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Form 10-Q Corvus Pharmaceuticals, For: Jun 30

August 8, 2022 4:09 PM EDT

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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 June 30, 2022

OR

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

Corvus Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

Delaware

001-37719

46-4670809

(State or other jurisdiction

of incorporation)

(Commission

File Number)

(IRS Employer

Identification Number)

863 Mitten Road, Suite 102
Burlingame, CA 94010

(Address of principal executive offices, including Zip Code)

Registrant’s telephone number, including area code: (650) 900-4520

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 $0.0001 per share

CRVS

Nasdaq Global 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 any 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. (Check one)

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 August 8, 2022, 46,553,511 shares of the registrant’s common stock, $0.0001 par value per share, were outstanding.

CORVUS PHARMACEUTICALS, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2022

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

Item 1.

    

Financial Statements (unaudited)

3

Condensed Consolidated Balance Sheets

3

Condensed Consolidated Statements of Operations and Comprehensive Loss

4

Condensed Consolidated Statements of Change in Stockholders’ Equity

5

Condensed Consolidated Statements of Cash Flows

6

Notes to Condensed Consolidated Financial Statements

7

Item 2.

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

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.

Controls and Procedures

32

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

80

Item 3.

Defaults Upon Senior Securities

80

Item 4.

Mine Safety Disclosures

80

Item 5.

Other Information

80

Item 6.

Exhibits

81

SIGNATURES

82

2

PART I - FINANCIAL INFORMATION

Item 1. Unaudited Condensed Financial Statements

CORVUS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)

June 30, 

December 31, 

    

2022

    

2021

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

28,477

$

63,458

Marketable securities

 

28,246

 

5,993

Accounts receivable - related party

 

373

 

507

Prepaid and other current assets

 

1,789

 

1,354

Total current assets

 

58,885

 

71,312

Property and equipment, net

 

527

 

451

Operating lease right-of-use asset

2,712

3,190

Investment in Angel Pharmaceuticals

30,181

34,266

Other assets

236

236

Total assets

$

92,541

$

109,455

Liabilities and Stockholders’ Equity

 

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

2,650

$

1,565

Operating lease liability

1,135

1,046

Accrued and other liabilities

 

6,371

 

7,081

Total current liabilities

 

10,156

 

9,692

Operating lease liability

1,999

2,601

Total liabilities

 

12,155

 

12,293

Commitments and contingencies (Note 13)

 

  

 

  

Stockholders’ equity:

 

  

 

  

Preferred stock: $0.0001 par value; 10,000,000 shares authorized at June 30, 2022 and December 31, 2021; 0 shares issued and outstanding at June 30, 2022 and December 31, 2021

Common stock: $0.0001 par value; 290,000,000 shares authorized at June 30, 2022 and December 31, 2021; 46,553,511 shares issued and outstanding at June 30, 2022 and December 31, 2021

 

5

 

5

Additional paid-in capital

 

363,083

 

361,669

Accumulated other comprehensive (loss) income

 

339

 

1,869

Accumulated deficit

 

(283,041)

 

(266,381)

Total stockholders’ equity

 

80,386

 

97,162

Total liabilities and stockholders’ equity

$

92,541

$

109,455

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

3

CORVUS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share data)

(unaudited)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2022

    

2021

    

2022

    

2021

    

Operating expenses:

  

 

  

  

 

  

Research and development

$

4,923

$

9,106

$

10,023

$

17,336

General and administrative

 

2,090

 

2,184

 

4,403

 

5,437

Total operating expenses

 

7,013

 

11,290

 

14,426

 

22,773

Loss from operations

 

(7,013)

 

(11,290)

 

(14,426)

 

(22,773)

Interest income and other expense, net

 

100

 

1

 

111

 

4

Sublease income - related party

146

292

Loss from equity method investment

(1,596)

(463)

(2,637)

(563)

Net loss

$

(8,363)

$

(11,752)

$

(16,660)

$

(23,332)

Net loss per share, basic and diluted

$

(0.18)

$

(0.28)

$

(0.36)

$

(0.61)

Shares used to compute net loss per share, basic and diluted

 

46,553,511

 

42,247,094

 

46,553,511

 

38,402,464

Other comprehensive loss:

 

 

  

 

 

  

Unrealized loss on marketable securities

 

(54)

 

(4)

 

(82)

 

(2)

Cumulative foreign currency translation adjustment

 

(1,594)

 

1,385

 

(1,448)

 

1,385

Comprehensive loss

$

(10,011)

$

(10,371)

$

(18,190)

$

(21,949)

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

4

CORVUS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

Six Months Ended June 30, 2022

    

    

