mtem-10q_20230331.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2023

☐	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: 001-32979

Molecular Templates, Inc.

(Exact name of registrant as specified in its charter)

Delaware

94-3409596

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

9301 Amberglen Blvd

Suite 100

Austin, TX 78729

(Address of principal executive offices)

78729

(Zip Code)

(512) 869-1555

(Registrant’s telephone number, including area code)

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, $0.001 Par Value Per Share		MTEM		The Nasdaq Capital 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, a 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 ☒

On May 8, 2023, there were 56,351,647 shares of common stock, par value $0.001 per share, of Molecular Templates, Inc. outstanding.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including the sections titled “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements, other than statements of historical facts contained herein, regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these identifying words. These forward-looking statements include, but are not limited to, statements about:

•

the implementation of our business strategies, including our ability to pursue development pathways and regulatory strategies for MT-6402, MT-8421, MT-0169 and other engineered toxin body (“ETB”) biologic candidates;

•

our ability to resolve the partial clinical hold placed on our clinical studies of MT-0169 and to potentially resume enrollment in our MT-0169 studies;

•

our utilization of a de-immunized ETB scaffold that has been designed to reduce or eliminate the propensity for innate immunity, including capillary leak syndrome (“CLS”), via de-immunization of the Shiga-like Toxin A subunit (“SLTA”) as well as chemistry, manufacturing, and controls (“CMC”) improvements;

•

the timing and our ability to advance the development of our drug or biologic candidates;

•

our plans to pursue discussions with regulatory authorities, and the anticipated timing, scope and outcome of related regulatory actions or guidance;

•

our ability to establish and maintain potential new partnering or collaboration arrangements for the development and commercialization of ETB biologic candidates;

•

our ability to obtain the benefits we anticipate from partnering, collaboration, or supply agreements that we may enter into;

•

our financial condition, including our ability to obtain the funding necessary to advance the development of our drug or biologic candidates;

•

the anticipated progress of our drug or biologic candidate development programs, including whether our ongoing and potential future clinical trials will achieve clinically relevant results;

•

our ability to generate data and conduct analyses to support the regulatory approval of our drug or biologic candidates;

•

our ability to establish and maintain intellectual property rights for our drug or biologic candidates;

•

whether any drug or biologic candidates that we are able to commercialize are safer or more effective than other marketed products, treatments or therapies;

•

our ability to discover and develop additional drug or biologic candidates suitable for clinical testing;

•

our ability to identify, in-license or otherwise acquire additional drug or biologic candidates and development programs;

•

our anticipated research and development activities and projected expenditures;

•

our ability to complete preclinical and clinical testing successfully for new drug or biologic candidates that we may develop or license;

•

our ability to have manufactured active pharmaceutical ingredient (“API”) and drug or biologic product that meet required release and stability specifications;

•

our ability to have manufactured sufficient supplies of drug product for clinical testing and commercialization;

•

our ability to obtain licenses to any necessary third-party intellectual property;

•

our anticipated use of proceeds from any financing activities;

•

the expected cost savings from our recently announced strategic restructuring;

•

the extent to which global economic and political developments, including the indirect and/or long-term impact of the COVID-19 pandemic and inflation, will affect our business operations, clinical trials, or financial condition;

•

the impact of laws and regulations;

•

our projected financial performance, the future possibility of a strategic transaction or financing alternative, and compliance with existing debt covenants;

•

the sufficiency of our cash resources; and

•

other risks and uncertainties, including those listed under Part II, Item 1A, “Risk Factors”.

Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A, “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

As used in this Quarterly Report on Form 10-Q, unless otherwise stated or the context otherwise indicates, references to “Molecular,” the “Company,” “we,” “our,” “us” or similar terms refer to Molecular Templates, Inc., and our wholly-owned subsidiary.

Molecular Templates, Inc.

