This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with:

? our unaudited condensed financial statements and accompanying notes included in

Part I, Item 1 of this Quarterly Report on Form 10-Q; and

our audited financial statements and accompanying notes included in the 2020

? Form 10-K, as well as the information contained under the heading "Management's

Discussion and Analysis of Financial Condition and Results of Operations" in

our 2020 Form 10-K.




In addition to historical information, this discussion and analysis contains
forward-looking statements. These forward-looking statements are subject to
risks and uncertainties, including those discussed in the section titled "Risk
Factors," set forth in Item 1A of our 2020 Form 10-K and this Quarterly Report
on Form 10-Q, that could cause actual results to differ materially from
historical results or anticipated results.



Overview



We are a clinical-stage biopharmaceutical company with a business strategy
focused on the clinical development, and ultimately the commercialization, of
drug candidates for rare disease indications characterized by small,
well-defined patient populations with serious unmet medical needs. Our current
focus is on our Toll-like receptor ("TLR") agonist, tilsotolimod (IMO-2125), for
oncology, as well as identifying and potentially acquiring rights to novel
development and commercial stage rare disease programs. We are currently seeking
to broaden our portfolio and develop and commercialize targeted therapies on our
own. To the extent we seek to develop drug candidates for other diseases, we
have entered into and may explore additional collaborative alliances to support
development and commercialization.



Our current TLR-targeted clinical-stage drug candidate, tilsotolimod, is an
agonist of TLR9. Until May 2021, we were developing tilsotolimod, via
intratumoral injection, for the treatment of anti-PD1 refractory metastatic
melanoma in combination with ipilimumab, an anti-CTLA4 antibody marketed as
Yervoy® by Bristol Myers Squibb Company ("BMS") in a Phase 3 registration trial.
During the first quarter of 2021, we announced that ILLUMINATE-301, the
Company's pivotal registration trial of tilsotolimod in combination with
ipilimumab versus ipilimumab alone in patients with anti-PD-1 refractory
advanced melanoma, did not meet its primary endpoint of objective response rate
("ORR"). Based on subsequent evaluation of the full data set in May 2021, we
announced that we would not continue the trial to its Overall Survival (OS)
primary endpoint.



We are continuing to evaluate intratumoral tilsotolimod in combination with nivolumab, an anti-PD1 antibody marketed as Opdivo® by BMS, and ipilimumab for the treatment of multiple solid tumors in a multicohort Phase 2 trial.





Recent Developments



In April 2021, following the announcement that ILLUMINATE-301 did not meet its
primary endpoint of ORR, we decided to implement a reduction in force, which
affected approximately 50% of our workforce as of June 30, 2021. The decision
was made to align our workforce to our needs in light of the topline data
results from ILLUMINATE-301's ORR endpoint and subsequent decision not to
continue to the study's OS endpoint . In connection with these actions, we
incurred one-time termination costs during the second quarter of 2021, which
included severance, benefits, and related costs, of approximately $1.2 million.



We are actively evaluating other novel therapeutic assets, including developmental and potentially commercial-stage assets, which may represent an opportunity to expand our pipeline.





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Clinical Development



Tilsotolimod (IMO-2125)



Tilsotolimod is a synthetic phosphorothioate oligonucleotide that acts as a
direct agonist of TLR9 to stimulate the innate and adaptive immune systems.
Tilsotolimod is being developed for administration via intratumoral injection in
combination with systemically administered checkpoint inhibitors and
costimulation therapies for the treatment of various solid tumors, including (i)
microsatellite stable ("MSS") colorectal cancer ("CRC") in combination with
nivolumab and ipilimumab, and (ii) squamous cell carcinoma of the head and neck
("HNSCC") in combination with ABBV-368 and other combinations. We refer to our
tilsotolimod development program as the ILLUMINATE development program. See
additional information under the heading "Collaborative Alliances" for
information on the development of tilsotolimod in collaboration with AbbVie Inc.
("AbbVie") for patients with HNSCC.



Solid Tumors


Advancements in cancer immunotherapy have included the approval and late-stage development of multiple checkpoint inhibitors, as single agents or in combination, for solid tumors including, among others, microsatellite instability high/deficient mismatch repair ("MSI-H/dMMR") CRC and HNSCC.