    

Accumulated

    

    

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholders’

    

Shares

    

Amount

    

Capital

    

Income

    

Deficit

    

Equity

Balance at December 31, 2021

46,553,511

$

5

$

361,669

$

1,869

$

(266,381)

$

97,162

Stock-based compensation expense

739

739

Unrealized loss on marketable securities

(28)

(28)

Foreign currency translation adjustment

146

146

Net loss

(8,297)

(8,297)

Balance at March 31, 2022

46,553,511

$

5

$

362,408

$

1,987

$

(274,678)

$

89,722

Stock-based compensation expense

675

675

Unrealized loss on marketable securities

(54)

(54)

Foreign currency translation adjustment

(1,594)

(1,594)

Net loss

(8,363)

(8,363)

Balance at June 30, 2022

46,553,511

$

5

$

363,083

$

339

$

(283,041)

$

80,386

Six Months Ended June 30, 2021

    

    

    

Accumulated

    

    

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholders’

    

Shares

    

Amount

    

Capital

    

Income

    

Deficit

    

Equity

Balance at December 31, 2020

28,372,634

$

3

$

295,281

$

4

$

(223,140)

$

72,148

Stock-based compensation expense

1,225

1,225

Unrealized gain on marketable securities

2

2

Issuance of common stock in connection with at-the-market offering, net

153,257

601

601

Issuance of common stock upon follow-on public offering, net

9,783,660

1

31,988

31,989

Net loss

(11,580)

(11,580)

Balance at March 31, 2021

38,309,551

$

4

$

329,095

$

6

$

(234,720)

$

94,385

Stock-based compensation expense

1,173

1,173

Unrealized loss on marketable securities

(4)

(4)

Foreign currency translation adjustment

1,385

1,385

Issuance of common stock in connection with at-the-market offering, net

4,111,608

11,216

11,216

Net loss

(11,752)

(11,752)

Balance at June 30, 2021

42,421,159

$

4

$

341,484

$

1,387

$

(246,472)

$

96,403

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

5

CORVUS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

Six Months Ended

June 30, 

    

2022

    

2021

    

Cash flows from operating activities

  

 

  

Net loss

$

(16,660)

$

(23,332)

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

 

  

 

  

Depreciation and amortization

 

179

 

259

Accretion related to marketable securities

 

95

 

169

Stock-based compensation

 

1,414

 

2,398

Loss from equity method investment

 

2,637

 

563

Changes in operating assets and liabilities:

 

  

 

  

Accounts receivable - related party

 

134

 

(3)

Prepaid and other current assets

 

(435)

 

(1,580)

Operating lease right-of-use asset

478

384

Other assets

98

Accounts payable

 

834

 

(602)

Accrued and other liabilities

 

(710)

 

738

Operating lease liability

(513)

(526)

Net cash used in operating activities

 

(12,547)

 

(21,434)

Cash flows from investing activities

 

  

 

  

Purchases of marketable securities

 

(29,420)

 

(4,709)

Maturities of marketable securities

 

6,990

 

24,797

Purchases of property and equipment

 

(4)

 

Net cash (used in) provided by investing activities

 

(22,434)

 

20,088

Cash flows from financing activities

 

  

 

  

Proceeds from issuance of common stock, net (includes $4,850 in aggregate gross proceeds from related parties for the six months ended June 30, 2021)

 

 

31,989

Proceeds from issuance of common stock in connection with at-the-market offering, net

11,817

Net cash provided by financing activities

 

 

43,806

Net (decrease) increase in cash and cash equivalents

 

(34,981)

 

42,460

Cash and cash equivalents at beginning of the period

 

63,458

 

16,455

Cash and cash equivalents at end of the period

$

28,477

$

58,915

Supplemental disclosures of cash flow information

 

  

 

  

Purchases of property and equipment incurred but not paid

$

251

$

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

6

CORVUS PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1. Organization

Corvus Pharmaceuticals, Inc. (“Corvus” or the “Company”) was incorporated in Delaware on January 27, 2014 and commenced operations in November 2014. Corvus is a clinical-stage biopharmaceutical company. The Company’s operations are located in Burlingame, California.

Presentation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Corvus Biopharmaceuticals, Ltd. and Corvus Hong Kong Limited. All significant intercompany accounts and transactions have been eliminated from the consolidated financial statements.

