You should read the following management's discussion and analysis of financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and related notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2020, included in our Annual Report on Form 10-K , or the "Annual Report", filed with the SEC on March 18, 2021. Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the "safe harbor" created by those sections. In some cases you can identify these statements by forward-looking words such as "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "could," "would," "project," "plan," "expect," or similar expressions, or the negative or plural of these words or expressions. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other "forward-looking" information. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. These forward-looking statements include, but are not limited to:



•our ability to identify, develop and commercialize additional products or
product candidates;
•our estimates regarding our expenses, revenues, anticipated capital
requirements and our needs for additional financing;
•our ability to obtain funding for our operations;
•the implementation of our business model and strategic plans for our business
and technology;
•the timing of the commencement, progress and receipt of data from any of our
preclinical and clinical trials;
•the expected results of any preclinical or clinical trial and the impact on the
likelihood or timing of any regulatory approval;
•the scope of protection we are able to establish and maintain for intellectual
property rights covering our technology and product candidates;
•the anticipated impact of the COVID-19 pandemic on our business, research and
clinical development plans and timelines and results of operations;
•the timing or likelihood of regulatory filings and approvals;
•the therapeutic benefits, effectiveness and safety of our product candidates;
•the rate and degree of market acceptance and clinical utility of any future
products;
•our ability to maintain and establish collaborations;
•our ability to achieve milestones in our current and any future collaborations;
•our expectations regarding market risk, including interest rate changes;
•our expectations regarding the sufficiency of our cash and cash equivalents to
fund operations for at least the next 12 months;
•developments relating to our competitors and our industry; and
•our expectations regarding licensing, acquisitions and strategic operations.

These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this report in Part II, Item 1A - Risk Factors , and elsewhere in this report. Forward-looking statements are based on our management's beliefs and assumptions and on information currently available to our management. These statements, like all statements in this report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments, except as required by law.


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In addition, statements that "we believe" and similar statements reflect our
beliefs and opinions on the relevant subject. These statements are based upon
information available to us as of the date of this report, and while we believe
such information forms a reasonable basis for such statements, such information
may be limited or incomplete, and our statements should not be read to indicate
that we have conducted an exhaustive inquiry into, or review of, all potentially
available relevant information. These statements are inherently uncertain and
investors are cautioned not to unduly rely upon these statements.
Overview
We are a clinical-stage biopharmaceutical company dedicated to discovering and
developing innovative, protein-based immunotherapies to treat cancer and
autoimmune and inflammatory diseases. Our approach includes a proprietary
scientific platform that converts native immune system proteins into
differentiated, multi-targeted therapeutics. We believe our strategies are
capable of meaningfully modulating the human immune system and significantly
improving outcomes in patients with serious diseases.
Autoimmune/Inflammatory Diseases
In June 2020, we entered into an Option and License Agreement with AbbVie
Ireland Unlimited Company, or AbbVie, which grants AbbVie an exclusive option to
take an exclusive license to ALPN-101, or acazicolcept, a dual Inducible T cell
Costimulator, or ICOS, and CD28 antagonist intended for the treatment of
autoimmune and inflammatory diseases. Through September 30, 2021, we have
received $105.0 million in upfront and pre-option exercise development
milestones as part of the Option and License Agreement with AbbVie, or the
AbbVie Agreement. Preclinical studies with acazicolcept have demonstrated
efficacy in models of systemic lupus erythematosus, or SLE, Sjögren's syndrome,
or SjS, arthritis, inflammatory bowel disease, multiple sclerosis, type 1
diabetes, uveitis, and graft versus host disease. We have evaluated acazicolcept
in a Phase 1 healthy volunteer study and have initiated patient dosing in
Synergy, a global, randomized, double-blind, placebo-controlled Phase 2 study of
acazicolcept in adults with moderate-to-severe SLE.
ALPN-303 is a dual B cell cytokine antagonist, being developed for the treatment
of B cell mediated inflammatory and autoimmune diseases. Engineered using our
proprietary directed evolution platform, ALPN-303 potently inhibits the
pleiotropic B cell cytokines B cell activating factor (BAFF, BLyS) and a
proliferation inducing ligand (APRIL), which play key roles in B cell
development, differentiation, and survival, and together contribute to the
pathogenesis of multiple autoimmune diseases like systemic lupus erythematosus
(SLE) and many other autoantibody-related inflammatory diseases. Data presented
at the American College of Rheumatology (ACR) Convergence 2021 Annual Meeting
demonstrated that ALPN-303 inhibits the activity of the B cell cytokines APRIL
and BAFF more potently than wild-type TACI-Fc counterparts, as well as anti-BAFF
and anti-APRIL monoclonal antibodies. In addition, ALPN-303 has been well
tolerated in preclinical models and exhibited superior pharmacokinetics and
pharmacodynamics than wild-type TACI-Fc counterparts, including superior serum
exposure, suppression of T-dependent antibody production, and/or serum
immunoglobulins in mice and/or cynomolgus monkeys. Enrollment in a
first-in-human, phase 1 study of ALPN-303 in healthy volunteers is expected to
begin in the fourth quarter of 2021, with topline results targeted in the first
half of 2022. This randomized, placebo-controlled study is designed to evaluate
the safety, tolerability, pharmacokinetics, and pharmacodynamics of ALPN-303
administered intravenously and subcutaneously. We are planning to initiate
patient-based studies in the second half of 2022 including systemic lupus
erythematosus, and possibly autoantibody-related renal, dermatology, neurology,
and hematology indications.