In patients with CRC, nivolumab administered as monotherapy or in combination
with ipilimumab has demonstrated benefit and is approved for the treatment of
MSI-H/dMMR mCRC. However, in a previously treated microsatellite stable ("MSS")
CRC patient population, nivolumab + ipilimumab combination therapy did not
produce objective responses. MSS-CRC has been shown to be highly
immunosuppressive. Moreover, the tumor microenvironment in MSS-CRC has been
shown to keep dendritic cells in an immature state. Given tilsotolimod's
mechanism of action of activating dendritic cells, it may serve a complementary
function to nivolumab and ipilimumab within the immunosuppressive tumor
microenvironment ("TME") of MSS-CRC patients.



In patients with relapsed or metastatic HNSCC ("RM-HNSCC"), results from
prospectively conducted trials employing the immune-modulating antibodies
nivolumab and pembrolizumab following chemotherapy heralded a new era of
treatment for patients with RM-HNSCC. Patients responding to these agents have
seen durable responses, and in controlled studies, an overall survival benefit
has been demonstrated for the anti-PD-1 antibodies versus standard of care
chemotherapy. The challenge remains to increase the percentage of patients
responding to these treatments, which currently ranges from 13% to 23%,
depending on the line of therapy.



[[Image Removed: A picture containing drawing Description automatically generated]]

ILLUMINATE-206 - Phase 2 Trial of Tilsotolimod (IMO-2125) in Combination with Nivolumab and Ipilimumab for the treatment of Solid Tumors


In September 2019, we initiated a Phase 2, open-label, global, multicohort study
to evaluate the safety and effectiveness of tilsotolimod administered
intratumorally in combination with nivolumab and ipilimumab for the treatment of
solid tumors. We refer to this study as ILLUMINATE-206.



Currently, we are evaluating relapsed/refractory MSS-CRC in immunotherapy-naïve
patients treated with tilsotolimod in combination with nivolumab and ipilimumab
(the "MSS-CRC Study"). An initial group of ten patients was enrolled to evaluate
the safety of administering the combination of tilsotolimod, nivolumab and
ipilimumab. To investigate the safety profile of this triplet combination,
ILLUMINATE-206 was designed with a stepwise approach to Yervoy® dosage. Patients
in this initial safety cohort of the MSS-CRC Study, many of whom were heavily
pre-treated and rapidly progressing, received 8 mg of intratumoral tilsotolimod
and 3 mg/kg of intravenous (IV) Opdivo® every two weeks, along with 1 mg/kg of
IV Yervoy® every eight weeks (the "Low-Dose, Low-Frequency Cohort"). This
regimen was generally well tolerated; no patients discontinued treatment due to
adverse events (AEs) and none experienced Grade 4 or 5 AEs. As of the response
data cutoff date, one patient experienced stable disease per RECIST v1.1 (as
defined below) criteria and nine patients progressed as defined by RECIST v1.1.
Investigators reported that six of the progressing patients had stability or
reduction in size of injected lesions and six had stability or reduction in
overall size of uninjected lesions.

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Based on these results, we have fully enrolled patients in a second MSS-CRC
Study cohort. Changes in the study design intended to improve potential outcomes
in the targeted patient population included increasing the frequency of Yervoy®
dosing to every three weeks and limiting the number of allowed prior lines of
treatment to two. Accordingly, patients in the second group of 10 enrolled in
the MSS-CRC Study will receive 8 mg of intratumoral tilsotolimod (total of 9
doses over approximately 28 weeks) and 3 mg/kg of intravenous (IV) Opdivo® every
three weeks followed by 480 mg of IV Opdivo® every four weeks, along with 1
mg/kg of IV Yervoy® every three weeks for four doses (the "Low-Dose,
High-Frequency Cohort"). Based on data from these patients, the MSS-CRC Study
may be expanded further and/or provide rationale to explore additional tumor
types.



As further discussed, under the caption "Item 1. Business - Collaborative
Alliances" in our 2020 Form 10K, in March 2019, we entered into a clinical trial
collaboration and supply agreement with BMS, under which BMS has agreed to
manufacture and supply YERVOY® (ipilimumab) and OPDIVO® (nivolumab), at its cost
and for no charge to us, for use in ILLUMINATE-206.