Initial Public Offering

On March 22, 2016, the Company’s registration statement on Form S-1 (File No. 333-208850) relating to its initial public offering (“IPO”) of its common stock was declared effective by the Securities and Exchange Commission (“SEC”) and the shares of its common stock began trading on the Nasdaq Global Market on March 23, 2016. The public offering price of the shares sold in the IPO was $15.00 per share. The IPO closed on March 29, 2016, pursuant to which the Company sold 4,700,000 shares of its common stock. On April 26, 2016, the Company sold an additional 502,618 shares of its common stock to the underwriters upon partial exercise of their over-allotment option, at the initial offering price of $15.00 per share. The Company received aggregate net proceeds of approximately $70.6 million, after underwriting discounts, commissions and offering expenses. Immediately prior to the consummation of the IPO, all outstanding shares of convertible preferred stock were converted into common stock.

Follow-on Public Offerings

In March 2018, the Company completed a follow-on public offering in which the Company sold 8,117,647 shares of common stock at a price of $8.50 per share, which included 1,058,823 shares issued pursuant to the underwriters’ exercise of their option to purchase additional shares of common stock. The aggregate net proceeds received by the Company from the offering were approximately $64.9 million, net of underwriting discounts and commissions and offering expenses payable by the Company.

In February 2021, the Company completed a follow-on public offering in which the Company sold 9,783,660 shares of common stock at a price of $3.50 per share, which included 1,212,231 shares issued pursuant to the underwriters’ exercise of their option to purchase additional shares of common stock. The aggregate net proceeds received by the Company from the offering were approximately $32.0 million, net of underwriting discounts and commissions and offering expenses.

Liquidity

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, protection of proprietary technology, dependence on key personnel, contract manufacturer and contract research organizations, compliance with government regulations and the need to obtain additional financing to fund operations. Since commencing operations in 2014, the majority of the Company’s efforts have been focused on the research and development of CPI-818, ciforadenant and mupadolimab (formerly CPI-006). The Company believes that it will continue to expend substantial resources for the foreseeable future as it continues clinical development of, seek regulatory approval for and, if approved, prepare for the commercialization of CPI-818, ciforadenant and mupadolimab, as well as product candidates under the Company’s other development programs. These expenditures will include costs associated with research and development, conducting preclinical studies and clinical trials, obtaining regulatory

7

approvals, manufacturing and supply, sales and marketing and general operations. In addition, other unanticipated costs may arise. Because the outcome of any clinical trial and/or regulatory approval process is highly uncertain, the Company may not be able to accurately estimate the actual amounts necessary to successfully complete the development, regulatory approval process and commercialization of CPI-818, ciforadenant and mupadolimab or any other product candidates. The Company does not expect its existing capital resources to be sufficient to enable it to fund the completion of its clinical trials and remaining development program of CPI-818, ciforadenant and mupadolimab through commercialization. In addition, its operating plan may change as a result of many factors, including those described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed on March 10, 2022 and this Quarterly Report on Form 10-Q.

The Company has incurred significant losses and negative cash flows from operations in all periods since inception and had an accumulated deficit of $283.0 million as of June 30, 2022. The Company has historically financed its operations primarily through the sale of redeemable convertible preferred stock and common stock. 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 generate sufficient cash flows from operations, raise additional capital or reduce certain discretionary spending would have a material adverse effect on the Company’s ability to achieve its intended business objectives.

As of June 30, 2022, the Company had cash, cash equivalents and short-term marketable securities of $56.7 million. Management believes that the Company’s current cash, cash equivalents and short-term marketable securities will be sufficient to fund its planned operations for at least 12 months from the date of the issuance of these financial statements.

The current COVID-19 (coronavirus) pandemic, which is impacting worldwide economic activity, poses risks that the Company or its employees, contractors, suppliers, and other partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities. The extent to which COVID-19 impacts the Company’s business, including its clinical trials and financial condition, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the spread of the disease, the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. As COVID-19 continues to spread around the globe, including the spread of more contagious and virulent variants, we will likely experience disruptions, including delays or difficulties in enrolling patients in our clinical trials, delays or difficulties in clinical site initiation, interruption of key clinical trial activities, delays in clinical sites receiving the supplies and materials needed to conduct our clinical trials and delays in necessary interactions with local regulatory authorities. COVID-19 may also impact the Company’s ability to raise additional capital on a timely basis or at all, which could negatively impact short-term and long-term liquidity.

