SURFACE ONCOLOGY, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements and related notes for the year endedDecember 31, 2019 included in our Annual Report on Form 10-K, filed with theSecurities and Exchange Commission orSEC . Overview We are a clinical-stage immuno-oncology company focused on using our specialized knowledge of the biological pathways critical to the immunosuppressive tumor microenvironment, or the TME, for the development of next-generation cancer therapies. While first-generation immuno-oncology therapies, such as checkpoint inhibitors, represent a remarkable therapeutic advancement, we believe most patients do not achieve durable clinical benefit primarily because these therapies focus on only one element of the complex and interconnected immunosuppressive TME. We believe there is a significant opportunity to more broadly engage both the innate and adaptive arms of the immune system in a multi-faceted, coordinated and patient-specific approach, to meaningfully improve cure rates for patients with a variety of cancers. We aim to identify key components within the TME to gain a deep understanding of its biology, leverage this understanding to define the optimal therapeutic targets and the patients most likely to benefit, and develop novel antibody therapeutics with differentiated biologic activity. By utilizing our expertise in immunology, oncology, assay development, antibody selection and characterization, and translational research, we are developing and advancing a broad pipeline of TME-focused programs that we believe are the next generation of immuno-oncology therapies. Our programs demonstrate our multi-faceted approach by targeting several critical components of the immunosuppressive TME. NZV930 (formerly SRF373) and SRF617 are antibodies inhibiting CD73 and CD39, respectively, and illustrate how our specialized knowledge of TME biology can be leveraged across programs. CD73 and CD39 are both critical enzymes involved in the production of extracellular adenosine, a key metabolite with strong immunosuppressive properties within the TME. In addition, inhibition of CD39 results in an increase in the pro-inflammatory metabolite adenosine triphosphate, or ATP, within the TME. InJune 2018 , a Phase 1 trial of NZV930 was initiated by our partner,Novartis Institutes for Biomedical Research, Inc. , or Novartis. We dosed the first patient in a Phase 1/1b dose escalation clinical trial of SRF617 onMarch 17, 2020 . SRF388 is an antibody targeting interleukin 27, or IL-27, an immunosuppressive cytokine, or protein secreted by cells, in the TME that is overexpressed in certain cancers including hepatocellular and renal cell carcinoma. IL-27 is a cytokine secreted by macrophages and antigen presenting cells that plays an important physiologic role in suppressing the immune system. Due to its immunosuppressive nature, there is a rationale for inhibiting IL-27 to treat cancer as this approach will influence the activity of multiple types of immune cells that are necessary to recognize and attack a tumor. We dosed the first patient in a Phase 1 dose escalation clinical trial of SRF388 onApril 23, 2020 . SRF813 is an antibody targeting CD112R, an inhibitory protein expressed on natural killer, or NK, and T cells. SRF813 binds a distinct epitope on CD112R and blocks the interaction of CD112R with CD112, its binding partner that is expressed on tumor cells. SRF813 can promote the activation of both NK and T cells, with potential to elicit a strong anti-tumor response and promote immunological memory. InOctober 2019 , we formally declared SRF813 as a development candidate resulting in the initiation of IND-enabling activities. SRF114 is an antibody targeting the chemokine receptor CCR8. CCR8 is expressed on regulatory T cells (Treg) in the TME. SRF114 is a highly-specific antibody that is designed to deplete these immuno-suppressive cells. SRF231 is an antibody targeting CD47, a protein expressed on many cells that is often overexpressed on tumor cells. By targeting CD47, we believe we can promote macrophage activation to attack such tumors. We initiated a Phase 1 clinical trial of SRF231 inFebruary 2018 . InDecember 2018 , we announced the deprioritization of SRF231 as a result of toxicities seen during the dose escalation portion of the ongoing Phase 1 trial and the evolving competitive landscape. We expect to conclude the Phase 1 trial in 2020, and do not plan to further develop SRF231. We expect that the unique insights generated in any one of our product programs will accelerate the development of the other programs in a synergistic fashion due to the interconnections between these TME pathways. 