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SESEN BIO, INC.

(SESN)
  Report
Real-time Estimate Cboe BZX  -  01:50:51 2023-01-27 pm EST
0.6350 USD   +3.49%
01/26Bradley L Radoff Issues a Letter to the Boards of Sesen Bio and Carisma Rejecting Their Apparent Attempt to Purchase Merger Support
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01/26Sesen Bio Reiterates Confidence that Pending Merger with Carisma is in Best Interests of Stockholders
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01/25Bradley L Radoff Sends a Letter to Sesen Bio Inc
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SESEN BIO, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

11/07/2022 | 08:04am EST
The following discussion and analysis of our financial condition and results of
operations, as well as other sections in this Quarterly Report on Form 10-Q,
should be read in conjunction with our unaudited interim condensed consolidated
financial statements and related notes thereto appearing elsewhere herein and
our audited annual consolidated 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, 2021, included in our Annual Report
on Form 10-K filed with the United States Securities and Exchange Commission
("SEC") on February 28, 2022. In addition to historical financial information,
some of the information contained in the following discussion and analysis
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended ("Exchange Act"). All statements
other than statements of historical facts, including statements regarding our
future results of operations and financial position, the proposed merger with
CARISMA Therapeutics Inc. ("Carisma"), the impact of the COVID-19 pandemic,
business strategy, current and prospective products, product approvals, research
and development costs, current and prospective collaborations, timing and
likelihood of success, plans and objectives of management for future operations
and future results of current and anticipated products, are forward-looking
statements.

In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expect," "plan," "anticipate," "could," "intend," "target," "project," "contemplate," "believe," "estimate," "predict," "potential" or "continue" or the negative of these terms or other similar expressions.

The forward-looking statements in this Quarterly Report on Form 10-Q include, among other things, statements about:


•our ability to complete, on a timely basis or at all, the proposed merger with
Carisma announced on September 21, 2022, pursuant to the terms and conditions of
the Merger Agreement (as defined below);

•the receipt of any potential future payments to our stockholders under the CVR Agreement (as defined below);

•the strategy or future operations of the combined company following the closing of the proposed merger with Carisma,


•advancement of the combined company's product candidates and product pipeline,
clinical development of the combined company's product candidates, including
expectations regarding timing of initiation and results of clinical trials of
the combined company;

•our intentions to seek a partner for the further development of Vicineum;


•the expected timing of implementing and completing our restructuring plan
following the decision to voluntarily pause further development of Vicineum in
the US (the "2022 Restructuring Plan");

•the expected timing for incurring costs associated with the 2022 Restructuring Plan;


•our ability to preserve capital during the pendency of the proposed merger with
Carisma and while we seek a potential partner for the further development of
Vicineum;

•the potential impact of the COVID-19 pandemic on our ability to consummate the
proposed merger with Carisma and seek a partner for the further development of
Vicineum;

•our projected financial position;

•our ability to obtain and maintain intellectual property protection for our product candidates and our proprietary technology;

•our beliefs regarding key advantages of our targeted fusion protein therapeutics ("TFPT") platform; and


•our expectations regarding the amount of future milestone payments pursuant to
our Asset Purchase Agreement with F. Hoffmann-La Roche Ltd and Hoffmann-La Roche
Inc. (collectively, "Roche"), (the "Roche Asset Purchase Agreement").

The forward-looking statements in this Quarterly Report on Form 10-Q are only
predictions. We have based these forward-looking statements largely on our
current expectations and projections about future events and financial trends
that we believe may affect our business, financial condition and results of
operations. These forward-looking statements speak only as of the date of this
Quarterly Report on Form 10-Q and involve known and unknown risks,
uncertainties, assumptions and other important factors that may cause our actual
results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by the forward-looking
statements, including, among others, the following:

•the risk that the conditions to the closing of the proposed merger with Carisma are not satisfied, including the failure to obtain stockholder approval of matters related to the proposed merger in a timely manner or at all;

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•uncertainties as to the timing of the consummation of the proposed merger with
Carisma and the ability of each of us and Carisma to consummate the proposed
merger, including Carisma's completion the Carisma Pre-Closing Financing (as
defined below);

•risks related to our ability to correctly estimate our expected net cash at closing and our ability to correctly estimate and manage our respective operating expenses and expenses associated with the proposed merger;

•risks related to our continued listing on The Nasdaq Stock Market ('Nasdaq") until closing of the proposed merger;


•the risk that as a result of adjustments to the exchange ratio, as defined in
the Merger Agreement, our stockholders could own less of the combined company
than is currently anticipated;

•the risk that the conditions to payment under the CVR Agreement will not be met and may never deliver any value to our stockholders;


•risks associated with the possible failure to realize certain anticipated
benefits of the proposed merger, including with respect to future financial and
operating results;

•uncertainties regarding the impact any delay in the closing of the proposed
merger would have on the anticipated cash resources of the combined company upon
closing of the proposed merger and other events and unanticipated spending and
costs that could reduce the combined company's cash resources;

•the occurrence of any event, change or other circumstance or condition that could give rise to the termination of the Merger Agreement;

•the effect of the announcement, pendency or completion of the proposed merger on our or Carisma's business relationships, operating results and business generally;

•costs related to the proposed merger;


•the outcome of any legal proceedings that may be instituted against us or any
of our directors or officers related to the Merger Agreement or the transactions
contemplated thereby;

•the ability of us or Carisma to protect our and their intellectual property rights, as applicable;

•competitive responses to the proposed merger and changes in expected or existing competition;

•the success and timing of regulatory submissions and pre-clinical and clinical trials;

•regulatory requirements or developments;

•changes to clinical trial designs and regulatory pathways;

•changes in capital resource requirements;

•risks related to the inability of the combined company to obtain sufficient additional capital to continue to advance its product candidates and its preclinical programs;

•legislative, regulatory, political and economic developments, among other risks and uncertainties;

•the risk that we may not be successful in identifying a partner for the further development of Vicineum;


•the risk that we may become involved in disagreements or disputes with our
licensees, licensors and other counterparties relating to the development and/or
commercialization of Vicineum, in connection with our decision to voluntarily
pause further development of Vicineum in the US;

•the risk that we may not be able to implement the 2022 Restructuring Plan as currently anticipated or within the timing currently anticipated;

•we may incur unanticipated charges as a result of the 2022 Restructuring Plan;

•the risk that the respective courts may not grant final approval of the settlements agreed to by the parties to the ongoing securities litigation and the derivative litigation;

•we may be unable to obtain, maintain, defend and enforce patent claims and other intellectual property rights;

•we may be unable to defend against pending or threatened litigation, which may be costly and time-consuming; and


•such other factors described throughout Part I, Item 2. Management's Discussion
and Analysis of Financial Condition and Results of Operations and in Part II,
Item 1A. Risk Factors in this Quarterly Report on Form 10-Q and throughout Part
II, Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations and in Part I, Item 1A. Risk Factors of our Annual Report
on Form 10-K for the year ended December 31, 2021.

The events and circumstances reflected in our forward-looking statements may not
be achieved or occur and actual results could differ materially from those
projected in the forward-looking statements. Moreover, we operate in an evolving
environment. New risk factors and uncertainties may emerge from time to time,
and it is not possible for us to predict all risks and uncertainties. Except as
required by applicable law, we do not plan to publicly update or revise any
forward-looking statements contained herein, whether as a result of any new
information, future events, changed circumstances or otherwise.

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Unless the context otherwise requires, all references in this Quarterly Report
on Form 10-Q to the "Company," "Sesen Bio," "we," "us," and "our" include Sesen
Bio, Inc. and its subsidiaries.

Overview

We are a late-stage clinical company focused on advancing targeted fusion protein therapeutics for the treatment of patients with cancer.


Our most advanced product candidate, Vicineum, also known as VB4-845, is a
locally-administered targeted fusion protein composed of an anti-epithelial cell
adhesion molecule ("EpCAM") antibody fragment tethered to a truncated form of
Pseudomonas exotoxin A for the treatment of non-muscle invasive bladder cancer
("NMIBC").

On July 15, 2022, we made the strategic decision to voluntarily pause further
development of Vicineum in the United States. The decision was based on a
thorough reassessment of Vicineum following recent discussions with the United
States Food and Drug Administration ("FDA"), which had implications on the size,
timeline and costs of an additional Phase 3 clinical trial, which the FDA
previously confirmed would be required for a potential resubmission of a
biologics license application ("BLA") for Vicineum for the treatment of NMIBC.
We continue to believe that Vicineum has benefits for patients and healthcare
providers that can be maximized through a company with a larger infrastructure,
and as such, intend to seek a partner that can execute further development to
realize the full potential of Vicineum. As a result of this decision, we have
turned our primary focus to the careful assessment of potential strategic
alternatives with the goal of maximizing shareholder value.

Anticipated Merger with CARISMA Therapeutics Inc.