Exchange Warrants

On November 8, 2019, the Company entered into an exchange agreement (the “Exchange Agreement”) with an investor and its affiliates (the “Exchanging Stockholders”), pursuant to which the Company exchanged an aggregate of 1,458,000 shares of the Company’s common stock, par value $0.0001 per share, owned by the Exchanging Stockholders for pre-funded warrants (the “Exchange Warrants”) to purchase an aggregate of 1,458,000 shares of common stock (subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described in the Exchange Warrants), with an exercise price of $0.0001 per share. The Exchange Warrants were exercisable at any time prior to expiration. In accordance with Accounting Standards Codification Topic 505, Equity, and Accounting Research Bulletin 43, the Company recorded the retirement of the common stock exchanged as a reduction of common shares outstanding and elected to record the excess over par value as a debit to additional paid-in-capital at the fair value of the Exchange Warrants on the issuance date. The Exchange Warrants were classified as equity in accordance with Accounting Standards Codification Topic 480, Distinguishing Liabilities from Equity, and Accounting Standards Codification Topic 815, Derivatives and Hedging, and the fair value of the Exchange Warrants was recorded as a credit to additional paid-in capital and is not subject to remeasurement. The Company determined that the fair value of the Exchange Warrants is substantially similar to the fair value of the retired shares on the issuance date due to the negligible exercise price for the Exchange Warrants.

8

In September 2021, the Exchange Warrants were fully exercised, resulting in the issuance of 1,457,947 shares of common stock on a net exercise basis.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The Company’s functional and reporting currency is the U.S. dollar, except for its investment in its equity method investee which is the Chinese renminbi (RMB). The accompanying condensed consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and discharge of liabilities in the normal course of business. Since its inception, the Company has incurred significant losses and negative cash flows from operations. As of June 30, 2022, the Company had an accumulated deficit of $283.0 million and cash, cash equivalents and marketable securities of $56.7 million. The Company has financed its operations primarily with the proceeds from the sale of stock. The Company will need to raise additional capital to meet its business objectives. The Company believes that its current cash, cash equivalents and marketable securities will be sufficient to fund its planned expenditures and meet its obligations through at least the next twelve months from the issuance of these financial statements.

Unaudited Interim Financial Information

The accompanying interim condensed consolidated financial statements and related disclosures are unaudited, have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the results of operations for the periods presented.

The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The condensed consolidated results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the full year or for any other future year or interim period. The accompanying condensed consolidated financial statements should be read in conjunction with the audited financial statements and the related notes for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 10, 2022.

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from such estimates.

Foreign Currency Translation

Angel Pharmaceuticals Co., Ltd.’s (“Angel Pharmaceuticals”) functional currency is the Chinese renminbi (RMB). Angel Pharmaceuticals’ consolidated financial statements are reported in RMB. Financial information is translated from RMB to the U.S. dollar (the reporting currency) for inclusion in our consolidated financial statements. Income, expenses and cash flows are translated at average exchange rates prevailing during the fiscal period, assets and liabilities are translated at fiscal period-end exchange rates, and stockholders’ equity is held at historical rates. Resulting translation adjustments are included as a component of accumulated other comprehensive income in stockholders' equity.

9

Out of Period Adjustment

In the three months ended June 30, 2021, the Company recorded a cumulative translation adjustment that affected the Company’s balance sheet at June 30, 2021 by increasing its investment in Angel Pharmaceuticals and accumulated other comprehensive income in the equity section of the balance sheet by $1.4 million. $0.9 million of this amount was an out of period adjustment related to the year ended December 31, 2020. The impact of the out of period adjustment in the quarter ended March 31, 2021 was to reduce its investment in Angel Pharmaceuticals and other comprehensive income by $83,000. The Company has concluded that the out of period adjustment is not material to the unaudited condensed consolidated financial statements for the quarter ended March 31, 2021.

Concentrations of Credit Risk and Other Risks and Uncertainties

Substantially all of the Company’s cash and cash equivalents are deposited in accounts with two financial institutions that management believes are of high credit quality. Such deposits may, at times, exceed federally insured limits. The Company maintains its cash with an accredited financial institution and accordingly, such funds are subject to minimal credit risk. The Company’s marketable securities consist of investments in U.S. Treasury securities and U.S. government agency securities, which can be subject to certain credit risks. However, the Company mitigates the risks by investing in high-grade instruments, limiting its exposure to any one issuer, and monitoring the ongoing creditworthiness of the financial institutions and issuers. The Company has not experienced any losses on its deposits of cash, cash equivalents or marketable securities.

The Company is subject to a number of risks similar to other early stage biopharmaceutical companies, including, but not limited to, the need to obtain adequate additional funding, possible failure of preclinical testing or clinical trials, its reliance on third parties to conduct its clinical trials, the need to obtain marketing approval for its product candidates, competitors developing new technological innovations, the need to successfully commercialize and gain market acceptance of the Company’s product candidates, its right to develop and commercialize its product candidates pursuant to the terms and conditions of the licenses granted to the Company, and protection of proprietary technology. If the Company does not successfully commercialize or partner any of its product candidates, it will be unable to generate product revenue or achieve profitability.

