Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

May 15, 2023

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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 March 31, 2023

OR

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

For the transition period from ________ to ________

Commission File Number: 001-38662

 

SUTRO BIOPHARMA, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

47-0926186

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

111 Oyster Point Blvd,

South San Francisco, California

94080

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (650) 881-6500

Not Applicable:

(Former name, former address and former fiscal year, if changed since last report)

 

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

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common stock, $0.001 par value

 

STRO

 

The Nasdaq Stock Market LLC

(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, 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

As of May 11, 2023, the registrant had 60,416,916 shares of common stock, $0.001 par value per share, outstanding.

 


 

Table of Contents

 

 

Page

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

2

Condensed Balance Sheets

2

Condensed Statements of Operations

3

 

Condensed Statements of Comprehensive Loss

4

 

Condensed Statements of Stockholders’ Equity

5

 

Condensed Statements of Cash Flows

6

 

Notes to Unaudited Interim Condensed Financial Statements

7

Item 2.

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

24

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

Item 4.

Controls and Procedures

34

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

35

Item 1A.

Risk Factors

35

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

89

Item 3.

Defaults Upon Senior Securities

89

Item 4.

Mine Safety Disclosures

89

Item 5.

Other Information

89

Item 6.

Exhibits

90

Signatures

 

92

 

 

 

 

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Sutro Biopharma, Inc.

Condensed Balance Sheets

(Unaudited)

(In thousands, except share and per share amounts)

 

 

 

March 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

62,472

 

 

$

47,254

 

Marketable securities

 

 

188,994

 

 

 

255,090

 

Investment in equity securities

 

 

25,028

 

 

 

32,020

 

Accounts receivable

 

 

9,873

 

 

 

7,122

 

Prepaid expenses and other current assets

 

 

17,696

 

 

 

11,667

 

Total current assets

 

 

304,063

 

 

 

353,153

 

Property and equipment, net

 

 

24,029

 

 

 

24,621

 

Operating lease right-of-use assets

 

 

25,802

 

 

 

26,443

 

Other non-current assets

 

 

3,250

 

 

 

1,855

 

Restricted cash

 

 

872

 

 

 

872

 

Total assets

 

$

358,016

 

 

$

406,944

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

5,058

 

 

$

4,797

 

Accrued compensation

 

 

6,356

 

 

 

13,142

 

Deferred revenue - current

 

 

17,186

 

 

 

16,759

 

Operating lease liability - current

 

 

5,251

 

 

 

4,585

 

Debt - current

 

 

13,242

 

 

 

12,500

 

Accrued expenses and other current liabilities

 

 

12,393

 

 

 

14,764

 

Total current liabilities

 

 

59,486

 

 

 

66,547

 

Deferred revenue - non-current

 

 

85,046

 

 

 

89,885

 

Operating lease liability - non-current

 

 

28,071

 

 

 

29,574

 

Debt - non-current

 

 

-

 

 

 

3,771

 

Other non-current liabilities

 

 

-

 

 

 

119

 

Total liabilities

 

 

172,603

 

 

 

189,896

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value — 10,000,000 shares authorized
   as of March 31, 2023 and December 31, 2022;
0 shares issued and
   outstanding as of March 31, 2023 and December 31, 2022

 

 

-

 

 

 

-

 

Common stock, $0.001 par value — 300,000,000 shares authorized
   as of March 31, 2023 and December 31, 2022;
60,161,801 and
   
57,499,541 shares issued and outstanding as of March 31, 2023
   and December 31, 2022, respectively

 

 

60

 

 

 

58

 

Additional paid-in-capital

 

 

688,125

 

 

 

670,223

 

Accumulated other comprehensive loss

 

 

(107

)

 

 

(618

)

Accumulated deficit

 

 

(502,665

)

 

 

(452,615

)

Total stockholders’ equity

 

 

185,413

 

 

 

217,048

 

Total Liabilities and Stockholders’ Equity

 

$

358,016

 

 

$

406,944

 

 

See accompanying notes to unaudited interim condensed financial statements.

2


 

Sutro Biopharma, Inc.