Following an extensive process of evaluating strategic alternatives, including
identifying and reviewing potential candidates for a strategic transaction, on
September 20, 2022, we, Seahawk Merger Sub, Inc., a Delaware corporation and our
wholly-owned subsidiary ("Merger Sub"), and Carisma, entered into an Agreement
and Plan of Merger and Reorganization (the "Merger Agreement"), pursuant to
which, among other things, and subject to the satisfaction or waiver of certain
conditions set forth in the Merger Agreement, Merger Sub will merge with and
into Carisma, with Carisma continuing as our wholly-owned subsidiary and the
surviving corporation of the merger (the "Merger"). Our board of directors
unanimously approved the Merger Agreement and resolved to recommend that our
stockholders approve the proposals described in the Merger Agreement. If the
Merger is completed, the business of Carisma will continue as the business of
the combined company.

The Merger is expected to close approximately two to three months from the date
of this form 10-Q filing, November 7, 2022. In connection with the Merger, we
will seek the approval of our stockholders to, among other things, (a) issue the
shares of our common stock issuable in connection with the Merger under the
rules of Nasdaq, and (b) amend our certificate of incorporation to effect a
reverse stock split of the outstanding shares of our common stock at a ratio as
mutually agreed to by us and Carisma and approved by our board of directors
prior to the closing of the Merger (clauses (a) and (b), collectively, the
"Sesen Bio Voting Proposals").

Consummation of the Merger is subject to certain closing conditions, including,
among other things, (a) approval by our stockholders of the Sesen Bio Voting
Proposals as described in the Merger Agreement, (b) approval by Carisma's
stockholders of, among other things, the adoption of the Merger Agreement, (c)
Nasdaq's approval of the listing of the shares of our common stock to be issued
in connection with the Merger, (d) the effectiveness of a registration statement
on Form S-4 to register the shares of our common stock to be issued in
connection with the Merger, and (e) our having net cash as of closing of the
Merger greater than or equal to $100.0 million.

The Merger Agreement contains certain termination rights of each of us and
Carisma. Upon termination of the Merger Agreement under specified circumstances,
we may be required to pay Carisma a termination fee of $7.6 million and/or
reimburse Carisma's expenses up to a maximum of $1.75 million, and Carisma may
be required to pay us a termination fee of $5.49 million and/or reimburse our
expenses up to a maximum of $1.75 million.

Subject to the terms and conditions of the Merger Agreement, at the closing of
the Merger, (a) each then outstanding share of Carisma common stock and Carisma
preferred stock (collectively, "Carisma capital stock") (including shares of
Carisma's common stock issued in connection with the pre-closing financing
described below) will be converted into the right to receive a number of the
shares of our common stock calculated in accordance with the Merger Agreement
(the "Exchange Ratio"), and (b) each then outstanding Carisma stock option to
purchase Carisma's common stock will be assumed by us, subject to adjustment as
set forth in the Merger Agreement.

Concurrently with the execution and delivery of the Merger Agreement, Carisma
entered into a subscription agreement with certain investors named therein,
pursuant to which such investors have agreed, subject to the terms and
conditions of such subscription agreement, to purchase prior to the consummation
of the Merger shares of Carisma's common stock for an aggregate purchase price
of approximately $30.6 million (the "Carisma Pre-Closing Financing"). The
consummation of the Carisma Pre-Closing Financing is conditioned on the
satisfaction or waiver of the conditions set forth in the Merger Agreement.

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Shares of Carisma's common stock issued pursuant to the Carisma Pre-Closing Financing will be converted into shares of our common stock in the Merger in accordance with the Exchange Ratio.


Additionally, at or prior to the effective time of the Merger, we will enter
into a Contingent Value Rights Agreement (the "CVR Agreement") with a rights
agents (the "Rights Agent") pursuant to which we intend to declare a dividend
payable to our stockholders of record as of a date agreed to by us and Carisma
prior to the effective time of the Merger with respect to the receipt of one
contingent value right (each, a "CVR"), for each outstanding share of our common
stock held by such stockholders on such date. Each CVR will represent the
contractual right to receive contingent cash payments upon the receipt by us of
certain proceeds payable by Roche, if any, pursuant to the Roche Asset Purchase
Agreement, upon the achievement by Roche of a specified milestone set forth in
the Roche Asset Purchase Agreement, subject to certain customary deductions,
including for expenses and taxes. The contingent payments under the CVR
Agreement, if they become due, will be payable to the Rights Agent for
subsequent distribution to the holders of the CVRs. In the event that no such
proceeds are received, holders of the CVRs will not receive any payment pursuant
to the CVR Agreement. There can be no assurance that any cash payment will be
made or that any holders of CVRs will receive any amounts with respect thereto.

Our future operations are highly dependent on the success of the Merger and
there can be no assurances that the Merger will be successfully consummated. In
the event that we do not complete the Merger with Carisma, we may continue to
explore strategic alternatives, including, without limitation, another strategic
transaction and/or pursue a liquidation and dissolution of our company.

Other Recent Events

2022 Restructuring Plan


On July 15, 2022, we approved a restructuring plan to reduce operating expenses
and better align our workforce with the needs of our business following the
decision to voluntarily pause further development of Vicineum in the United
States. Execution of the 2022 Restructuring Plan is expected to be substantially
completed in connection with the closing of the Merger with Carisma, which is
expected to occur approximately two to three months from the date of this form
10-Q filing, November 7, 2022. The 2022 Restructuring Plan includes an
incremental reduction in our workforce as well as additional cost-saving
initiatives intended to preserve capital during the pendency of the Merger with
Carisma and while we seek a potential partner for the further development of
Vicineum. We also incurred one-time cash costs associated with the termination
of certain contracts and all other activities under the 2022 Restructuring Plan.

Sale of Legacy Technology to Roche


On July 15, 2022, we executed the Roche Asset Purchase Agreement pursuant to
which Roche purchased all patent rights and know-how related to the monoclonal
antibody EBI-031 and all other IL-6 antagonist monoclonal antibody technology
owned by us for up to $70 million. As a result of the Roche Asset Purchase
Agreement, the exclusive license agreement between Roche and us was terminated
resulting in no further diligence, milestone or royalty payment obligations
under such license agreement. Pursuant to the Roche Asset Purchase Agreement,
Roche made a $40 million payment to us upon execution of the Roche Asset
Purchase Agreement. The Roche Asset Purchase Agreement also provides that Roche
will make an additional $30 million payable to us upon Roche's initiation of a
Phase 3 clinical trial with EBI-031 for a defined indication if initiated prior
to December 31, 2026.

2022 Retention Program

On August 28, 2022, our board of directors and the compensation committee of the
board of directors approved a retention program for certain employees pursuant
to which we will provide a cash incentive designed to retain such employees.
Pursuant to this retention program, certain of our employees, including certain
executive officers, will receive a cash bonus award, which vests in full upon
the earlier of the completion of a strategic transaction and termination without
cause, subject to continued employment through that time.

Regulatory Update


In December 2020, we submitted our completed BLA for Vicineum for the treatment
of BCG-unresponsive NMIBC to the FDA, which was accepted for filing by the FDA
in February 2021. The FDA granted Priority Review for the BLA and set a target
PDUFA date for a decision on the BLA of August 18, 2021. On August 13, 2021, we
received the Complete Response Letter ("CRL") from the FDA indicating that the
FDA had determined that it could not approve the BLA for Vicineum in its present
form and provided recommendations specific to additional clinical/statistical
data and analyses in addition to chemistry, manufacturing and controls ("CMC")
issues pertaining to a recent pre-approval inspection and product quality. On
August 20, 2021, we withdrew our marketing authorization application ("MAA") to
the European Medicines Agency (the "EMA") for Vysyneum for the treatment of
BCG-unresponsive NMIBC in order to pause our plans to pursue regulatory approval
of Vysyneum in the EU until there is more clarity from the FDA on next steps for
Vicineum in the United States. Vysyneum is the proprietary brand name that was
conditionally approved by the EMA for oportuzumab monatox in the EU. In October
2021, the

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EMA issued its Withdrawal Assessment Report relating to our MAA for Vysyneum, as
is consistent with the EMA's standard practice when an MAA is withdrawn. The EMA
Withdrawal Assessment Report reflects the initial assessment and corresponding
questions from the EMA and identifies major objections in the areas of quality,
good clinical practice, efficacy and safety.

In October 2021 and December 2021, we participated in a CMC Type A meeting and a
Clinical Type A meeting, respectively, with the FDA to discuss issues raised in
the CRL and design elements of an additional Phase 3 clinical trial for
Vicineum, which the FDA confirmed would be required for a potential resubmission
of a BLA. In March 2022, we participated in a Type C meeting with the FDA.
During the Type C meeting, the FDA agreed to a majority of our proposed protocol
and statistical analysis plan design elements for an additional Phase 3 clinical
trial. On July 11, 2022, we participated in a Type B meeting with the FDA to
discuss outstanding items related to our proposed protocol and statistical
analysis plan design elements for an additional Phase 3 clinical trial.