[[Image Removed: Graphic]]


ILLUMINATE-301 - Phase 3 Trial of Tilsotolimod (IMO-2125) in Combination with Ipilimumab in Patients with Anti-PD1 Refractory Metastatic Melanoma





In the first quarter of 2018, we initiated a Phase 3 trial of the
tilsotolimod-ipilimumab combination in patients with anti-PD-1 refractory
metastatic melanoma, which we refer to as ILLUMINATE-301. This trial, which
completed target enrollment of 454 patients in March 2020, compared the results
of the tilsotolimod-ipilimumab combination to those of ipilimumab alone in a 1:1
randomization. The family of primary endpoints of the trial consists of ORR by
blinded independent central review using Response Evaluation Criteria in Solid
Tumors ("RECIST v1.1") and median OS.



In March 2021, we reported that ILLUMINATE-301 did not meet its primary endpoint
of ORR. In May 2021, following evaluation of the full data set, we announced
that we would not continue ILLUMINATE-301 to its OS primary endpoint.



Collaborative Alliances



Our current alliances include collaborations with Scriptr, described below, and
AbbVie and BMS, each described under the caption "Item 1. Business -
Collaborative Alliances" in our 2020 Form 10-K. In addition to our current
alliances, we may seek to enter into additional collaborative alliances to
support development and commercialization of our TLR agonists and antagonists
and/or research additional drug candidates.



Collaboration with Scriptr



In February 2021, we entered into a collaboration and option agreement with
Scriptr Global, Inc. ("Scriptr"), pursuant to which (i) Scriptr and us will
conduct a research collaboration utilizing Scriptr Platform Technology ("SPT")
to identify, research and develop gene therapy candidates (each, a
"Collaboration Candidate") for the treatment, palliation, diagnosis or
prevention of (a) myotonic dystrophy type 1 ("DM1 Field") and (b) Friedreich's
Ataxia ("FA Field") on a Research Program-by-Research Program basis, as
applicable, and (ii) we were granted an exclusive option, in our sole
discretion, to make effective the Scriptr License Agreement, as defined below,
for a given Research Program, as defined below, to make use of Collaboration
Candidates and related intellectual property (collectively, the "Scriptr
Agreement").



Pursuant to the Scriptr Agreement, Scriptr will use commercially reasonable
efforts to carry out research activities set forth in accordance with the
applicable DM1 Field and FA Field research plans, including certain pre-clinical
proof of concept studies, to identify research Collaboration Candidates
utilizing SPT (each, a "Research Program"). Following the completion of
activities under a given Research Program, Scriptr will prepare and submit to us
a comprehensive data package (each, a "Data Package") that summarizes, on a
Program-by-Program basis, any Collaboration Candidates researched under the
Research Program, including any data and results. Upon receipt of a Data
Package, we have, in our sole discretion, up to two-hundred seventy (270)
calendar days to make effective the exclusive license agreement entered into by
and between Scriptr and us, pursuant to which, among

                                       24

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other things, grants us exclusive rights and licenses with respect to the
development, manufacture and commercialization of licensed candidates and
products, subject to certain conditions and limitations (the "Scriptr License
Agreement"), for a given Research Program (each licensed Research Program, a
"Licensed Program"). The Scriptr License Agreement provides for customary
development milestones on candidates developed under a Licensed Program and
royalties on licensed products, if any.



In partial consideration of the rights granted by Scriptr to us under the
Scriptr Agreement, we made a one-time, non-creditable and non-refundable payment
to Scriptr during the first quarter of 2021. In order to fund conduct of the
Research Programs, we shall reimburse Scriptr for costs incurred by or on behalf
of Scriptr in connection with the conduct of each Research Program during the
Research Term in accordance with the applicable Research Program budget and
payment schedule, provided that, any such cost reimbursement payments shall
initially be deducted from the Initial Research Program Payment. We incurred
approximately $1.3 million in research and development expenses under the
Scriptr Agreement during the six months ended June 30, 2021.

Critical Accounting Policies and Estimates





This management's discussion and analysis of financial condition and results of
operations is based on our condensed financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires management
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 financial statements and the reported amounts of revenues and expenses
during the reporting period. On an ongoing basis, management evaluates its
estimates and judgments which are affected by the application of our accounting
policies



Management bases its estimates and judgments on historical experience and on
various other factors that are believed to be appropriate under the
circumstances. Actual results may differ from these estimates under different
assumptions or conditions.