Immuno-oncology
Our lead oncology program is ALPN-202, a conditional CD28 costimulator and dual
checkpoint inhibitor intended for the treatment of cancer. Preclinical in vivo
data have demonstrated monotherapy efficacy in tumor models superior to approved
therapies. In June 2020, we initiated NEON-1, a Phase 1 dose escalation and
expansion study in patients with advanced malignancies. Initial data from NEON-1
were presented at the 2021 ASCO Virtual Meeting demonstrating that ALPN-202 was
well-tolerated as of the cutoff date (April 22, 2021) with evidence of
peripheral T cell modulation consistent with CD28 agonism. In addition, although
most enrolled participants had tumors considered classically non-responsive to
immunotherapies, 61% (14 of 23 evaluable) derived clinical benefit as defined as
a best outcome of stable disease or better. Completion of dose escalation for
NEON-1 is anticipated in the fourth quarter of 2021. Further updates are
anticipated in the first half of 2022.
In June 2021, we announced a collaboration and supply agreement with Merck to
evaluate the safety and efficacy of ALPN-202 in combination with Merck's
anti-PD-1 therapy KEYTRUDA (pembrolizumab) in a Phase 1 dose escalation and
expansion study. The clinical trial, NEON-2, was initiated in June 2021.
Our scientific platform has also generated immune modulatory proteins with the
potential of improving engineered cellular therapies such as chimeric antigen
receptor T cells, T cell receptor-engineered T cells, and tumor infiltrating
lymphocytes. In May 2019, we signed a collaboration and license agreement with
Adaptimmune Therapeutics plc, or Adaptimmune, to develop next-generation SPEAR™
T cell products which incorporate our secreted and transmembrane
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immunomodulatory protein (termed SIP™ and TIP™) technology. We intend to
continue to leverage our existing pipeline and platform to actively explore and
evaluate potential value-creating partnering opportunities.
Our goal is to discover and develop modern therapies to treat patients with
serious conditions such as cancer and autoimmune/inflammatory diseases. To
achieve our goals, we intend to:
•aggressively move our lead autoimmune/inflammatory program acazicolcept through
clinical development as part of our Option and License Agreement with AbbVie, or
the AbbVie Agreement, including conducting our Phase 2 study for the treatment
of SLE;
•aggressively move our second autoimmune/inflammatory program ALPN-303 through
preclinical development and into clinical studies for the treatment of B cell
mediated autoimmune/inflammatory diseases;
•aggressively move our lead oncology program ALPN-202 through clinical
development for the treatment of cancer, and;
•maximize the value of our pipeline and platform via potential partnering
activities.
Our operations to date have been limited to business planning, raising capital,
developing our platform technology, identifying potential immunotherapy
candidates, clinical studies, and other research and development activities. To
date, we have financed operations primarily through private placements of common
stock and convertible preferred stock, funds received from license and research
agreements, debt financing and assets acquired upon the close of our merger with
Nivalis Therapeutics Inc., or Nivalis. We do not have any products approved for
sale and have not generated any product sales. Since inception and through
September 30, 2021, excluding amounts borrowed through debt financing, we have
raised an aggregate of $378.2 million to fund operations, of which $170.7
million was from the sale of common stock and warrants, $49.2 million was from
the sale of convertible preferred stock, $114.2 million was through our license
and collaboration agreements, and $44.1 million in cash, cash equivalents, and
marketable securities acquired through the merger with Nivalis. As of
September 30, 2021, we had cash, cash equivalents, restricted cash, and
investments totaling $219.9 million.
Our net loss was $13.5 million and $6.1 million for the three months ended
September 30, 2021 and 2020, respectively, and $35.2 million and $21.6 million
for the nine months ended September 30, 2021 and 2020, respectively. We expect
to continue incurring significant expenses and operating losses for at least the
next several years as we:

•initiate and complete nonclinical studies and clinical trials for our product
candidates, including acazicolcept, a dual ICOS/CD28 antagonist program
targeting autoimmune/inflammatory disorders, ALPN-202, a conditional CD28
costimulator and dual checkpoint inhibitor intended for the treatment of cancer,
and ALPN-303, a dual B cell cytokine antagonist for B cell-mediated
autoimmune/inflammatory diseases;
•contract to manufacture and perform additional process development for our
product candidates;
•continue research and development efforts to build our pipeline beyond the
current product candidates;
•maintain, expand, and protect our intellectual property portfolio;
•hire additional clinical, quality control, scientific, and management
personnel; and
•add operational and financial personnel to support our product development
efforts and operational capabilities applicable to operating as a public
company.