TABLE OF CONTENTS

		Page
PART I.	FINANCIAL INFORMATION		4
Item 1.	Financial Statements		4
	Condensed Consolidated Balance Sheets (Unaudited)		4
	Condensed Consolidated Statements of Operations (Unaudited)		5
	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)		6
	Condensed Consolidated Statements of Stockholders’ (Deficit) Equity (Unaudited)		7
	Condensed Consolidated Statements of Cash Flows (Unaudited)		8
	Notes to Condensed Consolidated Financial Statements (Unaudited)		9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		28
Item 4.	Controls and Procedures		28
PART II.	OTHER INFORMATION		29
Item 1	Legal Proceedings		29
Item 1A.	Risk Factors		29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		71
Item 3.	Defaults Upon Senior Securities		71
Item 4.	Mine Safety Disclosures		71
Item 5.	Other Information		71
Item 6.	Exhibits		72
SIGNATURES			73

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Molecular Templates, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

	March 31, 2023(unaudited)			December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	38,782		$	32,190
Marketable securities, current		2,889			28,859
Prepaid expenses		2,009			3,459
Grants revenue receivable		2,838			—
Other current assets		5,106			3,790
Total current assets		51,624			68,298
Operating lease right-of-use assets		10,652			11,132
Property and equipment, net		12,814			14,632
Other assets		3,415			3,486
Total assets	$	78,505		$	97,548
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,718		$	504
Accrued liabilities		5,542			8,823
Deferred revenue, current		19,354			45,573
Other current liabilities		2,286			2,182
Total current liabilities		29,900			57,082
Deferred revenue, long-term		1,156			5,904
Long-term debt, net of current portion		36,402			36,168
Operating lease liabilities		11,635			12,231
Other liabilities		1,322			1,295
Total liabilities		80,415			112,680
Commitments and contingencies (Note 10)
Stockholders’ deficit
Preferred stock, $0.001 par value:
Authorized: 2,000,000 shares at March 31, 2023 and December 31, 2022; issued and outstanding: 250 shares at March 31, 2023 and December 31, 2022		—			—
Common stock, $0.001 par value:
Authorized: 150,000,000 shares at March 31, 2023 and December 31, 2022; issued and outstanding: 56,351,647 shares at March 31, 2023 and December 31, 2022		56			56
Additional paid-in capital		431,956			429,646
Accumulated other comprehensive income/(loss)		1			(66	)
Accumulated deficit		(433,923	)		(444,768	)
Total stockholders’ deficit		(1,910	)		(15,132	)
Total liabilities and stockholders’ deficit	$	78,505		$	97,548

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

Molecular Templates, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)

	Three Months Ended March 31,
	2023			2022
Research and development revenue	$	33,627		$	8,486
Grant revenue		3,002			—
Total revenue		36,629			8,486
Operating expenses:
Research and development		19,042			21,497
General and administrative		5,802			7,620
Total operating expenses		24,844			29,117
Income/(loss) from operations		11,785			(20,631	)
Interest and other income, net		455			70
Interest and other expense, net		(1,395	)		(1,050	)
Net income/(loss)	$	10,845		$	(21,611	)
Net income/(loss) per share attributable to common shareholders:
Basic and diluted	$	0.19		$	(0.38	)
Weighted average number of shares used in net income/(loss) per share calculations:
Basic and diluted		56,351,647			56,305,049

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

Molecular Templates, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(in thousands, except share and per share data)

(unaudited)

	Three Months Ended March 31,
	2023		2022
Net income/(loss)	$	10,845	$	(21,611	)
Other comprehensive income/(loss):
Unrealized gain/(loss) on available-for-sale securities		67		(251	)
Comprehensive income/(loss)	$	10,912	$	(21,862	)

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

MOLECULAR TEMPLATES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

(in thousands, except share data)

(unaudited)

	Three Months Ended March 31,
	2023			2022
Total Stockholders' (Deficit) Equity, beginning balances	$	(15,132	)	$	65,662

Preferred Stock:
Beginning balance		—			—
Issuance of preferred stock		—			—
Ending balance		—			—

Common Stock:
Beginning balance		56			56
Issuance of common stock pursuant to public offering		—			—
Ending balance		56			56

Additional Paid-In Capital
Beginning balance		429,646			417,704
Stock-based compensation		2,310			3,682
Ending balance		431,956			421,386

Accumulated Other Comprehensive Income/(Loss):
Beginning balance		(66	)		(48	)
Other comprehensive income/(loss)		67			(251	)
Ending balance		1			(299	)

