992

 

 

 

658,792

 

Stock options and restricted stock units, future issuance

 

 

3,420,313

 

 

 

3,536,312

 

Employee stock purchase plan, available for future grants

 

 

1,936,988

 

 

 

1,376,988

 

Pre-funded warrants

 

 

1,334,332

 

 

 

1,334,332

 

Total

 

 

16,311,240

 

 

 

13,672,764

 

Pre-Funded Warrants

In December 2020, the Company issued pre-funded warrants to purchase up to 1,334,332 shares of common stock in an underwritten public offering at the offering price of the common stock, less the $0.01 per share exercise price of each warrant and were issued to two separate related party affiliates. The pre-funded warrants were recorded as a component of stockholders’ equity within additional paid-in-capital and will expire on the date any such warrant is exercised in full.

Subject to applicable law, upon exercise of a pre-funded warrant, a holder may elect to receive the same number of shares of non-voting common stock as the shares of common stock for which the pre-funded warrant is exercisable, provided that (i) at the time of such election there is a sufficient number of authorized but unissued and otherwise unreserved shares of non-voting common stock and (ii) the Company consents to such election.

The outstanding pre-funded warrants to purchase shares of common stock are exercisable at any time after their original issuance. However, the Company may not affect the exercise of any pre-funded warrants, and a holder will not be entitled to exercise any portion of any pre-funded warrants that, upon giving effect to such exercise, would cause: (i) the aggregate number of shares of the Company’s common stock beneficially owned by such holder (together with its affiliates) to exceed 9.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the exercise; or (ii) the combined voting power of the Company’s securities beneficially owned by such holder (together with its affiliates) to exceed 9.99% of the combined voting power

14


of all of the Company’s securities outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the pre-funded warrants. However, any holder of a pre-funded warrant may increase or decrease such percentage to any other percentage not in excess of 19.99% upon at least 61 days’ prior notice from the holder to the Company. As of March 31, 2024, no shares underlying the pre-funded warrants had been exercised. All of the outstanding pre-funded warrants are included in the weighted-average number of shares of common stock used to calculate basic net loss per share attributable to common stockholders (see Note 10 – Net Loss Per Share Attributable to Common Stockholders).

Note 7. Sanofi Agreement

In March 2022, the Company entered into a global collaboration and license agreement (the Sanofi Agreement) with Genzyme Corporation, a wholly owned subsidiary of Sanofi (Sanofi), which became effective in May 2022 upon satisfaction of the closing conditions. Under the terms of the Sanofi Agreement, the Company will generate, develop, manufacture and commercialize IgM antibodies directed to six primary targets, three of which are intended as oncology targets and three of which are intended as immunology targets.

On April 17, 2024, the Company received notice from Sanofi that they elected to exercise their right to terminate the oncology collaboration targets with no further obligations to conduct collaboration activities for such terminated targets or any substitution rights for such terminated collaboration targets, pursuant to the terms of the agreement, and as a result, the collaboration will now focus exclusively on the immunology collaboration targets. The termination of the oncology targets will not affect any rights and obligations under the Sanofi Agreement with respect to the immunology targets (see Note 11 – Subsequent Events).

For each oncology target collaboration program, the Company had agreed to lead research and development activities, and assume related costs, through receipt of the first marketing approval for a licensed product directed to that oncology target by the Food and Drug Administration (FDA) or European Medicines Agency (EMA) in exchange for up to $940 million in development and regulatory milestones per oncology target. After receipt of the first marketing approval for a licensed product directed to an oncology target, Sanofi would lead all subsequent development and commercialization activities for that oncology target. For each licensed product directed to an oncology target, the companies would share profits 50:50 in certain major markets, subject to certain exceptions, and the Company would be eligible to receive tiered low double-digit to mid-teen royalties on net sales of licensed products in the rest of world, subject to certain reductions and offsets. However, the Company had the right to opt-out of any future research and development responsibilities for each oncology target collaboration program at any time after completion of a Phase 1 clinical trial for an oncology target collaboration program. As a result of exercising this opt-out right, the Company would no longer share profits 50:50 but would instead be eligible for certain sales milestones and tiered royalties on net sales.

For each immunology target collaboration program, the Company will lead research and development activities, and assume related costs, through the completion of the first Phase 1 clinical trials for up to two candidates directed to each immunology target, after which Sanofi will be responsible for all future development and commercialization activities and related costs, in exchange for up to $1.065 billion in aggregate development, regulatory and commercial milestones per immunology target. Following the completion of the first Phase 1 clinical trials for each immunology target, Sanofi will be responsible for subsequent development activities, commercialization efforts, and related costs. The Company is eligible to receive tiered high single-digit to low-teen royalties on global net sales for licensed products related to immunology targets, subject to certain reductions and offsets.