We do not expect to generate product revenue unless and until we successfully
complete development of, obtain marketing approval for and commercialize our
product candidates, either alone or in collaboration with third parties. We
expect these activities will take a number of years and our success in these
efforts is subject to significant uncertainty. Accordingly, we will need to
raise additional capital prior to the regulatory approval and commercialization
of any of our product candidates. Until such time, if ever, as we can generate
substantial product revenues, we expect to finance our operating activities
through equity or debt financings, collaborations or licenses, capital lease
transactions, or other available financing transactions. However, additional
capital may not be available on reasonable terms, if at all, and if we raise
additional funds through the issuance of additional equity or debt securities,
it could result in dilution to our existing stockholders and increased fixed
payment obligations.
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Financial Overview
Collaboration Revenue
We derive our collaboration revenue primarily from our collaboration and
licensing agreements. We may generate revenue in the future from milestone
payments received pursuant to our collaboration and licensing agreement with
Adaptimmune, or the Adaptimmune Agreement, or from the AbbVie Agreement, or from
payments from future license or collaboration agreements, product sales, or
government contracts and grants. We expect revenue we generate, if any, will
fluctuate from quarter to quarter.
AbbVie Ireland Unlimited Company
In June 2020, we entered into the AbbVie Agreement for the development of
acazicolcept. The AbbVie Agreement grants AbbVie the exclusive option to
purchase an exclusive worldwide license to acazicolcept, or the License Option.
The License Option is exercisable by AbbVie at any time and will expire 90 days
from the achievement of certain development milestones. If AbbVie exercises the
License Option, AbbVie will take over the future development and
commercialization. Prior to the exercise of the License Option, we will perform
research and development services, including conducting our Phase 2 study in
SLE, based on an agreed-upon development plan, or the Development Plan. We will
be fully responsible for all costs incurred to conduct the activities under the
Development Plan, provided that, AbbVie may be responsible for increased costs
under the Development Plan in connection with certain material amendments
proposed by AbbVie. We will also be solely responsible, at our sole cost and
expense, for manufacturing and regulatory filings for acazicolcept necessary to
complete activities under the Development Plan.
In June 2020, in connection with the execution of the AbbVie Agreement, AbbVie
paid us a nonrefundable upfront payment of $60.0 million. Prior to the exercise
of the License Option, AbbVie has agreed to make cash payments upon our
achievement of certain predefined pre-option development milestones, or the
Alpine Development Milestones, up to an aggregate amount of $75.0 million. In
the third quarter of 2021, we received $45.0 million of the Alpine Development
Milestones, which was achieved in June 2021. If AbbVie exercises the License
Option, they will pay a one-time cash payment of $75.0 million. Following the
exercise of the License Option, AbbVie has also agreed to make aggregate cash
payments of up to $205.0 million upon AbbVie's achievement of certain
development and commercial milestones and additional aggregate cash payments of
up to $450.0 million upon AbbVie's achievement of certain sales-based cash
milestones, collectively referred to as the AbbVie Milestones. Subsequent to
commercialization, we are also eligible to receive high single-digit to low
double-digit percentage royalties on worldwide net sales of licensed products.
For revenue recognition purposes, we determined that our contractual promises in
the AbbVie Agreement are not distinct and are interdependent with our
performance obligation to provide research and development services under the
Development Plan. Thus, all contractual promises related to the upfront payment
and Alpine's Development Milestones were combined into a single performance
obligation. We determined the Alpine Development Milestone payments are probable
of significant revenue reversal as the achievement is highly dependent on
factors outside our control. Therefore, these milestone payments were fully
constrained and were not initially included in the transaction price. In June
2021, we re-evaluated and updated the transaction price to include the achieved
portion of the Alpine Development Milestones. We will continue to re-evaluate
the transaction price each reporting period and update as uncertain events are
resolved or other changes in circumstances occur.
The License Option and the AbbVie Milestones were not determined to be
performance obligations at the inception of the contract as they did not
represent material rights. If exercised, the License Option and AbbVie
Milestones will be accounted for as a separate contract and will be recognized
as revenue if and when triggered. Any consideration related to sales-based
royalties and profit-sharing payments will be recognized when the related sales
occur.