Accumulated deficit:
Beginning balance		(444,768	)		(352,050	)
Net income/(loss)		10,845			(21,611	)
Ending balance		(433,923	)		(373,661	)

Total Stockholders' (Deficit) Equity	$	(1,910	)	$	47,482

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

Molecular Templates, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Three Months Ended March 31,
	2023			2022
Cash flows from operating activities:
Net income/(loss)	$	10,845		$	(21,611	)
Adjustments to reconcile net income/(loss) to net cash used in operating activities:
Depreciation, amortization and other		1,928			1,872
Stock-based compensation expense		2,310			3,682
Interest accrued on long-term debt		17			3
Amortization of debt discount and accretion related to debt		234			246
Accretion of asset retirement obligations		27			36
Loss on disposal of property and equipment		—			1
Changes in operating assets and liabilities:
Prepaid expenses		1,450			1,302
Grants revenue receivable		(2,838	)		—
Other assets		(1,258	)		(1,706	)
Operating lease right-of-use assets and liabilities		(12	)		(226	)
Accounts payable		2,201			(1,612	)
Accrued liabilities		(3,298	)		(2,234	)
Deferred revenue		(30,967	)		(7,449	)
Net cash used in operating activities		(19,361	)		(27,696	)
Cash flows from investing activities:
Purchases of property and equipment		(183	)		(553	)
Purchase of marketable securities		(2,364	)		(12,732	)
Sales of marketable securities		28,500			34,570
Net cash provided by investing activities		25,953			21,285
Net increase/(decrease) in cash, cash equivalents, and restricted cash		6,592			(6,411	)
Cash, cash equivalents and restricted cash, beginning of period		34,679			28,651
Cash, cash equivalents and restricted cash, end of period	$	41,271		$	22,240
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents	$	38,782		$	19,572
Restricted cash included in other assets		2,489			2,668
Total cash, cash equivalents and restricted cash	$	41,271		$	22,240
Supplemental Cash Flow Information
Cash paid for interest	$	1,111		$	753
Non-Cash Investing Activities
Fixed asset additions in accounts payable and accrued expenses	$	13		$	621

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

Molecular Templates, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of the Business

Molecular Templates, Inc. (the “Company”) is a clinical stage biopharmaceutical company formed in 2001, with a biologic therapeutic platform for the development of novel targeted therapeutics for cancer, headquartered in Austin, Texas. The Company’s focus is on the research and development of therapeutic compounds for a variety of cancers. The Company operates its business as a single segment, as defined by U.S. generally accepted accounting principles (“U.S. GAAP”).

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include the accounts of the Company and its wholly owned subsidiary and reflect the elimination of intercompany accounts and transactions.

The preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect the recorded amounts reported therein. A change in facts or circumstances surrounding the estimates could result in a change to estimates and impact future operating results. Certain accounts in the prior financial statements have been reclassified for comparative purposes to conform to the presentation in the current financial statements. These reclassifications have no material effect on previously reported financials.

The unaudited condensed consolidated financial statements and related disclosures have been prepared with the presumption that users of the interim unaudited condensed consolidated financial statements have read or have access to the audited consolidated financial statements for the preceding fiscal year. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2023.

Going Concern

The Company has adopted as required the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (ASC) Topic 205-40, Presentation of Financial Statements - Going Concern, which requires that management contemplate the realization of assets and liquidation of liabilities in the normal course of business, and evaluate whether there are relevant conditions and events that in aggregate raise substantial doubt about the entity’s ability to continue as a going concern and to meet its obligations as they become due within one year after the date that the financial statements are issued. Under this standard, management’s assessment shall not take into consideration the potential mitigating effects of management’s plans that have not been fully implemented as of the date the financial statements are issued.