Condensed Statements of Operations

(Unaudited)

(In thousands, except share and per share amounts)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2023

 

 

2022

 

Revenues

 

$

12,674

 

 

$

5,897

 

Operating expenses

 

 

 

 

 

 

Research and development

 

 

39,399

 

 

 

29,990

 

General and administrative

 

 

15,512

 

 

 

15,039

 

Total operating expenses

 

 

54,911

 

 

 

45,029

 

Loss from operations

 

 

(42,237

)

 

 

(39,132

)

Interest income

 

 

2,560

 

 

 

116

 

Unrealized (loss) gain on equity securities

 

 

(6,992

)

 

 

563

 

Interest and other income (expense), net

 

 

(2,986

)

 

 

(657

)

Loss before provision for income taxes

 

 

(49,655

)

 

 

(39,110

)

Provision for income taxes

 

 

395

 

 

 

-

 

Net loss

 

$

(50,050

)

 

$

(39,110

)

Net loss per share, basic and diluted

 

$

(0.85

)

 

$

(0.84

)

Weighted-average shares used in computing
   basic and diluted loss per share

 

 

58,723,432

 

 

 

46,499,602

 

 

See accompanying notes to unaudited interim condensed financial statements.

3


 

Sutro Biopharma, Inc.

Condensed Statements of Comprehensive Loss

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2023

 

 

2022

 

Net loss

 

$

(50,050

)

 

$

(39,110

)

Other comprehensive loss:

 

 

 

 

 

 

Net unrealized income (loss) on available-for-sale securities

 

 

511

 

 

 

(838

)

Comprehensive loss

 

$

(49,539

)

 

$

(39,948

)

 

See accompanying notes to unaudited interim condensed financial statements.

4


 

Sutro Biopharma, Inc.

Condensed Statements of Stockholders’ Equity

(Unaudited)

(In thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In-

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2022

 

 

57,499,541

 

 

$

58

 

 

$

670,223

 

 

$

(618

)

 

$

(452,615

)

 

$

217,048

 

Exercise of common stock options

 

 

53,060

 

 

 

 

 

 

314

 

 

 

 

 

 

 

 

 

314

 

Issuance of common stock under
   Employee Stock Purchase Plan

 

 

239,060

 

 

 

 

 

 

1,097

 

 

 

 

 

 

 

 

 

1,097

 

Vesting of restricted stock units

 

 

801,769

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock transaction associated with taxes
   withheld on restricted stock units

 

 

(73,003

)

 

 

 

 

 

(451

)

 

 

 

 

 

 

 

 

(451

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

6,021

 

 

 

 

 

 

 

 

 

6,021

 

Issuance of common stock in connection with
   At-The-Market sale, net of issuance costs of $
308

 

 

1,641,374

 

 

 

2

 

 

 

10,921

 

 

 

 

 

 

 

 

 

10,923

 

Net unrealized income on available-for-
   sale securities

 

 

 

 

 

 

 

 

 

 

 

511

 

 

 

 

 

 

511

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(50,050

)

 

 

(50,050

)

Balances at March 31, 2023

 

 

60,161,801

 

 

$

60

 

 

$

688,125

 

 

$

(107

)

 

$

(502,665

)

 

$

185,413

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In-

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

(Loss)

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2021

 

 

46,327,131

 

 

$

46

 

 

$

586,243

 

 

$

(314

)

 

$

(333,411

)

 

$

252,564

 

Exercise of common stock options

 

 

32,497

 

 

 

 

 

 

180

 

 

 

 

 

 

 

 

 

180

 

Issuance of common stock under
   Employee Stock Purchase Plan

 

 

146,165

 

 

 

 

 

 

1,006

 

 

 

 

 

 

 

 

 

1,006

 

Vesting of restricted stock units

 

 

465,731

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Stock transaction associated with taxes
   withheld on restricted stock units

 

 

(44,665

)

 

 

 

 

 

(404

)

 

 

 

 

 

 

 

 

(404

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

6,974

 

 

 

 

 

 

 

 

 

6,974

 

Net unrealized loss on available-for-
   sale securities

 

 

 

 

 

 

 

 

 

 

 

(838

)

 

 

 

 

 

(838

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(39,110

)

 

 

(39,110

)

Balances at March 31, 2022

 

 

46,926,859

 

 

$

47

 

 

$

593,998

 

 

$

(1,152

)

 

$

(372,521

)

 

$

220,372

 

 

See accompanying notes to unaudited interim condensed financial statements.

5


 

Sutro Biopharma, Inc.