We use a cost-based input method to measure progress toward completion of the
performance obligation and to calculate the corresponding revenue to recognize
each period. In applying the cost-based input, we use actual costs incurred
relative to budgeted costs for the combined performance obligation. These costs
consist primarily of internal personnel efforts and third-party contract costs
relative to the level of patient enrollment in the study. Revenue will be
recognized based on the level of costs incurred relative to the total budgeted
costs for the performance obligation. A cost-based input method of revenue
recognition requires management to make estimates of costs to complete our
performance obligation. In making such estimates, significant judgment is
required to evaluate assumptions related to cost estimates. The cumulative
effect of revisions to estimated costs to complete our performance obligation
will be recorded in the period in which changes are identified and amounts can
be reasonably estimated. A significant change in these assumptions and estimates
could have a material impact on the timing and amount of revenue recognized in
future periods.
We recognized revenue from the AbbVie Agreement of $8.5 million and $1.6 million
for the three months ended September 30, 2021 and 2020, respectively, and $18.9
million and $1.6 million for the nine months ended September 30, 2021
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and 2020, respectively. As of September 30, 2021, the remaining balance of
the transaction price is $79.1 million and is recorded as current and noncurrent
deferred revenue on our accompanying   Condensed Consolidated Balance Sheets  .
We expect to recognize the remaining deferred revenue over the remainder of our
Development Plan, which began in June 2020 and ends upon the later of the
exercise or expiration of the option.
Adaptimmune Therapeutics plc
In May 2019, we entered into the Adaptimmune Agreement with Adaptimmune, a
clinical-stage biopharmaceutical company primarily focused on providing novel
cell therapies to patients, particularly for the treatment of solid tumors, to
develop next-generation SPEAR T cell products which incorporate our secreted and
transmembrane immunomodulatory protein (termed SIP™ and TIP™) technology. Under
the Adaptimmune Agreement, we are to perform certain research services and grant
Adaptimmune an exclusive license to programs from our SIP and TIP technologies.
In June 2019, under the terms of the Adaptimmune Agreement, we received an
upfront license payment of $2.0 million and through September 30, 2021 we have
received an additional $1.6 million in research support payments to fund ongoing
programs. These payments were recorded to deferred revenue upon receipt and were
recognized as revenue based on employee hours contributed to each performance
obligation. In the fourth quarter of 2020, based on the completion of our
initial research and development efforts in connection with our performance
obligations, we recognized the remaining balance in deferred revenue associated
with Adaptimmune on our accompanying   Condensed Consolidated Balance Sheets  .
Under the Adaptimmune Agreement we recognized revenue of $356,000 and
$2.0 million for the three and nine months ended September 30, 2020,
respectively. In addition, we are eligible for additional research support
payments, one-time payments and downstream development and commercialization
milestones of up to $288.0 million, if all pre-specified milestones for each
program are achieved. We are also eligible to receive low-single digit
percentage royalties on worldwide net sales of the applicable products.
Research and Development Expenses
We focus our resources on research and development activities, including the
conduct of preclinical and clinical studies and product development and expense
such costs as they are incurred. Our research and development expenses consist
of:
•employee-related expenses, including salaries, benefits, taxes, travel, and
stock-based compensation expense for personnel in research and development
functions;
•expenses related to process development and production of product candidates
paid to contract manufacturing organizations;
•costs associated with preclinical activities and regulatory operations,
including the cost of acquiring, developing, and manufacturing research
material;
•clinical trials and activities related to regulatory filings for our product
candidates; and
•allocation of facilities, overhead, depreciation, and amortization of
laboratory equipment and other expenses.
We incurred $18.3 million and $6.2 million in research and development expenses
for three months ended September 30, 2021 and 2020, respectively and $43.4
million and $18.1 million for the nine months ended September 30, 2021 and 2020,
respectively. We expect our research and development expenses to increase for
the foreseeable future as we continue to develop our platform and product
candidates.
The successful development of our platform and product candidates is highly
uncertain. At this time, we cannot reasonably estimate the nature, timing, or
costs of the efforts necessary to finish developing any of our product
candidates or the period in which material net cash, if any, from these product
candidates may commence. This is due to the numerous risks and uncertainties
associated with developing therapeutics, including the uncertainty of:
•the scope, rate of progress, expense, and results of clinical trials;
•the scope, rate of progress, and expense of process development and
manufacturing;
•preclinical and other research activities; and
•the timing of regulatory approvals.
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General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related
costs for employees in executive, business development, finance, and
administrative functions. Other significant general and administrative expenses
include professional fees for accounting and legal services, expenses associated
with obtaining and maintaining patents and other intellectual property, and
allocation of facility and overhead costs.
We expect general and administrative expenses to increase as we expand
infrastructure and headcount, and continue to prosecute our patents and other
intellectual property. Other increases could potentially include increased costs
for director and officer liability insurance, costs related to the hiring of
additional personnel, and increased fees for directors, outside consultants,
lawyers, and accountants. We expect to incur significant costs to comply with
corporate governance, internal controls, and similar requirements applicable to
public companies.