There is substantial doubt about the Company’s ability to continue as a going concern as of the date of this Quarterly Report on Form 10-Q. This substantial doubt relates to the Company’s future compliance with the financial covenant in its Loan and Security Agreement with K2 HealthVentures LLC (the “K2 Loan and Security Agreement”), which requires the Company to certify monthly that it has cash, cash equivalents and marketable securities of at least five times the Company’s cash monthly burn as defined in the agreement (the “Financial Covenant”), as well as the Company’s ability to avoid triggering an event of default related to its solvency (an “Insolvency Event of Default”) under the K2 Loan and Security Agreement. Currently, based on anticipated cost-savings from the restructuring, discussed in Note 12 “Restructuring Related Expenses,” the Company anticipates continued compliance with the Financial Covenant and anticipates the ability to avoid triggering an event of default related to an Insolvency Event of Default late into the third quarter of 2023. However, the Company will require additional funding in order to meet its covenant requirements and ongoing operations. If the Company cannot raise additional capital to maintain its compliance thereafter or negotiate an amendment to the Financial Covenant or the Insolvency Events of Default, then the Company will be in default of the K2 Loan and Security Agreement and the repayment of the Company’s indebtedness may be accelerated in full by K2 HealthVentures LLC. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and to provide sufficient certainty that it will continue as a going concern. As of March 31, 2023, the Company had an accumulated deficit of $433.9 million.

At March 31, 2023, the Company had cash, cash equivalents, and marketable securities of $41.7 million, including borrowings of $35.0 million under the K2 Loan and Security Agreement whose scheduled maturity date for repayment is June 1, 2024, but a default of the Financial Covenant or an Insolvency Event of Default would potentially trigger accelerated repayment. There can be no assurances that the Company will be able to raise sufficient capital to fund ongoing operations and maintain compliance with the Financial Covenant, and avoid triggering an event of default related to an Insolvency Event of Default beyond the third quarter of 2023 and/or be successful at negotiating an amendment to the K2 Loan and Security Agreement. If the Company is unable to obtain

additional capital and continue as a going concern, it might have to liquidate its assets, and the values it receives for its assets in liquidation or dissolution could be significantly lower than the values reflected in its financial statements.

These financial statements do not give effect to any adjustments which will be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in the accompanying financial statements.

Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2023, as compared to the significant accounting policies disclosed in Note 1, “Summary of Significant Accounting Policies”, to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Cash and Cash Equivalents

The Company considers temporary investments having original maturities of three months or less from date of purchase to be cash equivalents. Restricted cash is recorded in other assets, based on when the restrictions expire. Other assets include $2.5 million of restricted cash at both March 31, 2023 and December 31, 2022, related to letters of credit in lieu of a cash deposit for the Company’s leases.

Fair Value Measurement

The Company accounts for its marketable securities in accordance with ASC 820 “Fair Value Measurements and Disclosures.” ASC 820 defines fair value, establishes a framework for measuring fair value in U.S. GAAP, and expands disclosures about fair value measurements. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

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

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 that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. For Level 2 securities that have market prices from multiples sources, a “consensus price” or a weighted average price for each of these securities can be derived from a distribution-curve-based algorithm which includes market prices obtained from a variety of industrial standard data providers (e.g. Bloomberg), security master files from large financial institutions, and other third-party sources. Level 2 securities with short maturities and infrequent secondary market trades are typically priced using mathematical calculations adjusted for observable inputs when available.

Concentration of Credit Risk and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to concentrations of risk consist principally of cash and cash equivalents, investments, long term debt and accounts receivable.

The Company’s cash and cash equivalents are with two major financial institutions in the United States.

The Company performs an ongoing credit evaluation of its strategic partners’ financial conditions and generally does not require collateral to secure accounts receivable from its strategic partners. At March 31, 2023, the Company’s exposure to credit risk associated with non-payment will be affected principally by conditions or occurrences within Bristol Myers Squibb Company (“Bristol Myers Squibb”). In past years, the Company’s exposure to credit risk associated with non-payment were also affected principally by conditions or occurrences within Millennium Pharmaceuticals, Inc., a wholly owned subsidiary of Takeda Pharmaceutical Company Ltd. (“Takeda”). Takeda accounted for approximately 0% and 30% of total revenues for the three months ended March 31, 2023 and 2022, respectively. Bristol Myers Squibb accounted for approximately 92% and 70% of total revenues for the three months ended March 31, 2023 and 2022, respectively.