Subject to earlier expiration in certain circumstances, the Sanofi Agreement expires on a licensed product-by-licensed product and country-by-country basis until the expiration of the applicable profit and loss share term or royalty term, as the case may be. Sanofi has the right to terminate the Sanofi Agreement on a collaboration target-by-collaboration target basis or country-by-country basis with or without cause, upon specified prior notice.

After considering the level of involvement and participation in the joint activities and the related exposure to the risks and rewards of the collaboration, the Company determined that at inception, the Sanofi Agreement does not fall within the collaborative arrangement guidance in Topic 808, and that Sanofi is a customer of the Company for all initial promised goods and services and therefore the agreement is directly within the scope of Topic 606.

The Company identified promised goods and services in the Sanofi Agreement related to the grant of intellectual property license, performance of specified research, development and other various activities. The Company determined that for each of the six targets, the identified promised goods and services are not distinct from each other on a target-by-target basis. The licenses, considered to be functional intellectual property, were determined to not be capable of being distinct due to the specialized nature of the research, development, and other activities to be provided by the Company. Accordingly, the promised goods and services, which consist of the granting of intellectual property licenses and the performance of specified research, development and other various activities, were combined together as one single performance obligation, on a target-by-target basis. The Company determined that the underlying promised goods and services for each of the six targets are both capable of being distinct and distinct within the context of the contract from each of the other targets. Therefore, the Company concluded that there are six performance obligations in the Sanofi Agreement, one for each target, that are comprised of the underlying promised goods and services. Other components and options within the

15


Sanofi Agreement were determined to not provide Sanofi with free or discounted goods or services and therefore did not constitute a material right or were deemed immaterial in the context of the contract.

To determine the transaction price, the Company evaluated all the payments to be received during the duration of the contract. In May 2022, the Company received a $150.0 million upfront payment as part of the Sanofi Agreement. Additionally, in April 2022, Sanofi purchased non-voting common stock in connection with the Company’s public common stock offering. The Company concluded that at inception and as of March 31, 2024, the transaction price was $150.0 million and was comprised solely of the fixed non-refundable upfront payment. No consideration received from Sanofi as part of the April 2022 offering was deemed necessary to include in the transaction price as Sanofi purchased the shares at the same offering price as the other participating investors.

The potential development and regulatory milestone payments that the Company is eligible to receive were excluded from the transaction price, as the milestone amounts were fully constrained, since the milestones relate to successful achievement of certain development results and 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, and 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 allocated the transaction price based on the estimated SSP of each of the six performance obligations. The Company determined the SSP for each of the six performance obligations based on the estimated costs to complete the underlying activities of each performance obligation and included factors such as forecasted internal costs, estimated third-party expenditures, development timelines and scenarios, probability of target failures and selection of substitute targets, and program-specific factors. These estimated cost forecasts were based on observable data for both market and entity specific factors, such as considering the actual and expected costs of the Company’s existing research and development programs and adjusting for factors specific to the targets identified.

The Company recognizes revenue using an input method of costs incurred as a percentage of total estimated costs for each of the performance obligations under the contract. Costs consist primarily of internal personnel costs and third-party contract expenses related to the programs of the Sanofi Agreement. The cumulative effect of revisions to estimated costs to complete the Company’s performance obligations is recorded in the period in which changes are identified and amounts can be reasonably estimated.

For the three months ended March 31, 2024 and 2023, the Company recognized collaboration revenue related to the Sanofi Agreement of $0.5 million in each quarter. As of March 31, 2024 and December 31, 2023, $146.3 million and $146.8 million was recorded as deferred revenue related to the Sanofi Agreement, respectively, of which $3.7 million and $3.8 million, respectively, was current, on the condensed consolidated balance sheets. The deferred revenue is expected to be recognized over the research and development period of the programs through the completion of Phase 1 clinical trials, subject to the impact from terminating the oncology targets announced in April 2024 (see Note 11 – Subsequent Events).

Contract Balances from Customer Contract

The timing of revenue recognition, billings and cash collections results in contract assets and contract liabilities on the condensed consolidated balance sheets. The Company recognizes license and development receivables based on billed services, which are settled 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 tables present changes in the Company’s customer contract liabilities for the periods presented (in thousands):

Three Months Ended March 31, 2024

 

December 31, 2023

 

 

Additions

 

 

Deductions

 

 

March 31, 2024

 

Contract liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue

 

$

146,801

 

 

$

 

 

$

(497

)

 

$

146,304

 

 

Three Months Ended March 31, 2023

 

December 31, 2022

 

 

Additions

 

 

Deductions

 

 

March 31, 2023

 

Contract liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue

 

$

148,931

 

 

$

 

 

$

(522

)

 

$

148,409

 

 

The Company had no customer contract assets during the three months ended March 31, 2024 and 2023.

Note 8. Stock-Based Compensation