Segments

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in one operating segment, that of the development of and commercialization of precisely targeted oncology therapies.

Significant Accounting Policies

The Company’s significant accounting policies are described in Note 2 to its consolidated financial statements for the year ended December 31, 2021, included in its Annual Report on Form 10-K. There have been no material changes to the Company’s significant accounting policies during the six months ended June 30, 2022.

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 is effective in 2021 and interim periods within that year and permits for an early adoption. The Company adopted ASU 2019-12 effective January 1, 2021. The adoption of the guidance did not have a material impact on its financial statements and related disclosures.

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3. Net Loss per Share

The following table shows the calculation of net loss per share (in thousands, except share and per share data):

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2022

    

2021

    

2022

    

2021

    

Numerator:

  

 

  

  

 

  

Net loss - basic and diluted

$

(8,363)

$

(11,752)

$

(16,660)

$

(23,332)

Denominator:

 

 

  

 

 

  

Weighted average common shares outstanding used to compute basic and diluted net loss per share

 

46,553,511

 

42,247,094

 

46,553,511

 

38,402,464

Net loss per share, basic and diluted

$

(0.18)

$

(0.28)

$

(0.36)

$

(0.61)

Weighted average common shares outstanding for the three and six months ended June 30, 2021 include 1,458,000 shares of common stock issuable on the conversion of pre-funded warrants described in Note 1.

The amounts in the table below were excluded from the calculation of diluted net loss per share, due to their anti-dilutive effect:

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2022

    

2021

    

2022

    

2021

    

Outstanding options

5,596,567

 

6,308,904

5,596,567

 

6,308,904

4. Fair Value Measurements

Financial assets and liabilities are measured and recorded at fair value. The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. The fair value hierarchy prioritizes valuation inputs based on the observable nature of those inputs. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The hierarchy defines three levels of valuation inputs:

Level 1—Quoted prices in active markets for identical assets or liabilities

Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly

Level 3—Unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability

There have been no transfers of assets and liabilities between levels of hierarchy.

The Company’s Level 2 investments are valued using third-party pricing sources. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar investments, issuer credit spreads, benchmark investments, prepayment/default projections based on historical data and other observable inputs.

11

The following tables present information as of June 30, 2022 and December 31, 2021 about the Company’s assets that are measured at fair value on a recurring basis and indicate the level of the fair value hierarchy the Company utilized to determine such fair values (in thousands):

June 30, 2022

Fair Value Measured Using

Total

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Balance

Assets

 

  

 

  

 

  

 

  

Cash equivalents

$

26,748

$

$

$

26,748

Marketable securities

 

22,443

 

5,803

 

 

28,246

$

49,191

$

5,803

$

$

54,994

December 31, 2021

Fair Value Measured Using

Total

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Balance

Assets

 

  

 

  

 

  

 

  

Cash equivalents

$

61,992

$

$

$

61,992

Marketable securities

1,011

 

4,982

 

 

5,993

$

63,003

$

4,982

$

$

67,985

As of June 30, 2022, marketable securities had a maximum remaining maturity of eleven months.

As of June 30, 2022 and December 31, 2021, the fair value of available for sale marketable securities by type of security were as follows (in thousands):

June 30, 2022

    

    

Gross

    

Gross

    

Amortized

Unrealized

Unrealized

Fair

Cost

Gains

Losses

Value

U.S. Treasury securities

$

22,499

$

$

(56)

$

22,443

U.S. Government agency securities

5,829

(26)

5,803

$

28,328

$

$

(82)

$

28,246

December 31, 2021

    

    

Gross

    

Gross

    

Amortized

Unrealized

Unrealized

Fair

Cost

Gains

Losses

Value

U.S. Treasury securities

$

1,012

$

$

(2)

$

1,010

U.S. Government agency securities

4,984

(1)

4,983

$

5,996

$

$

(3)

$

5,993

5. Equity Method Investment

As of June 30, 2022 and December 31, 2021, the Company’s ownership interest in Angel was approximately 49.7%, excluding 7% of Angel’s equity reserved for issuance under the Angel ESOP. The Company recognized its share of losses in Angel for the total amount of $1.6 million and $2.6 million as loss from equity method investment on the consolidated statement of operations for the three and six months ended June 30, 2022, respectively.