Interest Expense
Interest expense consists primarily of interest associated with our term loan
with Silicon Valley Bank, or SVB, and the amortization of the related debt
discount.
Interest Income
Interest income consists of interest earned on our cash, cash equivalents, and
investments.
Income Tax (Expense) Benefit
Income tax (expense) benefit for the 2021 period relates to the removal of the
valuation allowance against our foreign deferred tax assets as we have generated
sufficient foreign taxable income to utilize all historical operating losses.
Other Income
Other income consists primarily of a research and development tax credit
received by our wholly-owned Australian subsidiary.
JOBS Act
We ceased to be an "emerging growth company" under the JOBS Act effective
December 31, 2020. However, for so long as we are not classified as an
"accelerated filer" or "large accelerated filer" pursuant to SEC rules, we will
continue to be exempt from the auditor attestation requirements of Section
404(b) of Sarbanes-Oxley.
Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our financial statements, which we have prepared in
accordance with generally accepted accounting principles in the United States,
or GAAP. The preparation of these condensed consolidated financial statements
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the condensed consolidated financial statements, as
well as the reported revenues and expenses during the reporting periods. We
evaluate these estimates and judgments on an ongoing basis. We base our
estimates on historical experience and on various other factors that we believe
are reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Our actual results may differ from these
estimates under different assumptions or conditions.
Our significant accounting policies are more fully described in   Note 2   of
the accompanying unaudited condensed consolidated financial statements and in
Note 2 to the audited financial statements contained in our   Annual Report on
Form 10-K  . There have been no significant or material changes in our
significant accounting policies during the nine months ended September 30, 2021,
as compared to those disclosed in our Annual Report except the following:
Recently Adopted Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board, or FASB, issued
Accounting Standards Update, or ASU, No. 2019-12, Income Taxes, or Topic 740,:
Simplifying the Accounting for Income Taxes. This ASU simplifies the accounting
for income taxes by removing certain exceptions to the general principles in
Topic 740 and also improves consistent
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application by clarifying and amending existing guidance. The standard is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020. We adopted this standard on January 1, 2021, and concluded that the adoption of the standard did not have a material impact on our consolidated financial statements and related disclosures. For information regarding recent accounting pronouncements, see Note 2 of the Notes to Condensed Consolidated Financial Statements under Part I, Item 1 of this report.



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Results of Operations Comparison of Three Months Ended September 30, 2021 and 2020 The following table summarizes our results of operations for the three months ended September 30, 2021 and 2020 (in thousands):


                                   Three Months Ended
                                     September 30,            Increase/
                                   2021           2020        Decrease
                                      (unaudited)
Collaboration revenue          $    8,516      $  1,913      $   6,603
Operating expenses:
Research and development           18,309         6,156         12,153
General and administrative          3,470         2,728            742
Total operating expenses           21,779         8,884         12,895
Loss from operations              (13,263)       (6,971)        (6,292)
Other income (expense):
Interest expense                     (203)         (214)            11
Interest income                        52            11             41
Other income                            -         1,037         (1,037)
Loss before taxes                 (13,414)       (6,137)        (7,277)
Income tax (expense) benefit          (80)            -            (80)
Net loss                       $  (13,494)     $ (6,137)     $  (7,357)


Collaboration Revenue
Revenue for the three months ended September 30, 2021, consists of $8.5 million
related to the AbbVie Agreement. Revenue for the three months ended
September 30, 2020, consists of $0.4 million related to the Adaptimmune
Agreement and $1.6 million related to the AbbVie Agreement.
Research and Development Expenses
The $12.2 million increase in research and development expenses was primarily
attributable to increases of $6.1 million in clinical trial activities, $2.2
million in direct research activities, $2.1 million in contract manufacturing
and process development of our product candidates, $1.4 million in
personnel-related expenses, and $0.5 million in stock-based compensation. These
increases were partially offset by a $0.1 million decrease in allocated overhead
and facilities.
General and Administrative Expenses
The $0.7 million increase in general and administrative expenses was primarily
attributable to increases of $0.3 million in personnel-related expenses, $0.2
million in stock-based compensation, and $0.2 million in legal and professional
services and allocated overhead and facilities.
Other Income
The $1.0 million decrease in other income is attributable to a research and
development tax credit received by our wholly-owned Australian subsidiary during
the 2020 period.