We regard an accounting estimate or assumption underlying our financial statements as a "critical accounting estimate" where:

the nature of the estimate or assumption is material due to the level of

(i) subjectivity and judgment necessary to account for highly uncertain matters


     or the susceptibility of such matters to change; and



(ii) the impact of the estimates and assumptions on financial condition or


      operating performance is material.




Our significant accounting policies are described in Note 2 of the notes to our
financial statements included in our 2020 Form 10-K. However, please refer to
Note 2 in the accompanying notes to the condensed financial statements contained
in this Quarterly Report on Form 10-Q for updated policies and estimates, if
applicable, that could impact our results of operations, financial position, and
cash flows. Not all of these significant policies, however, fit the definition
of critical accounting policies and estimates. We believe that our accounting
policies relating to (i) warrant and future tranche right liabilities and
related revaluation gain (loss), (ii) research and development prepayments,
accruals and related expenses, and (iii) stock-based compensation, as described
under the caption "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Critical Accounting Policies and
Estimates" in our 2020 Form 10-K, fit the description of critical accounting
estimates and judgments.


New Accounting Pronouncements

New accounting pronouncements are discussed in Note 2 in the notes to the condensed financial statements in this Quarterly Report on Form 10-Q.







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  Table of Contents

Financial Condition, Liquidity and Capital Resources





Financial Condition



As of June 30, 2021, we had an accumulated deficit of $725.4 million. To date,
substantially all our revenues have been from collaboration and license
agreements and we have received no revenues from the sale of commercial
products. We have devoted substantially all our efforts to research and
development, including clinical trials, and we have not completed development of
any commercial products. Our research and development activities, together with
our general and administrative expenses, are expected to continue to result in
substantial operating losses for the foreseeable future. These losses, among
other things, have had and will continue to have an adverse effect on our
stockholders' equity (deficit), total assets and working capital. Because of the
numerous risks and uncertainties associated with developing drug candidates, and
if approved, commercial products, we are unable to predict the extent of any
future losses, whether or when any of our drug candidates will become
commercially available or when we will become profitable, if at all.



Liquidity and Capital Resources





Overview


We require cash to fund our operating expenses and to make capital expenditures. Historically, we have funded our cash requirements primarily through the following:

(i) sale of common stock, preferred stock, future tranche rights and warrants

(including pre-funded warrants);

(ii) exercise of warrants;

(iii) debt financing, including capital leases;

(iv) license fees, research funding and milestone payments under collaborative

and license agreements; and




 (v) interest income.




We filed a shelf registration statement on Form S-3 on August 4, 2020, which was
declared effective on September 2, 2020, relating to the sale, from time to
time, in one or more transactions, up to $150.0 million of common stock,
preferred stock, depository shares and warrants. As of August 6, 2021,
approximately $73.2 million remained available for issuance under this
registration statement, assuming the full contractual amounts provided for under
the LPC Purchase Agreement and the ATM Agreement (each as defined below) were to
be sold.



LPC Purchase Agreement



On March 4, 2019, the Company entered into a Purchase Agreement with Lincoln
Park Capital Fund, LLC ("Lincoln Park"), pursuant to which, upon the terms and
subject to the conditions and limitations set forth therein, Lincoln Park has
committed to purchase an aggregate of $35.0 million of shares of Company common
stock from time to time at the Company's sole discretion (the "LPC Purchase
Agreement").



During the six months ended June 30, 2021 and 2020, the Company sold 800,000 and
600,000 shares, respectively, pursuant to the LPC Purchase Agreement, resulting
in net proceeds of $4.2 million and $1.1 million, respectively. As of June 30,
2021, the Company may sell up to an additional $25.3 million of shares under the
LPC Purchase Agreement, subject to certain limitations.



ATM Agreement



In November 2018, the Company entered into an Equity Distribution Agreement (the
"ATM Agreement") with JMP Securities LLC ("JMP") pursuant to which the Company
may issue and sell shares of its common stock having an aggregate offering price
of up to $50.0 million through JMP as its agent.



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  Table of Contents

During the six months ended June 30, 2021 and 2020, the Company sold 4,470,593
and 821,018 shares of common stock, respectively, pursuant to the ATM Agreement,
resulting in net proceeds, after deduction of commissions and other offering
expenses, of $14.6 million and $1.4 million, respectively. In addition, from
July 1, 2021 through July 7, 2021, the Company sold an additional 646,764 shares
for $0.7 million in net proceeds under the ATM Agreement. The Company may sell
up to an additional $19.5 million of shares under the ATM Agreement.