Condensed Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2023

 

 

2022

 

Operating activities

 

 

 

 

 

 

Net loss

 

$

(50,050

)

 

$

(39,110

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

1,615

 

 

 

1,327

 

(Accretion of discount) amortization of premium on marketable securities

 

 

(1,786

)

 

 

546

 

Stock-based compensation

 

 

6,021

 

 

 

6,974

 

Noncash lease expenses

 

 

641

 

 

 

669

 

Unrealized loss / (gain) on equity securities

 

 

6,992

 

 

 

(563

)

Other

 

 

(13

)

 

 

125

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(2,751

)

 

 

768

 

Prepaid expenses and other assets

 

 

(7,424

)

 

 

212

 

Accounts payable

 

 

198

 

 

 

(1,132

)

Accrued compensation

 

 

(6,786

)

 

 

(6,009

)

Accrued expenses and other liabilities

 

 

(2,399

)

 

 

(296

)

Deferred revenue

 

 

(4,412

)

 

 

783

 

Change in operating lease liability

 

 

(837

)

 

 

451

 

Net cash used in operating activities

 

 

(60,991

)

 

 

(35,255

)

Investing activities

 

 

 

 

 

 

Purchases of marketable securities

 

 

(52,764

)

 

 

(10,994

)

Maturities of marketable securities

 

 

112,102

 

 

 

28,109

 

Sales of marketable securities

 

 

9,055

 

 

 

17,420

 

Purchases of equipment and leasehold improvements

 

 

(942

)

 

 

(1,553

)

Net cash provided by investing activities

 

 

67,451

 

 

 

32,982

 

Financing activities

 

 

 

 

 

 

Proceeds from sales of common stock, net of issuance costs

 

 

10,923

 

 

 

-

 

Payment of debt

 

 

(3,125

)

 

 

-

 

Payment of issuance costs

 

 

-

 

 

 

(22

)

Proceeds from exercise of common stock options

 

 

314

 

 

 

180

 

Taxes paid related to net shares settlement of restricted stock units

 

 

(451

)

 

 

(404

)

Proceeds from employee stock purchase plan

 

 

1,097

 

 

 

1,006

 

Net cash provided by financing activities

 

 

8,758

 

 

 

760

 

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

 

 

15,218

 

 

 

(1,513

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

48,126

 

 

 

31,286

 

Cash, cash equivalents and restricted cash at end of period

 

$

63,344

 

 

$

29,773

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

393

 

 

$

504

 

Supplemental disclosure of non-cash investing and financing information:

 

 

 

 

 

 

Purchases of equipment included in accounts payable and accrued expense

 

$

371

 

 

$

881

 

Financing component associated with program fees

 

$

2,543

 

 

$

 

Deferred offering cost included in accounts payable and accrued expenses

 

$

101

 

 

$

28

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited interim condensed financial statements.

6


 

Sutro Biopharma, Inc.

Notes to Unaudited Interim Condensed Financial Statements

1. Organization and Principal Activities

Description of Business

Sutro Biopharma, Inc. (the “Company”), is a clinical-stage oncology company developing site-specific and novel-format antibody drug conjugates, or ADCs. The Company was incorporated on April 21, 2003 and is headquartered in South San Francisco, California.

The Company operates in one business segment, the development of biopharmaceutical products.

 

At-The-Market Sales

During the three months ended March 31, 2023, the Company sold an aggregate of 1,641,374 shares of its common stock through its At-the-Market Facility (“ATM Facility”) pursuant to its Open Market Sales AgreementSM dated April 2, 2021 with Jefferies LLC (“Jefferies”), as sales agent (the “Sales Agreement”).

During the three months ended March 31, 2023, the gross proceeds from these sales were approximately $11.2 million, before deducting fees of approximately $0.3 million, resulting in net proceeds of approximately $10.9 million, to the Company.

Liquidity

The Company has incurred significant losses and has negative cash flows from operations. As of March 31, 2023, the Company had an accumulated deficit of $502.7 million. Management expects to continue to incur additional substantial losses in the foreseeable future as a result of the Company’s research and development and other operational activities.

As of March 31, 2023, the Company had unrestricted cash, cash equivalents and marketable securities of $251.5 million and equity securities of $25.0 million, consisting solely of common stock of Vaxcyte, which are available to fund future operations. The Company will need to raise additional capital to support the completion of its research and development activities and to support its operations.

The Company believes that its unrestricted cash, cash equivalents, marketable securities and equity securities as of March 31, 2023 will enable the Company to maintain its operations for a period of at least 12 months following the filing date of its condensed financial statements.

2. Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

The accompanying interim condensed financial statements of the Company are unaudited. These interim condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. The December 31, 2022 condensed balance sheet was derived from the audited financial statements as of that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company bases its estimates on historical experience and market-specific or other relevant assumptions that it believes are reasonable under the circumstances. The amounts of assets and liabilities reported in the Company’s condensed balance sheets and the amounts of expenses and income reported for each of the periods presented are affected by estimates and assumptions, which are used for, but are not limited to, determining research and development periods under collaboration arrangements, stock-based compensation expense, valuation of marketable securities, impairment of long-lived assets, income taxes and certain accrued liabilities. Actual results could differ from such estimates or assumptions.

7


 

The accompanying unaudited interim condensed financial statements have been prepared on the same basis as the audited financial statements and, in the opinion of management, reflect all adjustments of a normal recurring nature considered necessary to state fairly the Company’s financial position, results of operations, comprehensive loss, and cash flows for the interim periods. The interim results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023, or for any other future annual or interim period.

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited financial statements included in the Annual Report on Form 10-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, for the year ended December 31, 2022.

Recent Accounting Pronouncements Not Yet Adopted

There were no new accounting pronouncements issued since the Company's filing of the Annual Report on Form 10-K for the year ended December 31, 2022, which could have a significant effect on the Company's condensed financial statements.

Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Company's condensed Balance Sheets that sum to the total of the same amounts shown in the Company's condensed Statements of Cash Flows.

 

 

 

March 31,

 

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

Cash and cash equivalents

 

$

62,472

 

 

$

28,901

 

Restricted cash

 

 

872

 

 

 

872

 

Total cash, cash equivalents, and restricted cash shown in the
   condensed Statements of Cash Flows

 

$

63,344

 

 

$

29,773

 

Investments in Equity Securities

Vaxcyte common stock held by the Company is measured at fair value at each reporting period based on the closing price of Vaxcyte’s common stock on the last trading day of each reporting period, with any realized or unrealized gains and losses recorded in the Company’s condensed Statements of Operations.

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, or an exit price, in the principal or most advantageous market for that asset or liability in an orderly transaction between market participants on the measurement date and establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value. The Company determined the fair value of financial assets and liabilities using the fair value hierarchy that describes three levels of inputs that may be used to measure fair value, as follows:

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

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, 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; and

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 carrying amounts of accounts receivable, prepaid expenses, accounts payable, accrued liabilities and accrued compensation and benefits approximate fair value due to the short-term nature of these items.

8


 

The fair value of the Company’s outstanding loan (See Note 6) is estimated using the net present value of the payments, discounted at an interest rate that is consistent with market interest rate, which is a Level 2 input. The estimated fair value of the Company’s outstanding loan approximates the carrying amount, as the loan bears a floating rate that approximates the market interest rate.

Revenue Recognition

When the Company enters into collaboration agreements, it assesses whether the arrangements fall within the scope of ASC 808, Collaborative Arrangements ("ASC 808") based on whether the arrangements involve joint operating activities and whether both parties have active participation in the arrangement and are exposed to significant risks and rewards. To the extent that the arrangement falls within the scope of ASC 808, the Company assesses whether the payments between the Company and its collaboration partner fall within the scope of other accounting literature. If it concludes that payments from the collaboration partner to the Company represent consideration from a customer, such as license fees and contract research and development activities, the Company accounts for those payments within the scope of Accounting Standards Update (ASU) No. 2014-09 (Topic 606), Revenue from Contracts with Customers (“ASC 606”).

Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. However, if the Company concludes that its collaboration partner is not a customer for certain activities and associated payments, such as for certain collaborative research, development, manufacturing and commercial activities, the Company presents such payments as a reduction of research and development expense or general and administrative expense, based on where the Company presents the underlying expense.

The Company has no products approved for commercial sale and has not generated any revenue from commercial product sales. The total revenue to date has been generated principally from collaboration and license agreements and to a lesser extent, from manufacturing, supply and services, and materials the Company provides to its collaboration partners.

Collaboration Revenue: The Company derives revenue from collaboration arrangements, under which the Company may grant licenses to its collaboration partners to further develop and commercialize its proprietary product candidates. The Company may also perform research and development activities under the collaboration agreements. Consideration under these contracts generally includes a nonrefundable upfront payment, development, regulatory and commercial milestones and other contingent payments, and royalties based on net sales of approved products. Additionally, the collaborations may provide options for the customer to acquire from the Company materials and reagents, clinical product supply or additional research and development services under separate agreements.