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Summary Financial Information

Summary financial information for Angel Pharmaceuticals is as follows:

As of

As of

Balance Sheet Data (unaudited)

    

June 30, 2022

December 31, 2021

 

(In thousands)

Current assets

$

33,670

$

38,608

Non-current assets

 

1,664

 

1,818

Current liabilities

 

1,128

 

2,119

Non-current liabilities

 

1,024

 

105

Stockholders' equity

33,182

38,202

Three Months Ended

Six Months Ended

June 30,

June 30,

Statement of Operations Data (unaudited)

    

2022

2021

2022

2021

 

(In thousands)

Net loss

$

(1,873)

$

(544)

 

(3,198)

 

(662)

Share of loss from investments accounted for using the equity method

 

(1,596)

 

(463)

 

(2,637)

 

(563)

6. License and Collaboration Agreements

Scripps Licensing Agreement

In December 2014, the Company entered into a license agreement with The Scripps Research Institute (“Scripps”), pursuant to which it was granted a non-exclusive, world-wide license for all fields of use under Scripps’ rights in certain know-how and technology related to a mouse hybridoma clone expressing an anti-human CD73 antibody, and to progeny, mutants or unmodified derivatives of such hybridoma and any antibodies expressed by such hybridoma, from which we developed mupadolimab. Scripps also granted the Company the right to grant sublicenses in conjunction with other proprietary rights the Company holds, or to others collaborating with or performing services for the Company. Under this license agreement, Scripps has agreed not to grant any additional commercial licenses with respect to such materials, other than march-in rights granted to the U.S. government.

Upon execution of the agreement, the Company made a one-time cash payment to Scripps of $10,000 in 2015 and is also obligated to pay a minimum annual fee to Scripps of $25,000. The one-time cash payment was recorded as research and development expense as technological feasibility of the asset had not been established and there was no alternative future use. A minimum annual fee payment is due on each anniversary of the effective date of the agreement for the term of the agreement. The Company is also required to make performance-based cash payments upon successful completion of clinical and sales milestones. The aggregate potential milestone payments are $2.5 million. The Company is also required to pay royalties on net sales of licensed products (including mupadolimab) sold by it, its affiliates and its sublicensees at a rate in the low-single digits. In addition, should the Company sublicense the rights licensed under the agreement, it has agreed to pay a percentage of sublicense revenue received at specified rates that start at double digit percentages and decrease to single digit percentages based on the elapsed time from the effective date of the agreement and the time of entry into such sublicense.

The Company’s license agreement with Scripps will terminate upon expiration of its obligation to pay royalties to Scripps under the license agreement. The Company’s license agreement with Scripps is terminable by the consent of the parties, at will by the Company upon providing 90 days written notice to Scripps, or by Scripps for certain material breaches, or if the Company undergoes a bankruptcy event. In addition, Scripps may terminate the license on a product-by-product basis, or the entire agreement, if the Company fails to meet specified diligence obligations related to the development and commercialization of licensed products. Scripps may also terminate the agreement after the third

13

anniversary of the effective date of the agreement if it reasonably believes, based on reports the Company provides to Scripps, that the Company has not used commercially reasonable efforts as required under the agreement, subject to a specified notice and cure period.

Vernalis Licensing Agreement

In February 2015, the Company entered into a license agreement with Vernalis (R&D) Limited (“Vernalis”), which was subsequently amended as of November 5, 2015, and, pursuant to which the Company was granted an exclusive, worldwide license under certain patent rights and know-how, including a limited right to grant sublicenses, for all fields of use to develop, manufacture and commercialize products containing certain adenosine receptor antagonists, including ciforadenant (formerly CPI-444). Pursuant to this agreement, the Company made a one-time cash payment to Vernalis in the amount of $1.0 million, which was recorded as research and development expense as technological feasibility of the asset had not been established and there was no alternative future use. The Company is also required to make cash milestone payments to Vernalis upon the successful completion of clinical and regulatory milestones for licensed products depending on the indications for which such licensed products are developed and upon achievement of certain sales milestones. In February 2017, the Company made a milestone payment of $3.0 million to Vernalis following the expansion of a cohort of patients with renal cell cancer treated with single agent ciforadenant in the Company’s Phase 1/1b clinical trial. The aggregate potential milestone payments are approximately $220 million for all indications.

The Company has also agreed to pay Vernalis tiered incremental royalties based on the annual net sales of licensed products containing ciforadenant on a product-by-product and country-by-country basis, subject to certain offsets and reductions. The tiered royalty rates for products containing ciforadenant range from the mid-single digits up to the low-double digits on a country-by-country net sales basis. The royalties on other licensed products that do not include ciforadenant also increase with the amount of net sales on a product-by-product and country-by-country basis and range from the low-single digits up to the mid-single digits on a country-by-country net sales basis. The Company is also obligated to pay to Vernalis certain sales milestones as indicated above when worldwide net sales reach specified levels over an agreed upon time period.