21 -------------------------------------------------------------------------------- We were incorporated and commenced principal operations in 2014. We have devoted substantially all of our resources to developing our programs, including NZV930, SRF617, SRF388, SRF813, and SRF231, building our intellectual property portfolio, business planning, raising capital and providing general and administrative support for these operations. To date, we have financed our operations with proceeds from the public and private sales of our securities, payments received under the Collaboration Agreement with Novartis and a debt financing. As ofMarch 31, 2020 , we had cash, cash equivalents and marketable securities of$90.1 million . Since our inception, we have incurred significant losses. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of the product candidates we develop. Our net income was$22.6 million for the three months endedMarch 31, 2020 . Our net loss was$4.2 million for three months endedMarch 31, 2019 . As ofMarch 31, 2020 , we had an accumulated deficit of$99.0 million . We expect to continue to incur significant expenses and operating losses for at least the next several years, particularly as we:
• pursue the clinical development of product candidates;
• leverage our programs to advance product candidates into preclinical and
clinical development;
• seek regulatory approvals for any product candidates that successfully
complete clinical trials;
• hire additional clinical, quality control, and scientific personnel;
• expand our operational, financial, and management systems and increase
personnel, including personnel to support our clinical development,
manufacturing, and commercialization efforts, and our operations as a
public company;
• maintain, expand and protect our intellectual property portfolio;
• establish a sales, marketing, medical affairs, and distribution
infrastructure to commercialize any products for which we may obtain
marketing approval and intend to commercialize on our own or jointly with a
commercial partner; and
• acquire or in-license other product candidates and technologies.
As a result, we will need additional financing to support our continuing
operations. Until such time as we can generate significant revenue from product
sales, if ever, we expect to finance our operations through a combination of
public or private equity or debt financings or other sources, which may include
collaborations with third parties. We may be unable to raise additional funds or
enter into other agreements or arrangements, when needed, on favorable terms, or
at all. If we fail to raise capital or enter into such agreements as and when
needed, we may have to significantly delay, scale back or discontinue the
development or commercialization of one or more of our product candidates.
Because of the numerous risks and uncertainties associated with product
development, we are unable to predict the timing or amount of increased expenses
or when or if we will be able to achieve or maintain profitability. Even if we
are able to generate revenue from product sales, we may not become profitable.
If we fail to become profitable or are unable to sustain profitability on a
continuing basis, then we may be unable to continue our operations at planned
levels and be forced to reduce or terminate our operations.
We believe that our existing cash, cash equivalents and marketable securities,
as of March 31, 2020 will enable us to fund our operating expenses, debt service
obligations and capital expenditure requirements into 2022, excluding any future
milestone payments from Novartis. We have based this estimate on assumptions
that may prove to be wrong, and we could exhaust our available capital resources
sooner than we expect.
We are monitoring the global outbreak and spread of the novel strain of
coronavirus, or COVID-19, and have taken steps to identify and mitigate the
adverse impacts on, and risks to, our business posed by its spread and actions
taken by governmental and health authorities to address the COVID-19 pandemic.
The spread of COVID-19 has caused us to modify our business practices, including
implementing a work from home policy for all employees who are able to perform
their duties remotely and restricting all nonessential travel, and we expect to
continue to take actions as may be required or recommended by government
authorities or as we determine are in the best interests of our employees, and
other business partners in light of COVID-19. Given the fluidity of the COVID-19
pandemic however, we do not yet know the full extent of the potential impact of
COVID-19 on our business operations. We will continue to monitor the situation
closely.
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Components of Our Results of Operations
Revenue
To date, we have not generated any revenue from product sales and do not expect
to do so in the near future. All of our revenue to date has been derived from
the Collaboration Agreement. If our development efforts for our programs are
successful and result in regulatory approval or additional license or
collaboration agreements with third parties, we may generate revenue in the
future from a combination of product sales or payments from additional
collaboration or license agreements that we may enter into with third parties.