On July 15, 2022, we made the strategic decision to voluntarily pause further
development of Vicineum in the United States. The decision was based on a
thorough reassessment of Vicineum following recent discussions with the FDA,
which had implications on the size, timeline and costs of an additional Phase 3
clinical trial which the FDA previously confirmed would be required for a
potential resubmission of a BLA for Vicineum for the treatment of NMIBC. As a
result of this decision, we no longer plan to pursue regulatory approval of
Vysyneum for NMIBC in the EU. We continue to believe that Vicineum has benefits
for patients and healthcare providers that can be maximized through a company
with a larger infrastructure, and as such, we intend to seek a partner that can
execute further development to realize the full potential of Vicineum. As a
result of this decision, we have turned our primary focus to the careful
assessment of potential strategic alternatives with the goal of maximizing
shareholder value.

Prior Phase 3 Clinical Trial - VISTA Trial


In the third quarter of 2015 in the United States and Canada, through our
subsidiary Viventia, we commenced our single-arm, multi-center, open-label Phase
3 clinical trial ("VISTA Trial") in patients with BCG-unresponsive NMIBC who
have received adequate BCG and whose disease is now BCG-unresponsive, and for
whom the then-current standard of care was a radical cystectomy. Based on safety
and efficacy data observed with the longer 12-week induction in our Phase 2
clinical trial, the FDA agreed to our plan to employ more frequent dosing in the
VISTA Trial, in which the primary endpoints were complete response ("CR") and
duration of response ("DoR") in patients with CIS whose disease is
BCG-unresponsive. In November 2016, the FDA issued draft guidance regarding
appropriate clinical trial design for new drugs and biologics for
BCG-unresponsive NMIBC, including the use of single-arm trials. The FDA
finalized this guidance in February 2018 and retained many of the
recommendations from the 2016 draft guidance regarding clinical trial design,
including the use of single-arm trials. We believe that our VISTA Trial design
was consistent with these aspects of the FDA's guidance. In May 2022, we
completed the follow-up phase of the VISTA Trial.

The VISTA Trial completed enrollment in April 2018 with a total of 133 patients
across three cohorts based on histology and time to disease recurrence after
adequate BCG treatment:

•Cohort 1 (n=86): Patients with CIS with or without papillary disease that was
determined to be refractory or recurred within six months of their last course
of adequate BCG;

•Cohort 2 (n=7): Patients with CIS with or without papillary disease that recurred after six months, but less than 11 months, after their last course of adequate BCG; and

•Cohort 3 (n=40): Patients with high-risk (Ta or T1) papillary disease without CIS that recurred within six months of their last course of adequate BCG.


The primary endpoints of the VISTA Trial were CRR at 3 months in patients with
CIS (with or without papillary disease) whose disease is BCG-unresponsive and
DoR for BCG-unresponsive CIS patients who experience a CR.

As of the May 29, 2019 data cutoff date, preliminary primary and secondary endpoint data for each of the trial cohorts were as follows:


  Cohort 1 (n=86) Evaluable Population (n=82) Complete Response Rate, for CIS:
            Time Point     Evaluable Patients*      Complete Response Rate
                                                   (95% Confidence Interval)
             3-months             n=82                   39% (28%-50%)
             6-months             n=82                   26% (17%-36%)
             9-months             n=82                   20% (12%-30%)
            12-months             n=82                   17% (10%-27%)


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*Response evaluable population includes any mITT patient who completed the

                                induction phase.

   Cohort 2 (n=7) Evaluable Population (n=7) Complete Response Rate, for CIS:
            Time Point     Evaluable Patients*      Complete Response Rate
                                                   (95% Confidence Interval)
             3-months              n=7                   57% (18%-90%)
             6-months              n=7                   57% (18%-90%)
             9-months              n=7                   43% (10%-82%)
            12-months              n=7                   14% (0%-58%)

*Response-evaluable population includes any mITT patient who completed the

                                induction phase.

  Pooled Cohorts 1 and 2 (n=93) Evaluable Population (n=89) Complete Response
                                 Rate, for CIS:
            Time Point     Evaluable Patients*      Complete Response Rate
                                                   (95% Confidence Interval)
             3-months             n=89                   40% (30%-51%)
             6-months             n=89                   28% (19%-39%)
             9-months             n=89                   21% (13%-31%)
            12-months             n=89                   17% (10%-26%)

*Response-evaluable population includes any mITT patient who completed the

                                induction phase.

Phase 3 Pooled Complete Response Rate vs. Phase 2 Pooled Complete Response Rate:
         Time Point        Phase 3 Pooled CRR            Phase 2 Pooled CRR
                        (95% Confidence Interval)     (95% Confidence Interval)
          3-months            40% (30%-51%)                 40% (26%-56%)
          6-months            28% (19%-39%)                 27% (15%-42%)
          9-months            21% (13%-31%)                 18% (8%-32%)
         12-months            17% (10%-26%)                 16% (7%-30%)


       Cohort 3 (n=40) Evaluable Population (n=38) Recurrence-Free Rate†:
            Time Point     Evaluable Patients*       Recurrence-Free Rate
                                                   (95% Confidence Interval)
             3-months             n=38                   71% (54%-85%)
             6-months             n=38                   58% (41%-74%)
             9-months             n=38                   45% (29%-62%)
            12-months             n=38                   42% (26%-59%)

†Recurrence-free rate is defined as the percentage of patients that are

              recurrence-free at the given assessment time point.

*Response-evaluable population includes any mITT patient who completed the

                                induction phase.

Duration of Response: The median DoR for patients in Cohort 1 and Cohort 2
combined (n=93) is 287 days (95% CI, 154-NE), using the Kaplan-Meier method.
Additional ad hoc analysis of pooled data for all patients with CIS (Cohorts 1
and 2, n=93) shows that among patients who achieved a complete response at 3
months, 52% remained disease-free for a total of 12 months or longer after
starting treatment, using the Kaplan-Meier method. DoR is defined as the time
from first occurrence of complete response to documentation of treatment failure
or death.

We have conducted additional analyses for secondary endpoints. These additional data include the following:


•Time to Cystectomy: Across all 133 patients treated with Vicineum in the VISTA
Trial, greater than 75% of all patients are estimated to remain cystectomy-free
at 3 years, using the Kaplan-Meier method. Additional ad hoc analysis shows that
approximately 88% of responders are estimated to remain cystectomy-free at 3
years. Time to cystectomy is defined as the time from the date of first dose of
study treatment to surgical bladder removal. The first 2018 FDA guidance on
treatment of BCG-unresponsive NMIBC patients states that the goal of therapy in

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such patients is to avoid cystectomy. Therefore, time to cystectomy was a key secondary endpoint in the VISTA Trial.


•Time to Disease Recurrence: High-grade papillary (Ta or T1) NMIBC is associated
with high rates of progression and recurrence. The median time to disease
recurrence for patients in Cohort 3 (n=40) is 402 days (95% CI, 170-NE), using
the Kaplan-Meier method. Time to disease recurrence is defined as the time from
the date of the first dose of study treatment to the first occurrence of
treatment failure or death on or prior to treatment discontinuation.

•Progression-Free Survival ("PFS"): 90% of all 133 patients treated with
Vicineum in the VISTA Trial are estimated to remain progression-free for 2 years
or greater, using the Kaplan-Meier method. PFS is defined as the time from the
date of first dose of study treatment to the first occurrence of disease
progression (e.g., T2 or more advanced disease) or death on or prior to
treatment discontinuation.

•Event-Free Survival: 29% of all 133 patients treated with Vicineum in the VISTA
Trial are estimated to remain event-free at 12 months, using the Kaplan-Meier
method. Event-free survival is defined as the time from the date of first dose
of study treatment to the first occurrence of disease recurrence, progression or
death on or prior to treatment discontinuation.

•Overall Survival ("OS"): 96% of all 133 patients treated with Vicineum in the
VISTA Trial are estimated to have an overall survival of 2 years or greater,
using the Kaplan-Meier method. OS is defined as the time from the date of first
dose of study treatment to death from any cause.

Data is as of the May 29, 2019 data cut from the Phase III VISTA Trial. The clinical data shown are based on the data submitted in the BLA on December 18, 2020. On August 13, 2021, the FDA issued a CRL for the BLA that included requests for additional clinical and statistical data.

Safety Results


As of the May 29, 2019 data cutoff date, in patients across all cohorts (n=133)
of our Phase 3 VISTA Trial of Vicineum for the treatment of BCG-unresponsive
NMIBC, 88% experienced at least one adverse event, with 95% of adverse events
being Grade 1 or 2. The most commonly reported treatment-related adverse events
were dysuria (14%), hematuria (13%) and urinary tract infection (12%) - all of
which are consistent with the profile of bladder cancer patients and the use of
catheterization for treatment delivery. These adverse events were determined by
the clinical investigators to be manageable and reversible, and only four
patients (3%) discontinued treatment due to an adverse event. Serious adverse
events, regardless of treatment attribution, were reported in 14% of patients.
There were four treatment-related serious adverse events reported in three
patients including acute kidney injury (Grade 3), pyrexia (Grade 2), cholestatic
hepatitis (Grade 4) and renal failure (Grade 5 or death). There were no
age-related increases in adverse events observed in the VISTA Trial.