The Company assesses which activities in the collaboration agreements are considered distinct performance obligations that should be accounted for separately. The Company develops assumptions that require judgement to determine whether the license to the Company’s intellectual property is distinct from the research and development services or participation in activities under the collaboration agreements.

At the inception of each agreement, the Company determines the arrangement transaction price, which includes variable consideration, based on the assessment of the probability of achievement of future milestones and contingent payments and other potential consideration. The Company recognizes revenue over time by measuring its progress towards the complete satisfaction of the relevant performance obligation using an appropriate input or output method based on the nature of the service promised to the customer.

For arrangements that include multiple performance obligations, the Company allocates the transaction price to the identified performance obligations based on the standalone selling price, or SSP, of each distinct performance obligation. In instances where SSP is not directly observable, the Company develops assumptions that require judgment to determine the SSP for each performance obligation identified in the contract. These key assumptions may include full-time equivalent, or FTE, personnel effort, estimated costs, discount rates and probabilities of clinical development and regulatory success.

9


 

Upfront Payments: For collaboration arrangements that include a nonrefundable upfront payment, if the license fee and research and development services cannot be accounted for as separate performance obligations, the transaction price is deferred and recognized as revenue over the expected period of performance using a cost-based input methodology. The Company uses judgement to assess the pattern of delivery of the performance obligation. In addition, amounts paid in advance of services being rendered may result in an associated financing component to the upfront payment. Accordingly, the interest on such borrowing cost component will be recorded as interest expense and revenue, based on an appropriate borrowing rate applied to the value of services to be performed by the Company over the estimated service performance period.

License Grants: For collaboration arrangements that include a grant of a license to the Company’s intellectual property, the Company considers whether the license grant is distinct from the other performance obligations included in the arrangement. For licenses that are distinct, the Company recognizes revenues from nonrefundable, upfront payments and other consideration allocated to the license when the license term has begun and the Company has provided all necessary information regarding the underlying intellectual property to the customer, which generally occurs at or near the inception of the arrangement.

Milestone and Contingent Payments: At the inception of the arrangement and at each reporting date thereafter, the Company assesses whether it should include any milestone and contingent payments or other forms of variable consideration in the transaction price using the most likely amount method. If it is probable that a significant reversal of cumulative revenue would not occur upon resolution of the uncertainty, the associated milestone value is included in the transaction price. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of each milestone and any related constraint and, if necessary, adjusts its estimate of the overall transaction price. Since milestone and contingent payments may become payable to the Company upon the initiation of a clinical study or filing for or receipt of regulatory approval, the Company reviews the relevant facts and circumstances to determine when the Company should update the transaction price, which may occur before the triggering event. When the Company updates the transaction price for milestone and contingent payments, the Company allocates the changes in the total transaction price to each performance obligation in the agreement on the same basis as the initial allocation. Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment, which may result in recognizing revenue for previously satisfied performance obligations in such period. The Company’s collaborators generally pay milestones and contingent payments subsequent to achievement of the triggering event.

Research and Development Services: For amounts allocated to the Company’s research and development obligations in a collaboration arrangement, the Company recognizes revenue over time using a cost-based input methodology, representing the transfer of goods or services as activities are performed over the term of the agreement.

Materials Supply: The Company provides materials and reagents, clinical materials and services to certain of its collaborators under separate agreements. The consideration for such services is generally based on FTE personnel effort used to manufacture those materials, reimbursed at an agreed upon rate in addition to agreed-upon pricing for the provided materials. The amounts billed are recognized as revenue as the performance obligations are met by the Company.

Revenue subject to governmental withholding taxes is recognized on a gross basis with the withholding taxes recorded as a component of income tax expense.

10


 

3. Fair Value Measurements

The following table sets forth the fair value of the Company’s financial assets measured on a recurring basis by level within the fair value hierarchy:

 

 

 

March 31, 2023

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

46,137

 

 

$

46,137

 

 

$

-

 

 

$

-

 

Commercial paper

 

 

73,834

 

 

-

 

 

 

73,834

 

 

 

-

 

Corporate debt securities

 

 

17,863

 

 

-

 

 

 

17,863

 

 

 

-

 

Equity securities

 

 

25,028

 

 

 

25,028

 

 

 

-

 

 

 

-

 

Asset-backed securities

 

 

6,562

 

 

-

 

 

 

6,562

 

 

 

-

 

U.S. government securities

 

 

94,399

 

 

 

94,399

 

 

 

-