Drug or biologic candidates developed by the Company may require approvals or clearances from the U.S. Food and Drug Administration (“FDA”) or international regulatory agencies prior to commercial sales. There can be no assurance that the Company’s drug or biologic candidates will receive any of the required approvals or clearances. If the Company were to be denied approval or clearance or any such approval or clearance were to be delayed, it would have a material adverse impact on the Company.

Recently Issued Accounting Pronouncements

In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (Subtopic 470-20: Debt with Conversion and Other Options and Subtopic 815-40: Derivatives and Hedging - Contracts in Entity’s Own Equity). The new guidance simplifies accounting for convertible instruments by removing major separation models, removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, and it also simplifies the diluted earnings per share calculation in certain areas. The amendment is effective for the Company for fiscal years beginning after December 15, 2023. The Company does not expect this to have a material impact since there are no material convertible instruments at this time.

NOTE 2 — NET INCOME/(LOSS) PER COMMON SHARE

Basic net income/(loss) per common share is computed by dividing net income/(loss) by the weighted-average number of common shares outstanding during the period utilizing the two-class method. Preferred Stock Shareholders participate equally with Common Stock Shareholders in earnings, but do not participate in losses, and are excluded from the basic net income/(loss) calculation. Diluted net income/(loss) per share is computed by giving effect to all potential dilutive common shares, including outstanding options, warrants and convertible preferred stock. More specifically, at March 31, 2023 and March 31, 2022, stock options, warrants and, if converted, preferred stock totaling approximately 8,680,000 and 12,999,000 common shares, respectively, were excluded from the computation of diluted net income/(loss) per share as their effect would have been anti-dilutive.

NOTE 3 — RESEARCH AND DEVELOPMENT AGREEMENTS

Disaggregated Research and Development Revenue

Research and development revenue is attributable to regions based on the location of each of the Company’s collaboration partner's parent company headquarters. Research and development revenues disaggregated by location were as follows (in thousands):

	Three Months Ended March 31,
	2023		2022
United States	$	33,627	$	5,900
Japan		—		2,586
Total research and development revenue	$	33,627	$	8,486

Collaboration Agreements

Bristol Myers Squibb Collaboration Agreement

In February 2021, the Company, entered into a Collaboration Agreement (the “BMS Collaboration Agreement”), as amended, with Bristol Myers Squibb to perform strategic research collaboration leveraging the Company’s ETB technology platform to discover and develop novel products containing ETBs directed to multiple targets.

Pursuant to the terms of the BMS Collaboration Agreement, the Company granted Bristol Myers Squibb a series of exclusive options to obtain one or more exclusive licenses under the Company’s intellectual property to exploit products containing ETBs directed against certain targets designated by Bristol Myers Squibb.

Bristol Myers Squibb paid the Company an upfront payment of $70.0 million. In addition to the upfront payment, the Company may receive near term and development and regulatory milestone payments of up to $874.5 million. The Company will also be eligible to receive up to an additional $450.0 million in payments upon the achievement of certain sales milestones, and subject to certain reductions, tiered royalties ranging from mid-single digits up to mid-teens as percentages of calendar year net sales, if any, on any licensed product.

The Company will be responsible for conducting the research activities through the designation, if any, of one or more development candidates. Upon the exercise of its option for a development candidate, Bristol Myers Squibb will be responsible for all development, manufacturing, regulatory and commercialization activities with respect to that development candidate.

Unless earlier terminated, the BMS Collaboration Agreement will expire (i) on a country-by-country basis and licensed product-by-licensed product basis, on the date of expiration of the royalty payment obligations under the BMS Collaboration Agreement with respect to such licensed product in such country and (ii) in its entirety upon the earlier of (a) the expiration of the royalty payment obligations under the BMS Collaboration Agreement with respect to all licensed products in all countries or (b) upon Bristol Myers Squibb’s decision not to exercise any option on or prior to the applicable option deadlines. Bristol Myers Squibb has the right to terminate the BMS Collaboration Agreement for convenience upon prior written notice to the Company. Either party has the right to terminate the BMS Collaboration Agreement (a) for the insolvency of the other party or (b) subject to specified cure periods, in the event of the other party’s uncured material breach. The Company has the right upon prior written notice to terminate the BMS Collaboration Agreement in the event that Bristol Myers Squibb or any of its affiliates asserts a challenge against the Company’s patents.