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Comparison of Nine Months Ended September 30, 2021 and 2020 The following table summarizes our results of operations for the nine months ended September 30, 2021 and 2020 (in thousands):


                                   Nine Months Ended
                                     September 30,
                                  2021           2020         Increase/Decrease
                                      (unaudited)
Collaboration revenue          $  18,913      $   3,692      $           15,221
Operating expenses:
Research and development          43,380         18,130                  25,250
General and administrative        10,016          7,850                   2,166
Total operating expenses          53,396         25,980                  27,416
Loss from operations             (34,483)       (22,288)                (12,195)
Other income (expense):
Interest expense                    (638)          (560)                    (78)
Interest income                      166            202                     (36)
Other income                           -          1,042                  (1,042)
Loss before taxes                (34,955)       (21,604)                (13,351)
Income tax (expense) benefit        (211)             6                    (217)
Net loss                       $ (35,166)     $ (21,598)     $          (13,568)


Collaboration Revenue
Revenue for the nine months ended September 30, 2021 consists of $18.9 million
related to the AbbVie Agreement. Revenue for the nine months ended September 30,
2020 consists of $2.0 million related to the Adaptimmune Agreement and $1.6
million related to the AbbVie Agreement.
Research and Development Expenses
The $25.3 million increase in research and development expenses was primarily
attributable to increases of $8.3 million in clinical trial activity, $7.9
million in contract manufacturing and process development of our product
candidates, $4.7 million in direct research activities, $3.1 million in
personnel-related expenses, $0.9 million in stock-based compensation, and $0.4
million in allocated overhead and facilities.
General and Administrative Expenses
The $2.2 million increase in general and administrative expenses was primarily
attributable to increases of $1.3 million in personnel-related expenses and $0.7
million in non-cash stock-based compensation, and $0.2 million in legal and
professional services.
Other Income
The $1.0 million decrease in other income is attributable to a research and
development tax credit received by our wholly-owned Australian subsidiary during
the 2020 period.
Income Tax (Expense) Benefit
The $0.2 million increase in income tax expense relates to the removal of the
valuation allowance against our foreign deferred tax assets as we have generated
sufficient foreign taxable income to utilize all historical operating losses.
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Liquidity and Capital Resources
As of September 30, 2021, we had cash, cash equivalents, restricted cash, and
investments totaling $219.9 million. Excluding amounts borrowed through debt
financing, as of September 30, 2021, we have raised an aggregate of $378.2
million to fund operations, of which $170.7 million was from the sale of common
stock and warrants, $49.2 million was from the sale of convertible preferred
stock, $114.2 million was through our license and collaboration agreements, and
$44.1 million in cash, cash equivalents, and marketable securities acquired
through the merger with Nivalis. In June 2017, August 2019, and March 2020, we
drew down term loans from SVB, as discussed below. In addition to our existing
cash, cash equivalents, and investments, we are eligible to receive research and
development funding and to earn milestone and other contingent payments for the
achievement of defined collaboration objectives and certain development and
regulatory milestones and royalty payments under our collaborations with
Adaptimmune and AbbVie; however, our ability to earn these milestone and
contingent payments and the timing of achieving these milestones is uncertain.
We have incurred operating losses since inception. We expect to continue to
incur significant expenses and operating losses for the foreseeable future as we
continue our research and preclinical and clinical development of our product
candidates; expand the scope of our current studies for our product candidates;
initiate additional preclinical, clinical or other studies for our product
candidates, including under any collaboration agreements; change or add
additional manufacturers or suppliers; seek regulatory and marketing approvals
for any of our product candidates that successfully complete clinical studies;
seek to identify, evaluate and validate additional product candidates; acquire
or in-license other product candidates and technologies; maintain, protect and
expand our intellectual property portfolio; attract and retain skilled
personnel; and experience any delays or encounter issues with any of the above.
Until such time as we can generate substantial product revenue, if ever, we
expect to finance our cash needs through a combination of equity or debt
financings and collaboration agreements. Except for any obligations of our
collaborators to make milestone payments under our agreements with them, we do
not have any committed external sources of capital. To the extent that we raise
additional capital through the future sale of equity or debt, the ownership
interest of our stockholders will be diluted, and the terms of these securities
may include liquidation or other preferences that adversely affect the rights of
our existing common stockholders. If we raise additional funds through
collaboration agreements in the future, we may have to relinquish valuable
rights to our technologies, future revenue streams or product candidates or
grant licenses on terms that may not be favorable to us. If we are unable to
raise additional funds through equity or debt financings when needed, we may be
required to delay, limit, reduce or terminate our product development or future
commercialization efforts or grant rights to develop and market product
candidates that we would otherwise prefer to develop and market ourselves.
Our future capital requirements are difficult to forecast and will depend on
many factors, including:
•the number and characteristics of the future product candidates we pursue
either from our internal research efforts or through acquiring or in-licensing
other product candidates or technologies;
•the scope, progress, results and costs of independently researching and
developing any of our future product candidates, including conducting
preclinical research and clinical trials;
•whether our existing collaborations generate substantial milestone payments
and, ultimately, royalties on future approved products for us;
•the timing of, and the costs involved in, obtaining regulatory approvals for
any future product candidates we develop independently;
•the cost of future commercialization activities, if any;
•the cost of manufacturing our future product candidates and products, if any;
•our ability to maintain our existing collaborations and to establish new
collaborations, licensing or other arrangements and the financial terms of such
arrangements;
•the costs of preparing, filing, prosecuting, maintaining, defending and
enforcing patents, including litigation costs and the outcome of such
litigation; and
•the timing, receipt and amount of sales of, or royalties on, our current or
future collaborators' product candidates, and our future products, if any.