We expect that our revenue for the next several years will be derived primarily
from future milestone payments under the Collaboration Agreement as well as any
additional collaborations that we may enter into in the future.
Collaboration Agreement with Novartis
InJanuary 2016 , we entered into the Collaboration Agreement to develop next-generation cancer therapies. Under the Collaboration Agreement, as amended, we were responsible for performing research on antibodies that bind to CD73 and four other specified targets. We were responsible for all costs and expenses incurred by, or on behalf of, us in connection with the research. Upon entering into the agreement, we received an upfront payment of$70.0 million from Novartis and granted Novartis a worldwide exclusive license to research, develop, manufacture and commercialize antibodies that target CD73. In addition, we initially granted Novartis the right to purchase exclusive option rights, each an Option, to up to four specified targets, including certain research, development, manufacturing and commercialization rights. Pursuant to the Collaboration Agreement, Novartis initially had the right to exercise up to three purchased Options. InMarch 2018 , Novartis notified us of its decision to not exercise its previously purchased Option for SRF231, our CD47 product candidate. InMarch 2018 , we and Novartis also mutually agreed to cease development of one of the undisclosed programs subject to the Collaboration Agreement. InFebruary 2019 , Novartis notified us of its decision not to purchase its Option related to IL-27. InJanuary 2020 , Novartis did not purchase and exercise its single remaining Option under the Collaboration Agreement and, as a result, the option purchase period expired. Accordingly, there are no Options remaining eligible for purchase and exercise by Novartis, and our performance obligations under the Collaboration Agreement have ended. We are currently entitled to potential milestones of$525.0 million , as well as tiered royalties on annual net sales of NZV930 by Novartis ranging from high single-digit to mid-teens percentages. Such amount of potential milestone payments assumes the successful clinical development and achievement of all sales milestones for NZV930. Under ASC 606 we account for (i) the license conveyed with respect to CD73 and (ii) our obligations to perform research on CD73 and other specified targets as a single performance obligation under the Collaboration Agreement. We recognize revenue using the cost-to-cost method, which we believe best depicts the transfer of control to the customer. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation. Under this method, revenue is recorded as a percentage of the estimated transaction price based on the extent of progress towards completion. ThroughMarch 31, 2020 , we had received an aggregate of$150.0 million from Novartis in upfront payments, milestone payments, and option purchase payments. As ofJanuary 2020 , we no longer have any performance obligations under the Collaboration Agreement. We removed all costs associated with the remaining performance obligation for the single remaining Option from the cost-to-cost model inJanuary 2020 . This resulted in our recognizing the remaining deferred revenue of$38.6 million to collaboration revenue - related party in the first quarter of 2020. During the three months endedMarch 31, 2020 and 2019 we recognized revenue of$38.6 million and$14.4 million , respectively, related to the Collaboration Agreement. Operating Expenses
Research and Development Expenses
Research and development expenses are expensed as incurred and consist of costs incurred for our research activities, including our discovery efforts, and the development of our programs. These expenses include:
• salaries, benefits and other related costs, including stock-based
compensation, for personnel engaged in research and development functions;
• expenses incurred in connection with the preclinical development of our
programs and clinical trials of our product candidates, including under
agreements with third parties, such as consultants, contractors, and
contract research organizations, or CROs;
• the cost of manufacturing drug products for use in our preclinical studies
and clinical trials, including under agreements with third parties, such as
consultants, contractors, and contract manufacturing organizations, or
CMOs;
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• laboratory supplies;
• facilities, depreciation and other expenses, which include direct and
allocated expenses for depreciation and amortization, rent and maintenance
of facilities, insurance and supplies; and
• third-party license fees.
We do not track our internal research and development expenses on a
program-by-program basis as they primarily relate to personnel, early research
and consumable costs, which are deployed across multiple projects under
development. These costs are included in unallocated research and development
expenses in the table below. A portion of our research and development costs are
external costs, which we do track on a program-by-program basis.