Manufacturing


In October 2018, we entered into a Master Bioprocessing Services Agreement with
Fujifilm Diosynth Biotechnologies U.S.A., Inc. ("Fujifilm") (the "Fujifilm MSA")
for the manufacturing process and technology transfer of Vicineum drug substance
production.

In November 2019, we entered into a Commercial Manufacturing and Supply Agreement with Baxter (the "Baxter CMSA") for the manufacturing process and technology transfer of Vicineum drug product production.


In June 2021, we entered into a Global Supply Agreement with Qilu pursuant to
which Qilu will be part of the manufacturing network for, if approved, global
commercial supply of Vicineum drug substance and drug product.

In connection with our decision to voluntarily pause further development of Vicineum, we terminated the Fujifilm MSA and Baxter CMSA and requested that Fujifilm and Baxter cease all work under the respective agreements and refrain from incurring any additional costs or expenses.

In-License Agreements


We have a license agreement with the University of Zurich ("Zurich") which
grants us exclusive license rights, with the right to sublicense, to make, have
made, use and sell under certain patents primarily directed to our targeting
agent, including an EpCAM chimera and related immunoconjugates and methods of
use and manufacture of the same (the "Zurich License Agreement"). These patents
cover some key aspects of Vicineum.

We have a License Agreement with Micromet AG ("Micromet"), now part of Amgen,
Inc., which grants us nonexclusive rights, with certain sublicense rights, for
know-how and patents allowing exploitation of certain single chain antibody
products (the "Micromet License Agreement"). These patents cover some key
aspects of Vicineum.

We have a license agreement with XOMA Ireland Limited ("XOMA") which grants us
non-exclusive rights to certain XOMA patent rights and know-how related to
certain expression technology, including plasmids, expression strains, plasmid
maps and

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production systems (the "XOMA License Agreement"). These patents and related know-how cover some key aspects of Vicineum.


Notwithstanding our decision to voluntarily pause further development of
Vicineum in the United States, we have not taken steps to terminate the Zurich
License Agreement, the Micromet License Agreement or the XOMA License Agreement
as we intend to seek a partner for the further development of Vicineum.

OUS Business Development Partnering


In connection with our decision to voluntarily pause further development of
Vicineum in the United States, we have terminated our OUS business development
partnerships in the Middle East and North Africa region ("MENA") and Turkey by
providing notice of termination for the MENA License Agreement and EIP License
Agreement on July 20, 2022.

Greater China

On July 30, 2020, we and our wholly-owned subsidiary, Viventia Bio, Inc.,
entered into an exclusive license agreement with Qilu Pharmaceutical Co., Ltd.
("Qilu") (the "Qilu License Agreement") pursuant to which we granted Qilu an
exclusive, sublicensable, royalty-bearing license, under certain intellectual
property owned or exclusively licensed by us, to develop, manufacture and
commercialize Vicineum for the treatment of BCG-unresponsive NMIBC and other
types of cancer in China, Hong Kong, Macau and Taiwan ("Greater China"). We also
granted Qilu a non-exclusive, sublicensable, royalty-bearing sublicense, under
certain other intellectual property licensed by us to develop, manufacture and
commercialize Vicineum in Greater China. We retain (i) development and
commercialization rights in the rest of the world excluding Greater China and
(ii) manufacturing rights with respect to Vicineum in the rest of the world
excluding Greater China.

During 2020, we received a total of $10 million in net proceeds associated with
the Qilu License Agreement. We are also entitled to receive up to an additional
$23 million upon the achievement of certain technology transfer, development and
regulatory milestones, as well as a 12% royalty based upon annual net sales of
Vicineum in Greater China. The royalties are payable upon the first commercial
sale of Vicineum in a region and continuing until the latest of (i) twelve years
after the first commercial sale of Vicineum in such region, (ii) the expiration
of the last valid patent claim covering or claiming the composition of matter,
method of treatment, or method of manufacture of Vicineum in such region, and
(iii) the expiration of regulatory or data exclusivity for Vicineum in such
region. The royalty rate is subject to reduction under certain circumstances,
including when there is no valid claim of a licensed patent that covers Vicineum
in a particular region or no data or regulatory exclusivity of Vicineum in a
particular region.

The Investigational New Drug application ("IND") for Vicineum submitted by Qilu
to the Center for Drug Evaluation of the China National Medical Products
Administration was accepted for review in January 2021 and approved in March
2021, resulting in a $3 million milestone payment from Qilu, the first milestone
payment out of the $23 million in potential milestone payments. We recorded $2.8
million (net of VAT) as license revenue during the three-month period ended
March 31, 2021.

In June 2021, the Qilu License Agreement was recognized by Shandong Province,
Bureau of Science and Technology as "Technology Transfer". An agreement that is
designated as a Technology Transfer shall be entitled to a tax incentive of
value-added tax ("VAT") recovery. As such, we recorded $0.9 million of revenue
during the three months ended June 30, 2021, for additional purchase price
resulting from Qilu's obligation to pay us an amount equal to its recovery of
VAT.

On July 20, 2021 we and Qilu announced the enrollment of the first patient in
China in a Phase 3 clinical trial to assess the efficacy and safety of Vicineum
in patients with BCG-unresponsive NMIBC. The open-label, single-arm,
multi-center bridging trial will evaluate the efficacy and safety of Vicineum in
approximately 53 patients with carcinoma in situ (CIS) with or without papillary
disease, high-grade Ta papillary disease or T1 papillary disease of any grade.
Patients will be required to have failed previous treatment with BCG for
inclusion in the trial. The primary endpoints are the complete response rate
(for CIS patients) and the recurrence-free rate (for papillary patients) at six
months, with the complete response rate and the recurrence-free rate at three
months, safety and tolerability as the secondary endpoints. Based on the Qilu
License Agreement, the trial is being run at the sole cost of Qilu.

We and Qilu are in the process of negotiating a termination of the Qilu License
Agreement. Upon the termination of the Qilu License Agreement, we will regain
the rights to develop, manufacture and commercialize Vicineum in Greater China.

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Components of Our Results of Operations

License and Related Revenue


License revenue consists of revenue recognized pursuant to our OUS business
development partnership agreements, including the Qilu License Agreement, and
the Roche Asset Purchase Agreement, which is assessed under ASC Topic 606,
Revenue. We have terminated all of our OUS business development partnership
agreements other than the Qilu License Agreement, of which we and Qilu are in
the process of negotiating a termination.

Research and Development

Research and development expenses consist primarily of costs incurred for the development of Vicineum for the treatment of NMIBC, which include:

•employee-related expenses, including salaries, benefits, travel and share-based compensation expense;

•expenses incurred under agreements with contract resource organizations ("CROs") and investigative sites that conduct our clinical trials;

•expenses associated with developing manufacturing capabilities;

•expenses associated with transferring manufacturing capabilities to contract manufacturing organizations ("CMOs") for commercial-scale production;

•facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and other supplies;

•expenses associated with regulatory activities; and

•expenses associated with license milestone fees.


We expense research and development costs as incurred. We recognize external
development costs based on an evaluation of the progress to completion of
specific tasks using information and data provided to us by our vendors and our
clinical sites.

We allocate direct research and development expenses, consisting principally of
external costs, such as fees paid to investigators, consultants, central
laboratories and CROs in connection with our clinical trials, costs related to
manufacturing or purchasing clinical trial materials and technology transfer and
license milestone fees, to specific product programs. We do not allocate
employee and contractor-related costs, costs associated with our platform and
facility expenses, including depreciation or other indirect costs, to specific
product programs because these costs may be deployed across multiple product
programs under research and development and, as such, are separately classified.
The table below provides research and development expenses incurred for Vicineum
for the treatment of NMIBC and other expenses by category. We expect to
significantly reduce our research and development expenses during the pendency
of the proposed Merger with Carisma.

We did not allocate research and development expenses to any other specific product program during the periods presented (in thousands):

                                                 Three Months Ended              Nine Months Ended
                                                    September 30,                  September 30,
                                                  2022            2021          2022           2021
 Programs:

Vicineum for the treatment of NMIBC $ 813 $ 2,989

$ 29,705 $ 10,888

 Total direct program expenses                     813            2,989     

29,705 10,888

Personnel and other expenses:

 Employee and contractor-related expenses        1,840            1,732     

6,920 6,392

 Platform-related lab expenses                       5               19            100           133
 Facility expenses                                 150              124            428           392
 Other expenses                                    123              103            483           468
 Total personnel and other expenses              2,118            1,978     

7,931 7,385

 Total Research and Development             $    2,931          $ 4,967     

$ 37,636 $ 18,273

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General and Administrative


General and administrative expenses consist primarily of salaries and related
costs for personnel, including share-based compensation and benefits, in
executive, operational, finance, legal, business development and human resource
functions. Other general and administrative expenses include facility-related
costs, professional fees for legal, estimated payments to settle litigation,
insurance, investment banking fees, patent, consulting and accounting services,
and pre-commercial United States market research. We expect our general and
administrative expenses to increase due to increases in professional and
advisory fees during the pendency of the proposed Merger with Carisma.