The LPC Purchase Agreement and ATM Agreement are more fully described in Note 8 of the Notes to Condensed Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.





Private Placements



As previously disclosed in our 2020 Form 10-K, between December 2019 and July
2020, the Company entered into three private placement financings with certain
investors which, collectively, provided for up to $138.4 million in total
funding, of which $25.2 million had been received through December 31, 2020.
However, as of June 30, 2021, as a result of Baker Brothers not exercising their
right to purchase convertible preferred stock or exercise warrants in connection
with the December 2019 Securities Purchase Agreement and the Pillar Investment
Entities not exercising their right to purchase shares of common stock (or
pre-funded warrants) and common warrants in connection with the July 2020
Securities Purchase Agreement prior to expiration, the potential additional
funding related to our private placement transactions is limited to
approximately $17.8 million upon the exercise, at the sole discretion of the
Pillar Investment Entities, of outstanding warrants issued in connection with
the April 2020 and July 2020 Securities Purchase Agreements. See Note 8 of the
Notes to Condensed Financial Statements included elsewhere in this Quarterly
Report on Form 10-Q for details related to the Company's outstanding warrants.



During the six months ended June 30, 2021, certain of the Pillar Investment
Entities exercised warrants to purchase 3,158,386 shares of the Company's common
stock at an exercise price of $0.01 per share for a total exercise price of less
than $0.1 million. 19,052 shares were used as cashless shares for the exercise
costs.



Funding Requirements



We had cash, cash equivalents and investments of approximately $40.6 million at
June 30, 2021. We believe, based on our current operating plan, our existing
cash and cash equivalents on hand as of June 30, 2021 will enable us to fund our
operations through the one-year period subsequent to the filing date of this
Quarterly Report on Form 10-Q. Specifically, we believe our available funds will
be sufficient to enable us to perform the following:



continue to execute on the current Low-Dose, High-Frequency Cohort of our

(i) Phase 2 study of tilsotolimod in combination with nivolumab and ipilimumab


     for the treatment of MSS-CRC (ILLUMINATE-206);



conclude our Phase 3 clinical trial of tilsotolimod in combination with

(ii) ipilimumab for the treatment of anti-PD1 refractory metastatic melanoma


      (ILLUMINATE-301);



(iii) fund certain research including investigator initiated clinical trials of


       tilsotolimod and the Scriptr Agreement; and



(iv) maintain a level of general and administrative expenses in order to support


      the business.




In addition, we are seeking and expect to continue to seek additional funding
through collaborations, the sale or license of assets or financings of equity or
debt securities. We believe that the key factors that will affect our ability to
obtain funding are:


(i) the results of our clinical development activities in our tilsotolimod

program or any other drug candidates we develop on the timelines anticipated;

(ii) the cost, timing, and outcome of regulatory reviews;






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competitive and potentially competitive products and technologies and

(iii) investors' receptivity to tilsotolimod or any other drug candidates we

develop and the technology underlying them in light of competitive products


       and technologies;




      the receptivity of the capital markets to financings by biotechnology

(iv) companies generally and companies with drug candidates and technologies


      similar to ours specifically;



(v) the receptivity of the capital markets to any in-licensing, product


     acquisition or other transaction we may enter into;



(vi) our ability to enter into additional collaborations with biotechnology and


      pharmaceutical companies and the success of such collaborations; and



(vii) the impact of the coronavirus ("COVID-19") pandemic to global economy and


       capital markets, and to our business and our financial results.



In addition, increases in expenses or delays in clinical development may adversely impact our cash position and require additional funds or cost reductions.





Financing may not be available to us when we need it or may not be available to
us on favorable or acceptable terms or at all. We could be required to seek
funds through collaborative alliances or through other means that may require us
to relinquish rights to some of our technologies, drug candidates or drugs that
we would otherwise pursue on our own. In addition, if we raise additional funds
by issuing equity securities, our then existing stockholders may experience
dilution. The terms of any financing may adversely affect the holdings or the
rights of existing stockholders. An equity financing that involves existing
stockholders may cause a concentration of ownership. Debt financing, if
available, may involve agreements that include covenants limiting or restricting
our ability to take specific actions, such as incurring additional debt, making
capital expenditures or declaring dividends, and are likely to include rights
that are senior to the holders of our common stock. Any additional debt or
equity financing may contain terms which are not favorable to us or to our
stockholders, such as liquidation and other preferences, or liens or other
restrictions on our assets. As discussed in Note 14 to the financial statements
included in our 2020 Form 10-K, additional equity financings may also result in
cumulative changes in ownership over a three-year period in excess of 50% which
would limit the amount of net operating loss and tax credit carryforwards that
we may utilize in any one year.