The following table summarizes our research and development expenses by program:
Three months ended March 31,
2020 2019
(in thousands)
SRF231 $ (98 ) $ 2,550
SRF388 758 2,085
SRF617 2,197 3,708
SRF813 1,704 165
Other early-stage programs 104 248
Unallocated research and discovery expenses 6,623 5,553
Total research and development expenses
14,309 Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We anticipate that our research and development expenses will decrease in the future as a result of the strategic restructuring and reduction in force announced inJanuary 2020 , however, we still anticipate incurring increased clinical development costs as we advance our SRF617 and SRF388 clinical trials. In the three months endedMarch 31, 2020 , we recognized$1.2 million in severance expense as a result of the strategic restructuring. At this time, we cannot reasonably estimate or know the nature, timing, and estimated costs of the efforts that will be necessary to complete the development of any of our product candidates that we develop from our programs. We are also unable to predict when, if ever, net cash inflows will commence from sales of product candidates we develop. This is due to the numerous risks and uncertainties associated with developing product candidates, including the uncertainty of:
• successful completion of clinical trials and preclinical studies;
• sufficiency of our financial and other resources to complete the necessary
clinical trials and preclinical studies;
• acceptance of INDs for our planned clinical trials or future clinical trials;
• successful enrollment and completion of clinical trials;
• successful data from our clinical program that supports an acceptable
risk-benefit profile of our product candidates in the intended populations;
• receipt of regulatory and marketing approvals from applicable regulatory
authorities;
• receipt and maintenance of marketing approvals from applicable regulatory
authorities;
• establishing agreements with third-party manufacturers for clinical supply
for our clinical trials and commercial manufacturing, if any of our product
candidates are approved;
• entry into collaborations to further the development of our product
candidates;
• obtaining and maintaining patent and trade secret protection or regulatory
exclusivity for our product candidates;
• successfully launching commercial sales of our product candidates, if and
when approved;
• acceptance of our product candidates' benefits and uses, if and when
approved, by patients, the medical community and third-party payors;
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• maintaining a continued acceptable safety profile of the product candidates
following approval;
• effectively competing with other therapies; and
• obtaining and maintaining healthcare coverage and adequate reimbursement
from third-party payors.
A change in the outcome of any of these variables with respect to the development of any of our programs or any product candidate we develop would significantly change the costs, timing, and viability associated with the development of such program or product candidate.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and personnel-related costs, including stock-based compensation, for our personnel in executive, legal, finance and accounting, human resources, and other administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters; professional fees paid for accounting, auditing, consulting and tax services; insurance costs; travel expenses; and facility costs not otherwise included in research and development expenses. We anticipate that our general and administrative expenses will decrease in the future as a result of the strategic restructuring and reduction in force announced inJanuary 2020 , however, we still anticipate incurring increased accounting, audit, legal, regulatory, compliance, and director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company.
Interest and Other Income (Expense), Net
Interest and other income consist primarily of interest earned on our cash, cash equivalents, and marketable securities.
Results of Operations
Comparison of Three Months Ended
The following table summarizes our results of operations for the three months
ended
Three months ended March 31,
2020 2019 2020 v 2019
(in thousands)
Collaboration revenue - related party $ 38,592 $ 14,434 $ 24,158
Operating expenses:
Research and development 11,288 14,309 (3,021 )
General and administrative 4,787 5,093 (306 )
Total operating expenses 16,075 19,402 (3,327 )
Income (loss) from operations 22,517 (4,968 ) 27,485
Interest and other income, net 53 769 (716 )
Net income (loss) $ 22,570 $ (4,199 ) $ 26,769
Collaboration Revenue
Collaboration revenue was $38.6 million and $14.4 million for the three months
ended March 31, 2020 and 2019, respectively, all of which was derived from the
Collaboration Agreement. The increase in collaboration revenue-related party
occurs because in January 2020 our performance obligations under the
Collaboration Agreement ended and we removed all costs from the cost-to-cost
model. This resulted in the recognition of the remaining deferred revenue of
$38.6 million to collaboration revenue - related party in the first quarter of
2020.