The Company identified multiple performance obligations at the inception of the BMS Collaboration Agreement consisting of research and development services and material rights related to additional developmental targets. The transaction price of $70.0 million was allocated to the performance obligations based upon their relative stand-alone selling price and will be recognized over time as the underlying research and development services are performed.

The Company recognizes revenue for research and development services under the BMS Collaboration Agreement using a cost-based input measure. In applying the cost-based input method of revenue recognition, the Company will use actual costs incurred relative to budgeted costs expected to be incurred. These costs consist primarily of internal employee efforts and third-party contract costs. Revenue is recognized based on actual costs incurred as a percentage of total budgeted costs as the Company completes its performance obligation over the estimated service period.

For the three months ended March 31, 2023 and March 31, 2022, the Company recognized $33.6 million and $5.9 million, respectively, of research and development revenue related to BMS Collaboration Agreement, which was primarily related to the completion of the research program for one of the collaboration’s targets and the completion of the related performance obligation by the Company under the BMS Collaboration Agreement, resulting in recognition of $25.8 million of research and development revenue. The Company had $19.4 million and $45.3 million of deferred revenue, current, at March 31, 2023 and December 31, 2022, respectively, related to the BMS Collaboration Agreement. The Company had $1.2 million and $5.9 million of deferred revenue, non-current at March 31, 2023 and December 31, 2022, respectively, related to the BMS Collaboration Agreement.

Takeda Multi-Target Agreement

In June 2017, the Company entered into a Multi-Target Collaboration and License Agreement with Millennium Pharmaceuticals, Inc., a wholly owned subsidiary of Takeda (the “Takeda Multi-Target Agreement”), in which the Company agreed to collaborate with Takeda to identify and generate ETBs, against two targets designated by Takeda. In March 2022, following the Company’s request to bring the agreement to an end, the Company and Takeda mutually agreed to terminate the Takeda Multi-Target Agreement. As a result of the termination, the Company regained full rights to pursue the targets worked on under the Takeda Multi-Target Agreement. There are no ongoing activities or economic obligations in connection with the Takeda Multi-Target Agreement.

For the three months ended March 31, 2023, the Company did not recognize research and development revenue related to the Takeda Multi-Target Agreement. For the three months ended March 31, 2022, the Company recognized $2.6 million as research and development revenue. As of March 31, 2023 and December 31, 2022, there was no deferred revenue related to the Takeda Multi-Target Agreement.

Grant Agreements

In September 2018, the Company entered into a Cancer Research Agreement (the “CD38 CPRIT Agreement”) with the Cancer Prevention and Research Institute of Texas (“CPRIT”) which was extended in September 2022, under which CPRIT awarded a $15.2 million product development grant to fund research of a cancer therapy involving a CD38 targeting ETB. As of March 31, 2023, the Company has cumulatively recognized $12.4 million of grant revenue related to the CD38 CPRIT Agreement. Pursuant to the CD38 CPRIT Agreement, the Company may also use such funds to develop a replacement CD38 targeting ETB, with or without a partner.

For the three months ended March 31, 2023 and March 31, 2022, the Company recognized grant revenue under this award of $3.0 million and zero, respectively. Qualified expenditures submitted for reimbursement in excess of amounts received are recorded as receivables in grant revenue receivable. As of March 31, 2023 and December 31, 2022, the Company recorded grant revenue receivable of $2.8 million and zero, respectively.

NOTE 4 — RELATED PARTY TRANSACTIONS

Takeda

In connection with the Takeda Multi-Target Agreement described in Note 3 “Research and Development Collaboration Agreements,” Takeda became a related party, following the Takeda Stock Purchase Agreement described in Note 11 “Stockholders’ Equity,” of the Company’s previously filed Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 30, 2023. In August 2021, Takeda ceased to be a related party after a sale of the above-mentioned shares.