Change in Fair Value of Contingent Consideration


In connection with the Viventia Acquisition in September 2016, we recorded
contingent consideration pertaining to the amounts potentially payable to
Viventia's shareholders pursuant to the terms of the Share Purchase Agreement
among us, Viventia and the other signatories thereto and are based on regulatory
approval in certain markets and future revenue levels. The fair value of
contingent consideration is assessed at each balance sheet date and changes, if
any, to the fair value are recognized in earnings (or loss) for the period.

Other Income, Net

Other income, net consists primarily of interest income earned on cash and cash equivalents and, to a lesser extent, any gains or losses on foreign exchange.

Provision for Income Taxes


Benefit for income taxes is driven by the intangible impairment charge, changing
the value of deferred tax liabilities. Provision for income taxes consists of
income taxes incurred to non-US jurisdictions pursuant to our OUS business
development partnership agreements, including the Qilu License Agreement.

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Our Results of Operations

Comparison of the three months ended September 30, 2022 and 2021

                                                          Three Months Ended
                                                             September 30,                                Increase/(Decrease)
                                                       2022                 2021                   Dollars                  Percentage
                                                                             (in thousands, except percentages)
Revenue:
License and related revenue                       $    40,000          $         -          $           40,000                         -
Total revenue                                          40,000                    -                      40,000                         -
Operating expenses:
Research and development                          $     2,931          $     4,967          $           (2,036)                      (41) %
General and administrative                              8,141                8,699                        (558)                       (6) %
Restructuring charge                                   10,947                5,522                       5,425                        98  %
Intangibles impairment charge                               -               31,700                     (31,700)                     (100) %
Change in fair value of contingent consideration       (1,800)            (114,000)                    112,200                       (98) %
Total operating expenses                               20,219              (63,112)                     83,331                      (132) %
Income from Operations                                 19,781               63,112                     (43,331)                      (69) %
Other income:
Other income, net                                         676                    1                         675                    67,500  %
Income Before Taxes                               $    20,457          $    63,113          $          (42,656)                      (68) %
Benefit from income taxes                                   -                8,561                      (8,561)                     (100) %
Net Income After Taxes                            $    20,457          $    71,674          $          (51,217)                      (71) %


License Revenue

Revenue for the three months ended September 30, 2022 was $40.0 million, which
was due to the execution of the Roche Asset Purchase Agreement for EBI-031 and
all other IL-6 antagonist monoclonal antibody technology. We did not record any
revenue for the three months ended September 30, 2021.

Research and Development


Research and development expenses were $2.9 million for the three months ended
September 30, 2022, compared to $5.0 million for the three months ended
September 30, 2021. The decrease of $2.0 million was primarily due to a decrease
in costs associated with manufacturing ($1.9 million) and a decrease in other
R&D related costs ($0.1 million), driven by the strategic decision to
voluntarily pause further development of Vicineum in the US in the third quarter
of 2022.

General and Administrative

General and administrative expenses were $8.1 million for the three months ended
September 30, 2022, compared to $8.7 million for the three months ended
September 30, 2021. The decrease of $0.6 million was primarily due to a decrease
in marketing and commercialization expenses, which were incurred in the third
quarter of 2021 in preparation for potential commercial launch of Vicineum but
were discontinued as a result of the Complete Response Letter from the FDA
received in August 2021 ($2.3 million) and a decrease in professional fees for
accounting services ($0.4 million). This was partially offset by an increase in
legal expense ($1.3 million), driven by legal fees associated with our
assessment of strategic alternatives incurred in the third quarter of 2022 ($2.2
million), partially offset by a decrease in legal fees associated with the
internal review ($0.4 million) and other legal expenses ($0.5 million).
Additionally, financial advisor fees increased due to financial advisor fees
associated with our assessment of strategic alternatives incurred in the third
quarter of 2022 ($0.8 million).

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Restructuring Charge


Restructuring charges were $10.9 million for the three months ended September
30, 2022 compared to $5.5 million for the three months ended September 30, 2021.
The expense for the third quarter of 2022 consisted of severance and other
employee-related costs ($6.9 million) and termination of certain contracts and
other associated costs ($4.0 million) associated with our 2022 Restructuring
Plan following the decision to voluntarily pause further development of Vicineum
in the United States. The expense for the third quarter of 2021 consisted of
severance and other employee-related costs ($2.8 million) and termination of
certain contracts ($2.7 million) associated with the restructuring plan we
approved on August 30, 2021 to reduce operating expenses and better align our
workforce with the needs of our business following the receipt of the CRL in
August 2021.

Intangibles impairment

Intangibles impairment charge for three months ended September 30, 2022 was zero
compared to $31.7 million in the three months ended September 30, 2021. In
August 2021, we received a CRL from the FDA regarding our BLA for Vicineum for
the treatment of BCG-unresponsive NMIBC. As a result an impairment analysis was
conducted, which concluded that the carrying value of our intangible asset of
Vicineum US rights was fully impaired as of September 30, 2021.

Change in Fair Value of Contingent Consideration


The non-cash change in fair value of contingent consideration was a gain of $1.8
million for the three months ended September 30, 2022, compared to a gain of
$114.0 million for the three months ended September 30, 2021. The decrease in
the fair value of contingent consideration of $1.8 million for the three months
ended September 30, 2022 was due to our conclusion that we no longer expect to
owe any future earnout payments related to the Greater China region.
Accordingly, we reduced our remaining $1.8 million of contingent consideration
liabilities to zero as of September 30, 2022.

The change in fair value of contingent consideration was a gain of $114.0
million for the three months ended September 30, 2021. This was primarily driven
by the receipt of a CRL from the FDA, in which the FDA determined that it cannot
approve the BLA for Vicineum in its present form. Due to the inherent
uncertainty in the path forward for Vicineum at the time, we reassessed the
underlying assumptions used to develop the revenue projections upon which the
fair value of contingent consideration was based. The most significant and
impactful assumptions in our revenue projection models are timing of product
launch and probabilities of clinical and regulatory success ("POS"); we expected
delays in the start of commercialization and estimated lower POS as a direct
result of the CRL. We anticipated needing to conduct an additional clinical
trial, which would lead to delays in the start of commercialization globally. We
had assessed a range of commercialization timeline assumptions and applied a
probability to each outcome based on management's best estimate. In addition, we
assumed a lower POS in achieving certain clinical and regulatory milestones in
the range of approximately 45% to 55% globally. The milestone payments
constitute debt-like obligations, and the high-yield debt index rate applied to
the milestones in order to determine the estimated fair value was 7.5% as of
September 30, 2021. The discount rate applied to the 2% earnout payment due on
forecasted Vicineum revenues was derived from our estimated weighted-average
cost of capital ("WACC"), and this WACC-derived discount rate was 8.6% as of
September 30, 2021.

Benefit (Provision) from Income Taxes


We did not record a benefit or loss for the three months ended September 30,
2022. In the third quarter of 2021, we determined that the fair value of the
Vicineum US rights was zero, which resulted in an impairment charge of $31.7
million. In connection with this impairment charge, in the third quarter of
2021, we reduced the associated deferred tax liability which resulted in an $8.6
million income tax benefit.

Net income

For the three months ended September 30, 2022, net income was $20.5 million,
compared to $71.7 million for the three months ended September 30, 2021. In the
third quarter of 2022, we recorded revenue of $40.0 million related to the
execution of the Roche Asset Purchase Agreement and non-cash income of $1.8
million related to changes in the fair value of contingent consideration,
partially offset by operating expenses of $22.0 million. In the third quarter of
2021 we recorded non-cash income of $90.9 million, which includes changes in the
fair value of contingent consideration, income tax benefit and intangible
impairment charge. Additionally, we recorded R&D, G&A and restructuring charges
of $19.2 million.
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Our Results of Operations

Comparison of the nine months ended September 30, 2022 and 2021

                                                          Nine Months Ended
                                                            September 30,                               Increase/(Decrease)
                                                      2022                2021                   Dollars                  Percentage
                                                                            (in thousands, except percentages)
Revenue:
License and related revenue                       $   40,000          $    6,544          $           33,456                       511  %
Total revenue                                         40,000               6,544                      33,456                       511  %
Operating expenses:
Research and development                          $   37,636          $   18,273          $           19,363                       106  %
General and administrative                            32,705              20,797                      11,908                        57  %
Restructuring charge                                  10,947               5,522                       5,425                        98  %
Intangibles impairment charge                         27,764              31,700                      (3,936)                      (12) %
Change in fair value of contingent consideration     (52,000)            (52,240)                        240                         -  %
Total operating expenses                              57,052              24,052                      33,000                       137  %
Loss from Operations                                 (17,052)            (17,508)                        456                        (3) %

Other income (expense), net                              867                 (45)                        912                    (2,027) %
Loss Before Taxes                                 $  (16,185)         $  (17,553)         $            1,368                        (8) %
Benefit from income taxes                              3,875               8,273                      (4,398)                      (53) %
Net Loss After Taxes                              $  (12,310)         $   (9,280)         $           (3,030)                       33  %


License Revenue

Revenue for the nine months ended September 30, 2022 was $40.0 million, which
was due to the execution of the Roche Asset Purchase Agreement. Revenue for the
nine months ended September 30, 2021 was $6.5 million, which was due to
achieving the IND milestone in China pursuant to the Qilu License Agreement,
clinical supply revenue resulting from the delivery of drug product to Qilu and
license revenue for additional purchase price due to the recovery of VAT by
Qilu.