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Research and Development Expenses
Three months ended March 31,
2020 2019 2020 v 2019
(in thousands)
Direct research and development expenses by
program:
SRF231 $ (98 ) $ 2,550 $ (2,648 )
SRF388 758 2,085 (1,327 )
SRF617 2,197 3,708 (1,511 )
SRF813 1,704 165 1,539
Other early-stage programs 104 248 (144 )
Research and discovery and unallocated
expenses:
Personnel related (including stock-based
compensation) 4,761 3,874 887
Facility related and other 1,862 1,679 183
Total research and development expenses
14,309$ (3,021 ) Research and development expenses were$11.3 million for the three months endedMarch 31, 2020 , compared to$14.3 million for the three months endedMarch 31, 2019 . The decrease of$3.0 million was primarily due to decreases of$2.6 million in external costs for our SRF231 program,$1.3 million in external costs for our SRF388 program,$1.5 million in external costs for our SRF617 program, and$0.1 million in our early-stage programs, which was partially offset by increases of$1.5 million in external costs for our SRF813 program and$1.1 million for research and discovery and unallocated costs. The decrease in research and development expenses for our SRF231 program was primarily due to the deprioritization of SRF231 program, which we announced inDecember 2018 , and the conclusion of the Phase 1 clinical trial, which we anticipate will occur in the first half of 2020. Additionally, we received a refund of$0.7 million in the first quarter of 2020 relating to materials purchased in 2018. The decrease in research and development expenses for our SRF617 program was primarily due to a decrease in contract manufacturing work and other IND enabling activities which primarily occurred in 2019. This was partially offset by the initiation of the Phase 1 clinical trial in the first quarter of 2020. The decrease in research and development expenses for our SRF388 program was primarily due to a decrease in contract manufacturing work and other IND enabling activities which primarily occurred in 2019. This was partially offset by the initial costs incurred to set up the Phase 1 clinical trial, which was initiated inApril 2020 .
The increase in research and development expenses for our SRF813 program was primarily due to increased contract manufacturing work and additional costs incurred in advancing the program in 2020.
The increase in research and discovery and unallocated expenses was primarily due to severance costs incurred in the first quarter of 2020, as a result of the strategic restructuring announced inJanuary 2020 .
General and Administrative Expenses
General and administrative expenses were$4.8 million for the three months endedMarch 31, 2020 , compared to$5.1 million for the three months endedMarch 31, 2019 . The decrease of$0.3 million was primarily due to decreases in personnel related costs due to a reduction in legal, recruiting and consulting costs.
Interest and Other Income (Expense), Net
Interest and other income were approximately
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Liquidity and Capital Resources
Since our inception, we have incurred significant operating losses. We have
generated limited revenue to date from the Collaboration Agreement. We have not
yet commercialized any product and we do not expect to generate revenue from
sales of any products for several years, if at all. To date, we have financed
our operations with proceeds from public and private sales of our securities,
payments received under the Collaboration Agreement and a debt financing.
Through March 31, 2020 , we had received gross proceeds of $48.6 million from our
sales of preferred stock, $7.5 million from our loan and security agreement with
K2 HealthVentures LLC and $150.0 million from the Collaboration Agreement.
On April 23, 2018 , we completed an initial public offering of our common stock
by issuing 7,200,000 shares of common stock, at $15.00 per share for gross
proceeds of $108.0 million , or net proceeds of $97.2 million . Concurrent with
the initial public offering, we issued Novartis 766,666 shares of our common
stock at $15.00 per share, for proceeds of $11.5 million , in a private
placement.
In May 2019 , we entered into a Capital on DemandTM Sales Agreement, or the Sales
Agreement, with JonesTrading Institutional Services to issue and sell up to
$30.0 million in shares of our common stock, from time to time. Through
March 31, 2020 , we sold 101,584 shares of common stock at-the-market under the
Sales Agreement for net proceeds of $0.3 million .