NOTE 5 —MARKETABLE SECURITIES AND FAIR VALUE MEASUREMENTS

The following table sets forth the Company’s financial assets (cash equivalents and marketable securities) at fair value on a recurring basis (in thousands):

			Basis of Fair Value Measurements
	March 31, 2023		Level 1		Level 2		Level 3
Money market funds	$	30,940	$	30,940	$	—	$	—
Commercial paper		6,625		—		6,625		—
United States Treasury Bills		1,500		—		1,500		—
Corporate Bonds		999		—		999		—
Total	$	40,064	$	30,940	$	9,124	$	—
Amounts included in:
Cash and cash equivalents	$	37,175
Marketable securities, current		2,889
Total cash equivalents and marketable securities	$	40,064

			Basis of Fair Value Measurements
	December 31, 2022		Level 1		Level 2		Level 3
Money market funds	$	24,546	$	24,546	$	—	$	—
Commercial paper		21,134		—		21,134		—
United States Treasury Bills		10,702		—		10,702		—
Cash		2,500		2,500		—		—
Total	$	58,882	$	27,046	$	31,836	$	—
Amounts included in:
Cash and cash equivalents	$	30,023
Marketable securities, current		28,859
Total cash equivalents and marketable securities	$	58,882

The Company invests in highly-liquid, investment-grade securities. The following is a summary of the Company’s available-for-sale securities (in thousands):

	March 31, 2023
	Cost Basis		Unrealized Gain		Unrealized Loss			Fair Value
Cash equivalents - money market funds, commercial paper and corporate bonds	$	37,175	$	1	$	(1	)	$	37,175
Marketable securities, current - commercial paper	$	2,889	$	—	$	—		$	2,889

	December 31, 2022
	Cost Basis		Unrealized Gain		Unrealized Loss			Fair Value
Cash equivalents - money market funds, commercial paper and corporate bonds	$	30,022	$	1	$	—		$	30,023
Marketable securities, current - commercial paper, Treasury bills	$	28,926	$	—	$	(67	)	$	28,859

At both March 31, 2023 and December 31, 2022, all the Company’s available-for-sale investments were due in one year or less.

The Company received no proceeds from the sale of available-for-sale securities for the three months ended March 31, 2023 and March 31, 2022, respectively, and no realized gain for the three months ended March 31, 2023 and March 31, 2022.

NOTE 6 — BALANCE SHEET COMPONENTS

Accrued liabilities consisted of the following (in thousands):

	March 31, 2023		December 31, 2022
Accrued liabilities:
General and administrative	$	1,066	$	855
Clinical trial related costs		2,023		1,327
Non-clinical research and manufacturing operations		1,182		1,779
Payroll related		1,243		4,828
Other accrued expenses		28		34
Total Accrued liabilities	$	5,542	$	8,823

NOTE 7—PROPERTY AND EQUIPMENT

Property and equipment consists of the following (in thousands):

	March 31,			December 31,
	2023			2022
Laboratory equipment	$	22,023		$	21,831
Leasehold improvements		12,974			12,971
Furniture and fixtures		518			518
Computer and equipment		658			658
		36,173			35,978
Less: Accumulated depreciation		(23,359	)		(21,346	)
Total property and equipment, net	$	12,814		$	14,632

Depreciation expense was $2.0 million and $1.8 million for the three months ended March 31, 2023 and March 31, 2022, respectively.

In connection with the continued expansion of the Company’s facilities, at both March 31, 2023 and December 31, 2022, the Company had net Asset Retirement Obligation (ARO) assets totaling $0.3 million. The ARO assets are included in leasehold improvements.

NOTE 8 — BORROWING ARRANGEMENTS

K2 HealthVentures Loan and Security Agreement

In May 2020, the Company entered into the K2 Loan and Security Agreement in the amount of $45.0 million. The K2 Loan and Security Agreement was drawable in three tranches and to date the Company has drawn down $35.0 million with the remaining tranche of $10.0 million having lapsed as of December 31, 2021. Pursuant to the terms of the K2 Loan and Security Agreement, the principal accrues interest at an annual rate equal to the greater of 8.45% or the sum of the Prime Rate plus 5.2%. In April 2022, the K2 Loan and Security Agreement was amended in exchange for a $0.3 million amendment fee so that (i) payments will be interest only until the loan’s maturity date of June 1, 2024, and (ii) the Financial Covenant will apply for the entire term of the K2 L