Research and Development


Research and development expenses were $37.6 million for the nine months ended
September 30, 2022, compared to $18.3 million for the nine months ended
September 30, 2021. The increase of $19.4 million was primarily due to the
expense of prepaid balances related to consumables and manufacturing
reservations as the balances were deemed to have no future value ($25.2 million)
in the second quarter of 2022. Additionally, employee-related compensation
increased, primarily due to the retention programs implemented in the fourth
quarter of 2021 and third quarter of 2022 ($2.6 million). The increase was
partially offset by decreased costs associated with manufacturing ($6.1
million), clinical and manufacturing related consulting fees ($2.0 million), and
other individually immaterial R&D costs ($0.3 million), driven by the strategic
decision to voluntarily pause further development of Vicineum in the US in the
third quarter of 2022.

General and Administrative

General and administrative expenses were $32.7 million for the nine months ended
September 30, 2022, compared to $20.8 million for the nine months ended
September 30, 2021. The increase of $11.9 million was primarily due to an
increase in legal expense ($14.6 million) driven by the preliminary settlements
of the securities and derivative litigation net of expected insurance recovery
($8.2 million) and legal fees associated with our assessment of strategic
alternatives ($2.6 million). Additionally, legal fees related to the internal
review ($2.8 million), securities litigation counseling ($0.9 million) and other
legal expenses ($0.1 million) increased during the nine months ended September
30, 2022. In addition, employee-related compensation increased, primarily driven
by the retention programs implemented in the fourth quarter of 2021 and third
quarter of 2022 ($1.3 million). This was partially offset by decreases in
marketing and commercial expenses ($4.0 million), which were

                                       39
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incurred during the first half of 2021 in preparation for potential commercial launch of Vicineum but were discontinued as a result of the CRL received in August 2021.

Restructuring Charge


Restructuring charges were $10.9 million for the nine months ended September 30,
2022 compared to $5.5 million for the nine months ended September 30, 2021. The
expense for the nine months ended September 30, 2022 consisted of severance and
other employee-related costs ($6.9 million) and termination of certain contracts
and other associated costs ($4.0 million) following the decision to pause
further development of Vicineum in the US. The expense for the nine months ended
September 30, 2021 consisted of severance and other employee-related costs ($2.8
million) and termination of certain contracts ($2.7 million) following the
receipt of the CRL in August 2021.

Change in Fair Value of Contingent Consideration


The non-cash change in fair value of contingent consideration was a gain of
$52.0 million for the nine months ended September 30, 2022, compared to a gain
of $52.2 million for the nine months ended September 30, 2021. The decrease in
the fair value of contingent consideration of $52.0 million for the nine months
ended September 30, 2022 was driven by our strategic decision to voluntarily
pause further development of Vicineum in the US and our conclusion that we no
longer expect to owe any future earnout payments related to the Greater China
region. The decision was based on a thorough reassessment of Vicineum following
recent discussions with the FDA, which had implications for the size, timeline
and costs for an additional Phase 3 clinical trial for the treatment of NMIBC.
Additionally, during the second quarter of 2022, we observed an evolution of the
current market treatment paradigm in NMIBC, with substantial uptake of
intravesical chemotherapy (monotherapy and combination therapy) during the
ongoing BCG shortage. We continue to believe that Vicineum has benefits for
patients and healthcare providers that can be maximized through a company with a
larger infrastructure, and as such, intend to seek a partner that can execute
further development to realize the full potential of Vicineum. We expect that
any partner who acquires Vicineum from us will be obligated to make any payments
to the former shareholders of Viventia under the Share Purchase Agreement

The change in fair value of contingent consideration was a gain of $52.2 million
for the nine months ended September 30, 2021. This was primarily driven by the
receipt of a CRL in August 2021, in which the FDA determined that it could not
approve the BLA for Vicineum in its present form. Due to the inherent
uncertainty in the path forward for Vicineum at the time, we reassessed the
underlying assumptions used to develop the revenue projections upon which the
fair value of its contingent consideration is based. The most significant and
impactful assumptions in our revenue projection models are timing of product
launch and POS; we expected delays in the start of commercialization and
estimate lower POS as a direct result of the CRL. We anticipated needing to
conduct an additional clinical trial, which would lead to delays in the start of
commercialization globally. We had assessed a range of commercialization
timeline assumptions and applied a probability to each outcome based on
management's best estimate. In addition, we assumed a lower POS in achieving
certain clinical and regulatory milestones in the range of approximately 45% to
55% globally. The milestone payments constitute debt-like obligations, and the
high-yield debt index rate applied to the milestones in order to determine the
estimated fair value was 7.5% as of September 30, 2021. The discount rate
applied to the 2% earnout payment due on forecasted Vicineum revenues was
derived from our estimated WACC, and this WACC-derived discount rate was 8.6% as
of September 30, 2021.

Provision for Income Taxes

For the nine months ended September 30, 2022, we recorded a benefit from income
taxes of $3.9 million. In the second quarter of 2022, we determined that the
fair value of the Vicineum EU rights was zero, which resulted in an impairment
charge of $14.7 million. In connection with this impairment charge, in the
second quarter of 2022, we reduced the associated deferred tax liability to
zero, which resulted in a $4.0 million income tax benefit, partially offset by
$0.1 million income tax paid to foreign jurisdictions pursuant to the Qilu
License Agreement. Please refer to Note 8, "Intangible Assets and Goodwill," in
the Notes to Condensed Consolidated Financial Statements in our Quarterly Report
on Form 10-Q for the quarter ended June 30, 2022 for further information
regarding the impairment charge.

For the nine months ended September 30, 2021, we recorded a benefit from income
taxes of $8.3 million. In the third quarter of 2021, we determined that the fair
value of the Vicineum United States rights were zero, which resulted in an
impairment charge of $31.7 million. In connection with this impairment charge,
in the third quarter of 2021, we reduced the associated deferred tax liability
which resulted in an $8.6 million income tax benefit.

Net Loss


For the nine months ended September 30, 2022 net loss was $12.3 million,
compared to net loss of $9.3 million, for the nine months ended September 30,
2021. The increase of $3.0 million was due to an increase in operating expense
($33.0 million), primarily driven by the reduction of our prepaid balances
related to consumables and manufacturing reservations in the second quarter of
2022 ($25.2 million) and the preliminary settlements of the securities and
derivative litigation net of expected insurance recovery ($8.2 million).
Additionally, the benefit from income taxes decreased ($4.4 million) in 2022
compared to

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2021. This was partially offset by increased revenue ($33.5 million) primarily driven by the execution of the Roche Asset Purchase agreement.

Liquidity and Capital Resources

Overview


As of September 30, 2022, we had cash, cash equivalents and marketable
securities of $184.9 million, net working capital of $157.7 million and an
accumulated deficit of $328.6 million. We incurred cash flows from operating
activities of $22.2 million for the nine months ended September 30, 2022,
compared to negative cash flows of $56.3 million for the nine months ended
September 30, 2021. We believe that, based on our current operating plans and
financial forecasts, our cash, cash equivalents and marketable securities of
$184.9 million as of September 30, 2022, are sufficient to fund our current
operating plan for at least twelve months from the date of this Form 10-Q
filing, November 7, 2022.

Following an extensive process of evaluating strategic alternatives, including
identifying and reviewing potential candidates for a strategic transaction, on
September 20, 2022, we entered into the Merger Agreement with Carisma and Merger
Sub, pursuant to which, among other things, and subject to the satisfaction or
waiver of certain conditions set forth in the Merger Agreement, Merger Sub will
merge with and into Carisma, with Carisma continuing as our wholly-owned
subsidiary and the surviving corporation of the Merger. Our board of directors
unanimously approved the Merger Agreement and resolved to recommend that our
stockholders approve the proposals described in the Merger Agreement. If the
Merger is completed, the business of Carisma will continue as the business of
the combined company.

The Merger is expected to close approximately two to three months from the date
of this form 10-Q filing, November 7, 2022. Consummation of the Merger is
subject to certain closing conditions, including, among other things, (a)
approval by our stockholders of the proposals described in the Merger Agreement,
(b) approval by Carisma's stockholders of, among other things, the adoption of
the Merger Agreement, (c) Nasdaq's approval of the listing of the shares of our
common stock to be issued in connection with the Merger, (d) the effectiveness
of a registration statement on Form S-4 to register the shares of our common
stock to be issued in connection with the Merger, and (e) our having net cash as
of closing of the Merger greater than or equal to $100.0 million.