If we are unable to obtain adequate funding on a timely basis or at all, we will be required to terminate, modify or delay our operations.





Cash Flows


The following table presents a summary of the primary sources and uses of cash for the six months ended June 30, 2021 and 2020:






                                                       Six Months Ended
                                                          June 30,
(in thousands)                                        2021          2020
Net cash provided by (used in):
Operating activities                               $ (15,850)    $ (19,100)
Investing activities                                    4,500         (393)
Financing activities                                   18,711         7,284
Increase (decrease) in cash and cash equivalents   $    7,361    $ (12,209)



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Operating Activities. The net cash used in operating activities for all periods
presented consists primarily of net loss adjusted for non-cash charges and
changes in components of working capital. The decrease in cash used in operating
activities for the six months ended June 30, 2021, as compared to 2020, was
primarily due to timing of cash outflows related to our current IMO-2125
development program, including payments to contract research organizations
offset by severance payments related to the reduction in workforce associated
with the outcome of ILLUMINATE-301's ORR endpoint.



Investing Activities. Cash used in investing activities primarily consisted of the following amounts relating to our investments in available-for-sale securities and purchases and disposals of property and equipment:

?for the six months ended June 30, 2021, $4.5 million in proceeds received from the maturity of available-for-sale securities; and ?for the six months ended June 30, 2020, purchases of $5.5 million in available-for-sale securities, partially offset by $5.1 million in proceeds received from the maturity of available-for-sale securities.

Financing Activities. Net cash provided by financing activities primarily consisted of the following amounts received in connection with the following transactions:

for the six months ended June 30, 2021, $18.7 million in aggregate net proceeds

from financing arrangements consisting of $14.6 million received pursuant to

? the ATM Agreement and $4.2 million received under the LPC Purchase Agreement

and $0.3 million received from the exercise of stock options and warrants,


   partially offset by $0.4 million in payments related to our short-term
   insurance premium financing arrangement; and

for the six months ended June 30, 2020, $7.2 million in aggregate net proceeds

from financing arrangements consisting of $4.7 million in net proceeds received

? pursuant to the April 2020 Securities Purchase Agreement, $1.4 million received

pursuant to the ATM Agreement and $1.1 million in net proceeds received

pursuant to the LPC Purchase Agreement, and $0.1 million in aggregate proceeds

from employee stock purchases under our 2017 Employee Stock Purchase Plan.






Contractual Obligations



During the six months ended June 30, 2021, there were no material changes outside the ordinary course of our business to our contractual obligations as disclosed in our 2020 Form 10-K.

Off-Balance Sheet Arrangements

As of June 30, 2021, we had no off-balance sheet arrangements.







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Results of Operations


Three and Six Months Ended June 30, 2021 and 2020





Overview



During the three months ended June 30, 2021, our loss from operations totaled
$7.6 million, a 6% decrease compared to a loss from operations of $8.0 million
for the three months ended June 30, 2020. During the six months ended June 30,
2021, our loss from operations totaled $17.6 million, a 17% decrease compared to
a loss from operations of $21.2 million for the six months ended June 30, 2020.
Research and development expenses comprise the majority of our total operating
expenses, as shown in the table below.




                                Three months ended                    Six months ended
                                    June 30,              %              June 30,               %
($ in thousands)                2021         2020       Change       2021          2020       Change
Operating expenses:
Research and development      $   3,893    $   5,379     (28)%    $   10,764    $   14,889     (28)%
General and administrative        2,472        2,632      (6)%         5,628         6,274     (10)%
Restructuring costs               1,192            -         -         1,192             -         -

Total operating expenses $ 7,557 $ 8,011 (6)% $ 17,584 $ 21,163 (17)% Loss from operations $ (7,557) $ (8,011) (6)% $ (17,584) $ (21,163) (17)%

Research and Development Expenses


For each of our research and development programs, we incur both direct and
indirect expenses. We track direct research and development expenses by program,
which include third party costs such as contract research, consulting and
clinical trial and manufacturing costs. We do not allocate indirect research and
development expenses, which may include regulatory, laboratory (equipment and
supplies), personnel, facility and other overhead costs (including depreciation
and amortization), to specific programs.