The agreement will expire on a product-by-product and country-by-country basis upon the expiration of the Company’s payment obligations to Vernalis in respect of a particular product and country. Both parties have the right to terminate the agreement for an uncured material breach by the other party. The Company may also terminate the agreement at its convenience by providing 90 days written notice, provided that the Company has not received notice of its own default under the agreement at the time the Company exercises such termination right. Vernalis may also terminate the agreement if the Company challenges a licensed patent or undergoes a bankruptcy event.

Genentech Collaboration Agreements

In October 2015, the Company entered into a clinical trial collaboration agreement with Genentech to evaluate the safety, tolerability and preliminary efficacy of ciforadenant combined with Genentech’s investigational cancer immunotherapy, Tecentriq, a fully humanized monoclonal antibody targeting PD-L1, in a variety of solid tumors in our Phase 1/1b clinical trial. Pursuant to this agreement, the Company will be responsible for the conduct and cost of the relevant studies, under the supervision of a joint development committee made up of the Company’s representatives and representatives of Genentech. Genentech will supply Tecentriq. At this time, no further patients are being enrolled in this trial. As part of the agreement, the Company granted Genentech certain rights of first negotiation to participate in future clinical trials that the Company may conduct evaluating the administration of ciforadenant in combination with an anti-PD-1 or anti-PD-L1 antibody. If both parties do not reach agreement on the terms of any such participation by Genentech within a specified time period, the Company retains the right to collaborate with third parties in such activities. The Company also granted Genentech certain rights of first negotiation should the Company decide to license development and commercialization rights to ciforadenant. Should both parties not reach agreement on the terms of such a license within a specified time of period, the Company retains the right to enter into a license with another third party. This agreement will expire after a set period of time following the provision by the Company of the final clinical study report to Genentech, which has not yet been finalized.

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In May 2017, the Company entered into a second clinical trial collaboration agreement with Genentech. Under the new agreement, ciforadenant administered in combination with Tecentriq will be evaluated in a Phase 1b/2 randomized, controlled clinical study as second-line therapy in patients with non small cell lung cancer (“NSCLC“) who are resistant and/or refractory to prior therapy with an anti-PD-(L)1 antibody. This study has completed patient enrollment of 16 patients. Genentech was responsible for the conduct of the study and the Company will share the cost of the Phase 1b/2 trial, which began enrolling patients in the fourth quarter of 2017. The Company is responsible for supplying ciforadenant and retains global development and commercialization rights to ciforadenant. This agreement will expire after a set period of time following the provision by Genentech of a final study report to the Company.

Monash License Agreement

In April 2017, the Company entered into a license agreement with Monash University (Monash), pursuant to which the Company was granted an exclusive, sublicensable worldwide license under certain know-how, patent rights and other intellectual property rights controlled by Monash to research, develop, and commercialize certain antibodies directed to CXCR2 for the treatment of human diseases.

Upon execution of the agreement, the Company made a one-time cash payment to Monash of $275,000 and reimbursed Monash for certain patent prosecution costs incurred prior to execution of the agreement. The Company is also obligated to pay an annual license maintenance fee to Monash of $25,000 until a certain development milestone is met with respect to the licensed product, after which no further maintenance fee will be due. The Company is also required to make development and sales milestone payments to Monash with respect to the licensed products in the aggregate of up to $45.1 million. The Company is also required to pay to Monash tiered royalties on net sales of licensed products sold by it, its affiliates and its sublicensees at a rate ranging in the low-single digits. In addition, should the Company sublicense its rights under the agreement, the Company has agreed to pay a percentage of sublicense revenue received at specified rates that are currently at low double digit percentages and decrease to single digit percentages based on the achievement of development milestones.

The term of the Company’s agreement with Monash continues until the expiration of its obligation to pay royalties to Monash thereunder. The license agreement is terminable at will by the Company upon providing 30 days written notice to Monash, or by either party for material breaches by the other party. In addition, Monash may terminate the entire agreement or convert the license to a non-exclusive license if the Company has materially breached its obligation to use commercially reasonable efforts to develop and commercialize a licensed product, subject to a specified notice and cure mechanism.