The Merger Agreement contains certain termination rights of each of us and
Carisma. Upon termination of the Merger Agreement under specified circumstances,
we may be required to pay Carisma a termination fee of $7.6 million and/or
reimburse Carisma's expenses up to a maximum of $1.75 million, and Carisma may
be required to pay us a termination fee of $5.49 million and/or reimburse our
expenses up to a maximum of $1.75 million.

Our future operations are highly dependent on the success of the Merger and
there can be no assurances that the Merger will be successfully consummated. In
the event that we do not complete the Merger with Carisma, we may continue to
explore strategic alternatives, including, without limitation, another strategic
transaction and/or pursue a liquidation and dissolution of our company.

Since our inception, we have received no revenue from sales of our products, and
we anticipate that operating losses will continue for the foreseeable future. We
have financed our operations to date primarily through private placements of our
common stock, preferred stock, common stock warrants and convertible bridge
notes, venture debt borrowings, our IPO, follow-on public offerings, sales
effected in ATM offerings, our OUS business development partnerships and license
agreements, sale of assets, and, to a lesser extent, from a collaboration.

We have entered into an Open Market Sale Agreement with Jefferies LLC
("Jefferies") dated November 29, 2019, as amended by Amendment No. 1 dated
October 30, 2020, Amendment No. 2 dated February 17, 2021 and Amendment No. 3,
dated June 1, 2021 (as amended, the "Sale Agreement"), under which we may issue
and sell shares of our common stock, par value $0.001 per share from time to
time through Jefferies (the "ATM Offering"). In June and July 2021, we filed
prospectus supplements with the SEC in connection with the offer and sale of up
to an aggregate of $200 million of our common stock pursuant to the Sale
Agreement of which $97.8 million of common shares remain available for future
issuance as of September 30, 2022. Sales of common stock under the Sale
Agreement are made by any method that is deemed to be an ATM offering as defined
in Rule 415(a)(4) of the Securities Act of 1933, including but not limited to
sales made directly on or through the Nasdaq Stock Market or any other existing
trading market for our common stock. We may sell shares of our common stock
efficiently from time to time but have no obligation to sell any of our common
stock and may at any time suspend offers under the Sale Agreement or terminate
the Sale Agreement. Subject to the terms and conditions of the Sale Agreement,
Jefferies will use its commercially reasonable efforts to sell common stock from
time to time, as the sales agent, based upon our instructions, which include a
prohibition on sales below a minimum price set by us from time to time. We have
provided Jefferies with customary indemnification rights, and Jefferies is
entitled to a commission at a fixed rate equal to 3.0% of the gross proceeds for
each sale of common stock under the Sale Agreement. We did not sell any shares
of common stock pursuant to the Sale Agreement during the nine months ended
September 30, 2022. We raised $175.0 million of net proceeds from the sale of
56.9 million shares of common stock at a weighted-average price of $3.17 per
share during the nine months ended September 30, 2021,

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including $38.2 million of net proceeds from the sale of 9.8 million shares of
common stock at a weighted-average price of $4.01 per share during the three
months ended September 30, 2021. Share issue costs, including sales agent
commissions, related to the ATM Offering totaled $1.2 million and $5.4 million
for the three and nine months ended September 30, 2021, respectively.

Funding Requirements

Our future funding requirements will depend on the outcome of the proposed Merger with Carisma.


We are subject to a number of risks similar to other clinical companies that
have determined to focus primarily on pursuing a strategic transaction,
including, but not limited to, those which are described under Part II Item 1A.
Risk Factors of this Quarterly Report on Form 10-Q.

We will incur substantial expenses if and as we:

•address our ongoing securities litigation and derivative litigation;

•maintain, expand and protect our intellectual property portfolio;

•reduce our personnel and incur related severance and employee-related costs;

•wind down activities with our CMOs;

•terminate our property leases; and

•explore, evaluate and pursue any strategic alternatives if the Merger is not completed.

Our future capital requirements will depend on many factors, including:

•the outcome and the timing of the proposed Merger with Carisma;

•the outcome and timing of any pending or future litigation involving us or our business;

•the costs and timing of maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims; and

•our obligation to make milestone, royalty and other payments to third-party licensors under our licensing agreements.


Until such time, if ever, as we can generate substantial revenues, we expect to
finance our cash needs through a combination of equity offerings, debt
financings, or government or other third-party funding. To the extent that we
raise additional capital through the sale of equity or convertible debt
securities, the ownership interests of existing stockholders will be diluted,
and the terms of these securities may include liquidation or other preferences
that adversely affect the rights of existing stockholders. Debt financing, if
available, may involve agreements that include liens or other restrictive
covenants limiting our ability to take specific actions, such as incurring
additional debt, making capital expenditures or declaring dividends. If we are
unable to raise additional funds when needed, we may be required to delay,
limit, reduce or terminate our assessment of strategic alternatives. If we do
not successfully consummate the proposed Merger with Carisma, our board of
directors may decide to explore other strategic alternatives, including, without
limitation, another strategic transaction and/or a liquidation and dissolution
of our company

Contractual and Other Obligations


For information related to our cash requirements from known contractual and
other obligations, see the description of Contingent Consideration in Note 5
"Fair Value Measurement and Financial Instruments," the information in Note 10
"Commitments and Contingencies", our leases in Note 11 "Leases", and the
description of our license agreements in Note 17, "License Agreements" of Part I
- Item 1. Financial Statements - Notes to Condensed Consolidated Financial
Statements.

Cash Flows

The following table sets forth a summary of our cash flows for the nine months ended September 30, 2022 and 2021 (in thousands):

                                                                           Nine Months Ended
                                                                             September 30,
                                                                       2022                 2021
Net Cash Provided by (Used in) Operating Activities               $    22,214          $   (56,278)
Net Cash Used in Investing Activities                                (113,733)                  (4)
Net Cash Provided by Financing Activities                                   -              176,129
Net (Decrease) Increase in Cash, Cash Equivalents and Restricted
Cash                                                              $   (91,519)         $   119,847


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Net Cash Used in Operating Activities


Net cash provided by operating activities was $22.2 million for the nine months
ended September 30, 2022 and consisted primarily of a net loss of $12.3 million,
adjusted for non-cash items including, a decrease in the fair value of
contingent consideration ($52.0 million), intangible impairment charge
($27.8 million), share-based compensation ($5.9 million), and a net increase in
operating assets and liabilities ($52.9 million).

Net cash used in operating activities was $56.3 million for the nine months
ended September 30, 2021 and consisted primarily of a net loss of $9.3 million,
which includes $6.5 million of revenue recognized pursuant to certain of our
out-license agreements, adjusted for non-cash items, including share-based
compensation ($3.4 million), a decrease in the fair value of contingent
consideration ($52.2 million), increase in impairment charge ($31.7 million),
and a net decrease in operating assets and liabilities of ($29.9 million).

Net Cash Used in Investing activities

Net cash used in investing activities was $113.7 million for the nine months ended September 30, 2022 and consisted of marketable security purchases.

Net cash used in investing activities consisted of de minimis purchases and sales or property and equipment during the nine months ended September 30, 2021.

Net Cash Provided by Financing activities

Net cash provided by financing activities was zero for the nine months ended September 30, 2022.


Net cash provided by financing activities was $176.1 million for the nine months
ended September 30, 2021 and consisted primarily of $175.0 million net proceeds
from the sale of common stock under the ATM Offering.

Critical Accounting Policies and Use of Estimates


The preparation of our condensed consolidated financial statements in accordance
with GAAP and the rules and regulations of the SEC require the use of estimates
and assumptions, based on complex judgments considered reasonable, and affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the condensed consolidated financial
statements and the reported amounts of expenses during the reporting period. Our
critical accounting policies are those policies which involve a significant
level of estimation uncertainty and have had or are reasonably likely to have a
material impact on our financial condition or results of operations. Management
has determined that our most critical accounting policies are those relating to
the fair value of indefinite-lived intangible assets, goodwill; contingent
consideration; revenue recognition; development and regulatory milestone
payments and other costs; and research and development costs.

Fair Value of Indefinite-Lived Intangible Assets


Our intangible assets consist of indefinite-lived, acquired IPR&D worldwide
product rights to Vicineum as a result of the acquisition of Viventia in 2016.
IPR&D assets acquired in a business combination are considered indefinite-lived
until the completion or abandonment of the associated research and development
efforts.