During the three and six months ended June 30, 2021, our overall research and
development expenses declined by 28% in both periods as compared to the same
period in 2020, primarily due to decreases in external development costs
associated with tilsotolimod (IMO-2125). Specifically, this decrease is
primarily related to costs incurred with contract research organizations during
the three and six months ended June 30, 2021 to support: (i) our ongoing
ILLUMINATE-301 trial, which was initiated in the first quarter of 2018,
completed its enrollment in the first quarter of 2020, and decreased its levels
of clinical site activity following full enrollment, and (ii) our ILLUMINATE-204
trial, which was substantially completed by the end of the first quarter of
2020. The decrease in external development costs associated with tilsotolimod
(IMO-2125) was partially offset by increases in other drug development expenses
in 2021, as compared to 2020, primarily due to expenses incurred in connection
with the Scriptr Agreement, as more fully described under the heading
"Collaborative Alliances" above.



Tilsotolimod (IMO-2125) external development expenses will continue to be a significant portion of our total research and development spending as we continue the clinical development of tilsotolimod.





In the table below, research and development expenses are set forth in the
following categories: Tilsotolimod (IMO-2125) and other drug development
expenses.




                                     Three months ended                  Six months ended
                                         June 30,              %            June 30,             %
($ in thousands)                      2021         2020      Change      2021        2020      Change
Tilsotolimod (IMO-2125)
external development expense       $    2,045     $ 3,491     (41)%    $  5,941    $ 10,562     (44)%
Other drug development expense          1,848       1,888      (2)%       4,823       4,327       11%
Total research and development
expenses                           $    3,893     $ 5,379     (28)%    $ 10,764    $ 14,889     (28)%




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Tilsotolimod (IMO-2125) External Development Expenses





These expenses include external expenses that we have incurred in connection
with the development of tilsotolimod as part of our immuno-oncology program.
These external expenses include payments to independent contractors and vendors
for drug development activities conducted after the initiation of tilsotolimod
clinical development in immuno-oncology, but exclude internal costs such as
payroll and overhead expenses.



We commenced clinical development of tilsotolimod as part of our immuno-oncology program in July 2015, and from July 2015 through June 30, 2021, we incurred approximately $87.8 million in tilsotolimod external development expenses, including costs associated with the preparation for and conduct of ILLUMINATE-204, ILLUMINATE-101, ILLUMINATE-301, ILLUMINATE-206, and the manufacture of additional drug substance for use in our clinical trials and additional nonclinical studies.

Other Drug Development Expenses





These expenses include internal costs, such as payroll and overhead expenses,
associated with all of our clinical development programs. In addition, these
expenses include external expenses, such as payments to contract vendors,
associated with compounds that were previously being developed but are not
currently being developed. Included in three and six months ended June 30, 2021
are $0.6 million and $1.3 million, respectively, of expenses related to Scriptr
collaboration program.


General and Administrative Expenses





General and administrative expenses consist primarily of payroll, stock-based
compensation expense, consulting fees and professional legal fees associated
with our patent applications and maintenance, our corporate regulatory filing
requirements, our corporate legal matters, and our business development
initiatives. For the three months ended June 30, 2021 and 2020, general and
administrative expenses totaled $2.5 million and $2.6 million, respectively. For
the six months ended June 30, 2021 and 2020, general and administrative expenses
totaled $5.6 million and $6.3 million, respectively.



The decrease in general and administrative expenses during the three months
ended June 30, 2021, as compared to the 2020 period, was primarily due to lower
stock compensation expense and employee-related expenses associated with
reduction in workforce and lower legal costs. The decrease in general and
administrative expenses during the six months ended June 30, 2021, as compared
to the 2020 period, was due to lower stock compensation expense and
employee-related expense related to terminated employees as part of a
reduction-in-force, partially offset by increased consulting expenses.



Restructuring Costs



Restructuring costs for the three and six months ended June 30, 2021 totaled
approximately $1.2 million and are comprised primarily of the one-time
termination costs including severance, benefits and related costs associated
with our decision in April 2021 to implement a reduction in workforce. No such
costs were incurred during the three and six months ended June 30, 2020.