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7. Balance Sheet Components (in thousands)

June 30, 

December 31, 

    

2022

    

2021

    

Prepaid and Other Current Assets

Interest receivable

$

56

$

32

Prepaid research and development manufacturing expenses

535

740

Prepaid facility expenses

182

174

Prepaid insurance

621

280

Other

 

395

 

128

$

1,789

$

1,354

Property and Equipment

Laboratory equipment

$

2,732

$

2,477

Computer equipment and purchased software

 

142

 

142

Leasehold improvements

 

2,084

 

2,084

 

4,958

 

4,703

Less: accumulated depreciation and amortization

 

(4,431)

 

(4,252)

$

527

$

451

Accrued and Other Liabilities

Accrued clinical trial expense

$

3,638

$

4,010

Accrued manufacturing expense

 

1,063

 

839

Personnel related

 

1,255

 

1,846

Accrued legal and accounting

284

265

Other

 

131

 

121

$

6,371

$

7,081

8. Common Stock

As of June 30, 2022, the amended and restated certificate of incorporation authorizes the Company to issue 290 million shares of common stock and 10 million shares of preferred stock.

Each share of common stock is entitled to one vote. Common stockholders are entitled to dividends if and when declared by the board of directors. As of June 30, 2022, no dividends on common stock had been declared.

In March 2020, the Company entered into an open market sale agreement (the “2020 Sales Agreement”) with Jefferies LLC (“Jefferies”) to sell shares of the Company’s common stock, from time-to-time, with aggregate gross sales proceeds of up to $50,000,000, through an at-the-market equity offering program under which Jefferies will act as its sales agent. In November 2021, the Company entered into another Sale Agreement (“2021 Sales Agreement”) with Jefferies to sell shares of our common stock from time-to-time, with aggregate gross sales proceeds of up to $40,000,000. The issuance and sale of shares of common stock by the Company pursuant to the Sales Agreements are deemed an “at-the-market” offering under the Securities Act of 1933, as amended. Jefferies is entitled to compensation for its services equal to up to 3.0% of the gross proceeds of any shares of common stock sold through Jefferies under the Sales Agreements.

During the six months ended June 30, 2022, the Company did not sell any shares of common stock under it’s at-the-market offering program. As of June 30, 2022, the Company had sold 6,920,339 shares of common stock for gross proceeds of $31.1 million under the 2020 Sales Agreement and $18.9 million and $40.0 million remained for sale under the 2020 Sales Agreement and 2021 Sales Agreement, respectively.

16

The Company has reserved shares of common stock for issuance as follows:

June 30, 

December 31, 

    

2022

    

2021

    

Shares available for future option grants

5,426,694

2,806,953

Outstanding options

 

5,596,567

6,354,308

 

Shares reserved for employee stock purchase plan

 

400,000

400,000

 

Total

 

11,423,261

9,561,261

 

9. Stock Option Plans

In February 2014, the Company adopted the 2014 Equity Incentive Plan (the “2014 Plan”), which was subsequently amended in November 2014, July 2015 and September 2015, under which it granted incentive stock options (“ISOs”) or non-qualified stock options (“NSOs”). Terms of stock agreements, including vesting requirements, are determined by the board of directors or a committee authorized by the board of directors, subject to the provisions of the 2014 Plan. In general, awards granted by the Company vest over four years and have a maximum exercise term of 10 years. The 2014 Plan provides that grants must be at an exercise price of 100% of fair market value of the Company’s common stock as determined by the board of directors on the date of the grant.

In connection with the consummation of the IPO in March 2016, the 2016 Equity Incentive Award Plan (the “2016 Plan”), became effective. Under the 2016 Plan, incentive stock options, non-statutory stock options, stock purchase rights and other stock-based awards may be granted. Terms of stock agreements, including vesting requirements, are determined by the board of directors or a committee authorized by the board of directors, subject to the provisions of the 2016 Plan. In general, awards granted by the Company vest over four years and have a maximum exercise term of 10 years. The 2016 Plan provides that grants must be at an exercise price of 100% of fair market value of the Company’s common stock as determined by the board of directors on the date of the grant. In conjunction with adopting the 2016 Plan, the 2014 Plan was terminated and no further awards will be granted under the 2014 Plan. Options outstanding under the 2014 Plan as of the effective date of the 2016 Plan that are forfeited or lapse unexercised may be re-issued under the 2016 Plan, up to a maximum of 1,136,229 shares.

Activity under the Company’s stock option plans is set forth below:

Options Outstanding

    

    

    

Weighted 

Shares

Average

Available

Number of 

Exercise

    

for Grant

    

Options

    

Price

Balance at December 31, 2021

 

2,806,953

 

6,354,308

$

6.80

Additional shares authorized

 

1,862,000

 

 

Options granted

 

(184,400)

 

184,400

 

1.40

Options forfeited

 

942,141

 

(942,141)

 

7.86

Balance at June 30, 2022

 

5,426,694

 

5,596,567

$

6.44

17

10. Stock-Based Compensation

The Company’s results of operations include expenses relating to employee and non-employee stock-based awards as follows (in thousands):