Indefinite-lived intangible assets are quantitatively tested for impairment at
least annually during the fourth quarter of the fiscal year, or more often if
indicators of impairment are present. Impairment testing of indefinite-lived
intangible assets requires management to estimate the future discounted cash
flows of an asset using assumptions believed to be reasonable, but which are
unpredictable and inherently uncertain. Actual future cash flows may differ from
the estimates used in impairment testing. We recognize an impairment loss when
and to the extent that the estimated fair value of an intangible asset is less
than its carrying value. In addition, on a quarterly basis, we perform a
qualitative review of our business operations to determine whether events or
changes in circumstances have occurred which could indicate that the carrying
value of our intangible assets was not recoverable. If an impairment indicator
is identified, an interim impairment assessment is performed.

During the second quarter of 2022, we observed an evolution of the current
market treatment paradigm in NMIBC, with substantial uptake of intravesical
chemotherapy (monotherapy and combination therapy) during the ongoing BCG
shortage. We have also experienced a sustained decline in share price and a
resulting decrease in our market capitalization. On July 15, 2022, we made the
strategic decision to voluntarily pause further development of Vicineum in the
United States. The decision was based on a thorough reassessment of Vicineum
following recent discussions with the FDA, which had implications on the size,
timeline and costs of an additional Phase 3 clinical trial for the treatment of
NMIBC Management updated the discounted cash flow model using the market
participant approach and considered preliminary terms of potential partnering
deal to conclude the fair value of our intangible asset of Vicineum EU rights.
We concluded that the carrying value of our intangible asset of Vicineum EU
rights of $14.7 million was fully impaired as of June 30, 2022 and was reduced
to zero in the second quarter of 2022.


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Goodwill


Goodwill on our condensed consolidated balance sheets is the result of our
acquisition of Viventia in September 2016 and represents the difference between
the purchase price and the fair value of the identifiable tangible and
intangible net assets acquired under the acquisition method of accounting.
Goodwill is not amortized; rather than recording periodic amortization, goodwill
is quantitatively tested for impairment at least annually during the fourth
quarter of the fiscal year, or more often if indicators of impairment are
present. Impairment testing of goodwill requires management to estimate the
future discounted cash flows of a reporting unit using assumptions believed to
be reasonable, but which are unpredictable and inherently uncertain. Actual
future cash flows may differ from the estimates used in impairment testing. If
the fair value of the equity of a reporting unit exceeds the reporting unit's
carrying value, including goodwill, then goodwill is considered not to be
impaired. We recognize a goodwill impairment when and to the extent that the
fair value of the equity of a reporting unit is less than the reporting unit's
carrying value, including goodwill. We have only one reporting unit. In
addition, on a quarterly basis, we perform a qualitative review of our business
operations to determine whether events or changes in circumstances have occurred
which could have a material adverse effect on the estimated fair value of each
reporting unit and thus indicate a potential impairment of the goodwill carrying
value. If an impairment indicator is identified, an interim impairment
assessment is performed.

During the second quarter of 2022, we observed continued trends in our market
capitalization as compared to the carrying value of our single reporting unit as
well as changes in certain assumptions in the fair value of the business
including market share, size, length and cost of a clinical trial, and time to
potential market launch. We identified these changes as potential impairment
indicators and performed a quantitative impairment analysis in advance of our
typical annual assessment date of October 1. We reassessed the underlying
assumptions used to develop our revenue projections, which were then used as
significant inputs to determine the fair value of equity. We updated our revenue
forecast models based on further expected launch delays in both US and OUS
regions. We also recently observed an evolution of the current treatment
paradigm in NMIBC, with substantial uptake of intravesical chemotherapy
(monotherapy and combination therapy) during the ongoing BCG shortage resulting
in lower projected peak market share for Vicineum. We also considered other
factors including the preliminary valuations of strategic alternatives during
the fair value assessment. As a result of the interim impairment test, we
concluded that the carrying value of our goodwill of $13.1 million was fully
impaired as of June 30, 2022.

Contingent Consideration

Contingent consideration on our condensed consolidated balance sheets is the
result of our acquisition of Viventia in September 2016 and represents the
discounted present value of future commercial launch milestones and net sales
earnout payments due to the former shareholders of Viventia pursuant to the
Share Purchase Agreement. Contingent consideration is measured at its estimated
fair value on a recurring basis at each reporting period, with fluctuations in
value resulting in a non-cash charge to earnings (or loss) during the period.
The estimated fair value measurement is based on significant unobservable inputs
(Level 3 within the fair value hierarchy), including internally developed
financial forecasts, probabilities of success and timing of certain milestone
events and achievements, which are unpredictable and inherently uncertain.
Actual future cash flows may differ from the assumptions used to estimate the
fair value of contingent consideration. The valuation of contingent
consideration requires the use of significant assumptions and judgments, which
management believes are consistent with those that would be made by a market
participant. Management reviews its assumptions and judgments on an ongoing
basis as additional market and other data is obtained, and any future changes in
the assumptions and judgments utilized by management may cause the estimated
fair value of contingent consideration to fluctuate materially, resulting in
earnings volatility.

The estimated fair value of our contingent consideration was determined using
probabilities of successful achievement of regulatory milestones and commercial
sales, the period in which these milestones and sales were expected to be
achieved through 2033, the level of commercial sales of Vicineum forecasted for
the US, Europe, Japan, China and other potential markets. Earnouts were
determined using an earnout rate of 2% on all commercial net sales of Vicineum
through December 2033. The discount rate applied to the 2% earnout was derived
from our estimated weighted-average cost of capital, which has fluctuated from
9.3% as of December 31, 2021. Milestone payments constitute debt-like
obligations, and therefore a high-yield debt index rate was applied to the
milestones in order to determine the estimated fair value. This index rate was
8.0% as of December 31, 2021.

On July 15, 2022, we made the strategic decision to voluntarily pause further
development of Vicineum in the United States. The decision was based on a
thorough reassessment of Vicineum following recent discussions with the FDA,
which had implications on the size, timeline and costs of an additional Phase 3
clinical trial for the treatment of NMIBC. We continue to believe that Vicineum
has benefits for patients and healthcare providers that can be maximized through
a company with a larger infrastructure, and as such, we intend to seek a partner
for the further development of Vicineum. Accordingly, during the second quarter
of 2022, we concluded that we are no longer expected to pay related milestone
and earnout payments to the former shareholders of Viventia, with the exception
of the potential 2% earnout payment related to the Greater China region since
those territory rights had been out-licensed. Qilu held the exclusive license to
develop Vicineum in the Greater China

                                       44
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region, and accordingly, the $1.8 million estimated earnout payment in the Greater China region remained as long-term contingent consideration as of June 30, 2022.


We and Qilu are in the process of negotiating a termination of the Qilu License
Agreement. Upon the termination of the Qilu License Agreement, we will regain
the rights to develop, manufacture and commercialize Vicineum in Greater China.
However, we do not plan to develop or commercialize Vicineum in that region or
any other, as we are pursuing the Merger with Carisma. We are also seeking to
sell or out-license Vicineum and all the related obligations related to
Vicineum. We expect that any partner who acquires or licenses Vicineum from us
will be obligated to make any payments, including those related to sales in the
Greater China region (if any), that become payable to the former shareholders of
Viventia under the Share Purchase Agreement. If a sale or license of Vicineum
has not occurred at the time the Merger is completed, Carisma has indicated it
may continue to seek a sale or license of Vicineum and has no plans to develop
Vicineum. Accordingly, as of September 30, 2022, we concluded that we no longer
expect to owe any future earnout payments related to the Greater China region
and reduced our remaining $1.8 million of contingent consideration liabilities
to zero as of September 30, 2022.

Income Taxes


Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and net operating
loss and research and development credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in operations in the period that includes the
enactment date. A valuation allowance is recorded to the extent it is more
likely than not that some portion or all of the deferred tax assets will not be
realized.

Unrecognized income tax benefits represent income tax positions taken on income
tax returns that have not been recognized in the financial statements. We
recognize the benefit of an income tax position only if it is more likely than
not (greater than 50%) that the tax position will be sustained upon tax
examination, based solely on the technical merits of the tax position.
Otherwise, no benefit is recognized. The tax benefits recognized are measured
based on the largest benefit that has a greater than 50% likelihood of being
realized upon ultimate settlement. We recognize accrued interest and penalties
related to uncertain tax positions as income tax expense in our condensed
consolidated statements of operations. As of September 30, 2022 and December 31,
2021, we did not have any uncertain tax positions.

Research and Development Costs


Research and development activities are expensed in the period incurred.
Research and development expenses consist of both internal and external costs
associated with all basic research activities, clinical development activities
and technical efforts required to develop a product candidate. Internal research
and development consist primarily of personnel costs, including salaries,
benefits and share-based compensation, facilities leases, research-related
overhead, pre-approval regulatory and clinical trial costs, manufacturing and
other contracted services, license fees and other external costs.

In certain circumstances, we are required to make advance payments to vendors
for goods or services that will be received in the future for use in research
and development activities. In such circumstances, the advance payments are
recorded as prepaid assets and expensed when the activity has been performed or
when the goods have been received.

Recently Issued Accounting Standards

Recently issued accounting standards are discussed in "Item 1. Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 4. Recent Accounting Pronouncements" of this Quarterly Report on Form 10-Q.

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