Interest Income



We recognized nominal interest income for the three and six months ended June
30, 2021. Interest income for the three and six months ended June 30, 2020
totaled approximately $0.1 million. The period-over-period decrease was
primarily due to lower interest rates. Amounts may fluctuate from period to
period due to changes in average investment balances, including commercial paper
and money market funds classified as cash equivalents, and composition of
investments.



Warrant Revaluation Gain or Loss





During the three months ended June 30, 2021, we recorded no non-cash warrant
revaluation gain or loss. During the six months ended June 30, 2021, we recorded
a non-cash warrant revaluation gain of approximately $7.0 million. During the
three ended June 30, 2020, we recorded a non-cash warrant revaluation loss

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approximately $0.9 million. During the six months ended June 30, 2020, we recorded a non-cash warrant revaluation gain of approximately $0.2 million.



The non-cash gain for the six months ended June 30, 2021 relates to the
derecognition of the warrant liability during the first quarter of 2021
associated with our liability-classified warrants issued in connection with the
December 2019 Private Placement, as more fully described in Note 7 of the Notes
to Condensed Financial Statements appearing elsewhere in this Form 10-Q, due to
the termination of such liability-classified warrants during the quarter.

The non-cash gain (loss) for the 2020 period relates to the change in fair value
of our liability-classified warrants. Due to the nature of and inputs in the
model used to assess the fair value of our outstanding warrants, it is not
abnormal to experience significant fluctuations during each remeasurement
period. These fluctuations may be due to a variety of factors, including changes
in our stock price and changes in estimated stock price volatility over the
remaining life of the warrants. Changes in the fair value of the warrant
liability and resulting warrant revaluation gain (loss) for 2020 was driven
primarily by the changes in our stock price during the period.



Future Tranche Right Revaluation Gain or Loss


During the three months ended June 30, 2021, we recorded no non-cash future
tranche right revaluation gain or loss. During the six months ended June 30,
2021, we recorded a non-cash future tranche right revaluation gain of
approximately $118.8 million. During the three months ended June 30, 2020, we
recorded a non-cash future tranche right loss of $15.3 million. During the six
months ended June 30, 2020, we recorded a non-cash future tranche right
revaluation gain $5.4 million.

The non-cash gain for the six months ended June 30, 2021 relates to the
derecognition of the future tranche right liability during the first quarter of
2021 associated with the future tranche rights issued in connection with the
December 2019 Private Placement, as more fully described in Note 7 of the Notes
to Condensed Financial Statements appearing elsewhere in this Form 10-Q, due to
the termination of the future tranche rights during the quarter.

The non-cash gain or loss for the 2020 period relates to the change in fair
value of the future tranche rights. Due to the nature of and inputs in the model
used to assess the fair value of our outstanding warrants, it is not abnormal to
experience significant fluctuations during each remeasurement period. These
fluctuations may be due to a variety of factors, including changes in our stock
price and changes in estimated stock price volatility over the remaining
estimated lives of the future tranche rights. Changes in the fair value of the
future tranche right liability and resulting future tranche right revaluation
gain for 2020 was driven primarily by changes in our stock price during the
period.



Net Income or Loss Applicable to Common Stockholders





As a result of the factors discussed above, our net loss for the three months
ended June 30, 2021 was $7.6 million and our net income for the six months ended
June 30, 2021 was $108.2 million compared to net loss of $24.2 million and $15.4
million for the three and six months ended June 30, 2020, respectively. Net loss
applicable to common stockholders for the three months ended June 30, 2021 was
$7.6 million and net income for the six months ended June 30, 2021 was $105.5
million. Net loss applicable to common stockholders for the three and six months
ended June 30, 2020 was $24.2 million and $15.4 million, respectively.

Excluding the non-cash warrant revaluation gain of $7.0 million and future
tranche right revaluation gain of $118.8 million, for the six months ended June
30, 2021, net loss applicable to common stockholders was $20.3 million.
Excluding the non-cash warrant revaluation loss of $0.9 million and future
tranche right revaluation loss of $15.3 million for the three months ended June
30, 2020, net loss applicable to common stockholders was $8.0 million. Excluding
the non-cash warrant revaluation gain of $0.2 million and future tranche right
revaluation gain of $5.4 million for the six months ended June 30, 2020, net
loss applicable to common stockholders was $21.0 million.

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