We have considered that our long-term operations anticipate continuing net
losses and the need for potential equity or debt financing. We have also
considered that new collaborations or selectively partnering our technology or
programs may provide other sources of capital. However, there can be no
assurances that additional funding or other sources of capital will be available
on terms acceptable to us, or at all. Based on our current operating plan, we
believe our available cash and cash equivalents and investments, will be
sufficient to fund our planned level of operations for at least the next 12
months. We have based this estimate on assumptions that may prove to be wrong,
and we could use our capital resources sooner than we expect.
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Additionally, the process of testing drug candidates in preclinical and clinical studies is costly, and the timing of progress in these studies remains uncertain.



Financing Agreements
In September 2021, we entered into a securities purchase agreement, or the 2021
Securities Purchase Agreement, for a private placement with a select group of
institutional investors, pursuant to which we sold 6,489,357 shares of our
common stock, or the Shares, and prefunded warrants to purchase 3,191,487
Shares, or the Prefunded Warrants. The purchase price for each Share and for
each Prefunded Warrant was $9.40 per share, for an aggregate purchase price of
approximately $91.0 million. The Prefunded Warrants became fully exercisable
upon the closing date and have an exercise price of $0.001 per share. In
connection with the 2021 Securities Purchase Agreement approximately 3.7 million
of the Shares issued and approximately 2.3 million of the Prefunded Warrants
issued, for gross proceeds of approximately $57.0 million, were issued to
certain stockholders whose beneficial ownership exceeded 5% prior to completion
of the 2021 Securities Purchases Agreement.
In September 2021, we entered into an exchange agreement, or the Exchange
Agreement, with Frazier Life Sciences VIII, L.P., or the Exchanging Stockholder,
which Exchanging Stockholder is affiliated with a member of our board of
directors, pursuant to which we exchanged an aggregate of 1,200,000 shares of
common stock held by the Exchanging Stockholder for Prefunded Warrants, or the
Exchange Warrants, to purchase an aggregate of 1,200,000 shares of common stock.
Upon the closing of the exchange, we reclassified 1,200,000 shares of common
stock into treasury stock on our accompanying   Condensed Consolidated Balance
Sheets  .
In July 2021, we entered into a sales agreement, or the Sales Agreement, with
Cowen and Company, LLC, or Cowen, pursuant to which we may sell shares of our
common stock from time to time through an "at the market" equity offering for up
to $75.0 million in gross cash proceeds. Cowen will act as the sales agent and
will be entitled to compensation for services of up to 3.0% of the gross sales
price per share of all shares sold through Cowen under the Sales Agreement. The
shares would be issued pursuant to our effective shelf registration statement on
Form S-3 (File No. 333-256107), declared effective by the SEC on May 20, 2021.
We filed a prospectus supplement, dated July 2, 2021, with the SEC in connection
with the offer and sale of the shares pursuant to the Sales Agreement. As of the
date of this report, we have made no such sales under the Sales Agreement.
In July 2020, we entered into a securities purchase agreement, or the 2020
Securities Purchase Agreement, for a private placement with a select group of
institutional investors, pursuant to which we sold 5,139,610 units, or the
Common Units, and 790,710 units, or the Prefunded Warrant Units, for an
aggregate purchase price of $60.0 million. Each Common Unit consists of one
share of our common stock plus a warrant to purchase 0.3 shares of common stock,
or the Common Stock Warrants, and each Prefunded Warrant Unit consists of one
prefunded warrant to purchase one share of common stock, or the Prefunded
Warrants, plus one Common Stock Warrant to purchase 0.3 shares of common stock.
The Prefunded Warrant Units and the Common Units are collectively referred to as
the Units and each Unit has a purchase price of $10.1175. The Common Stock
Warrants have an exercise price of $12.74 and a term of 3.5 years. The Prefunded
Warrants became fully exercisable upon the closing date and have an exercise
price of $0.001 per share.
In January 2019, we entered into a securities purchase agreement, or the 2019
Purchase Agreement, with a limited number of accredited investors, pursuant to
which we sold approximately 4.7 million units, or the 2019 Units, for an
aggregate purchase price of $25.3 million in a private placement, which we refer
to as the Private Placement. Each 2019 Unit has a purchase price of $5.37 and
consists of one share of our common stock and a warrant to purchase 0.39 shares
of common stock. Pursuant to the terms of the 2019 Purchase Agreement, we issued
approximately 4.7 million shares of common stock and warrants to purchase an
aggregate of approximately 1.8 million shares of common stock. The warrants have
an exercise price of $12.74 and have a term of five years.
Long-Term Financing
In December 2016, we entered into a Loan and Security Agreement, or the Original
Agreement, with SVB under which we borrowed $5.0 million. The Original Agreement
accrued interest at a floating per annum rate equal to the lender's prime rate
minus 1.75%. The Original Agreement had an interest-only period through July
2018. In August 2019, we entered into an Amended and Restated Loan and Security
Agreement, or the Loan Agreement, with SVB, pursuant to which SVB agreed to
extend term loans to us with an aggregate principal amount of up to $15.0
million, or the Term Loans. Borrowings under the Loan Agreement consisted of up
to three separate tranches. The initial tranche of $5.0 million was funded in
August 2019, $3.0 million of which was used to repay amounts owing under our
Original Agreement. In March 2020, the second tranche of $5.0 million was funded
to us. We did not draw down the final tranche of $5.0 million, which expired on
July 31, 2020. We intend to use the debt proceeds for working capital and other
general corporate purposes, including the advancement of our development
programs.
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The Term Loans accrue interest at a floating per annum rate of 0.25% above the
prime rate, subject to a floor of 5.75%, which interest is payable monthly
commencing in September 2019. Upon the occurrence and during the continuance of
an event of default, a default interest rate will apply that is 4.0% above the
otherwise applicable interest rate. The Term Loans were interest only until
September 30, 2020, however, under the Loan Agreement our interest only period
automatically extended to June 30, 2021 if we received aggregate new capital of
at least $40.0 million no later than June 30, 2020. We met this milestone in
June 2020 in conjunction with the execution of the AbbVie agreement, discussed
in detail in   Note 9  . As a result of the interest only extension, the Term
Loans will be payable in 25 equal monthly installments of principal plus
interest, with the final installment due and payable on July 1, 2023.
We may prepay all, but not less than all, of the Term Loans subject to a
prepayment fee equal to $75,000, which represents the deferred portion of the
final payment due under the Original Agreement, plus the outstanding principal
balance under the Term Loans at the time of such prepayment multiplied by a
prepayment fee of 2.0% in the first year, 1.0% in the second year, and 0.0% in
the third year and thereafter. Additionally a final payment in the amount of
5.5% of the funded Term Loans is payable to SVB on the date on which the Term
Loans are prepaid, paid or become due and payable in full. The final payment
fees are recorded in long-term debt with an offsetting reduction to debt
discount on our accompanying   Condensed Consolidated Balance Sheets  .
The Loan Agreement contains customary representations and warranties, events of
default and affirmative and negative covenants, including, among others,
covenants that limit or restrict our ability to, among other things, incur
additional indebtedness, grant liens, merge or consolidate, make acquisitions,
pay dividends or other distributions or repurchase equity, make investments,
dispose of assets, engage in any new lines of business, and enter into certain
transactions with affiliates, in each case subject to certain exceptions. Among
other events, a failure to make a required loan payment, an uncured covenant
breach or a material adverse change in our business, operations or condition
(financial or otherwise) could lead to an event of default, and in such case,
all amounts then outstanding may become due and payable immediately. We were in
compliance with our covenants as of September 30, 2021. As security for its
obligations under the Loan Agreement, we granted SVB a first priority security
interest on substantially all of our assets, except intellectual property, and
subject to certain other exceptions. As of September 30, 2021, we had $9.4
million in outstanding principal and final fees due under our term loan
agreement. See   Note 7   for further discussion of our Term Loans.
Operating Lease
In March 2019, we entered into a lease with ARE-Seattle No. 28, LLC, or the
Landlord, for 27,164 square feet of office and laboratory space located at 188
East Blaine Street, Seattle, Washington. The term of the lease is 10.8 years
with one option to extend the term by 5 years. The lease term commenced in June
2019. The "Rent Commencement Date" began in March 2020, nine months after the
commencement date. We were not required to pay base rent from the Rent
Commencement Date through November 2020, the last day of the ninth month
following the Rent Commencement Date. The annual base rent under the lease is
$1.7 million for the first year and will increase by 3.0% each year thereafter.
We received a tenant improvement allowance of $5.4 million, which is included in
our base rent, and a maximum additional tenant improvement allowance of $1.8
million, which will result in additional rent amortized over the term of the
lease at an annual rate of 8.0%. The lease also requires us to pay additional
amounts for operating and maintenance expenses. In March 2019, in connection
with the lease, we provided a $254,000 letter of credit as a security deposit,
which is recorded as restricted cash in our accompanying   Condensed
Consolidated Balance Sheets  .
Contingencies
Certain credits received related to our research and development expenditures
and recorded within other income in our accompanying   Condensed Consolidated
Statements of Operations and Comprehensive Income (Loss)   are subject to review
by foreign taxing authorities. It is reasonably possible we may incur losses
upon the completion of these reviews of up to approximately $1.8 million, which
we would be required to repay to certain tax authorities.
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