As of
Future Funding Requirements We expect our expenses to decrease in connection with our strategic restructuring, in particular as we shift our focus to initiating and advancing Phase 1 clinical trials for SRF617 and SRF388, as well as the reduction in our workforce. However, we expect to continue to incur additional costs associated with operating as a public company. We believe that our existing cash, cash equivalents, and marketable securities, as ofMay 12, 2020 , will enable us to fund our operating expenses, debt service obligations and capital expenditure requirements into 2022, excluding any future milestone payments from Novartis. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical product candidates, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including:
• completing clinical development of existing product candidates and
programs, identifying new product candidates, and completing pre-clinical
and clinical development of such product candidates;
• seeking and obtaining marketing approvals for any of product candidates
that we develop;
• launching and commercializing product candidates for which we obtain
marketing approval by establishing a sales force, marketing, medical
affairs and distribution infrastructure or, alternatively, collaborating
with a commercialization partner;
• achieving adequate coverage and reimbursement by hospitals, government and
third-party payors for product candidates that we develop;
• establishing and maintaining supply and manufacturing relationships with
third parties that can provide adequate, in both amount and quality,
products and services to support clinical development and the market demand
for product candidates that we develop, if approved;
• obtaining market acceptance of product candidates that we develop as viable
treatment options;
• addressing any competing technological and market developments;
• negotiating favorable terms in any collaboration, licensing or other
arrangements into which we may enter and performing our obligations in such
collaborations;
• maintaining, protecting and expanding our portfolio of intellectual
property rights, including patents, trade secrets and know-how;
• defending against third-party interference or infringement claims, if any;
and
• attracting, hiring and retaining qualified personnel.
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-------------------------------------------------------------------------------- A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Further, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans. In addition to the variables described above, if and when any product candidate we develop successfully completes development, we will incur substantial additional costs associated with regulatory filings, marketing approval, post-marketing requirements, maintaining our intellectual property rights, and regulatory protection, in addition to other costs. We cannot reasonably estimate these costs at this time. Until such time, if ever, that we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity or debt financings and collaboration arrangements, including the Collaboration Agreement. To the extent that we raise additional capital through the future sale of equity or debt, the ownership interests of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. If we raise additional funds through the issuance of debt securities, these securities could contain covenants that would restrict our operations. We may require additional capital beyond our currently anticipated amounts. Additional capital may not be available on reasonable terms, or at all. If we raise additional funds through collaboration arrangements in the future, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate development or future commercialization efforts.
Cash Flows
The following table summarizes information regarding our cash flows for each of
the periods presented:
Three months ended March 31,
2020 2019
(in thousands)
Net cash provided by (used in):
Operating activities $ (15,576 ) $ (18,308 )
Investing activities 24,827 (23,502 )
Financing activities 413 211
Net increase (decrease) in cash and cash equivalents
$ (41,599 ) and restricted cash Operating Activities During the three months endedMarch 31, 2020 , net cash used in operating activities was$15.6 million , primarily due changes in our operating assets and liabilities of$41.3 million , partially offset by net income of$22.6 million and non-cash charges of$3.0 million . Net cash used in changes in our operating assets and liabilities for the three months endedMarch 31, 2020 consisted primarily of a$38.6 million decrease in deferred revenue-related party, a$0.5 million decrease in accrued expenses and other current liabilities, a$2.7 million decrease in accounts payable, a$1.1 million increase in other liabilities, and an increase of$0.4 million in prepaid expenses and other current assets. The decrease in deferred revenue-related party was primarily due to the removal of all future costs in the cost-to-cost model as a result of Novartis' decision not to purchase and exercise the single remaining Option under the Collaboration Agreement prior to it expiring inJanuary 2020 . The increase in other liabilities represents a commercial option fee which we incurred under theAdimab agreement inJanuary 2020 , but is not payable within twelve months of the balance sheet date. During the three months endedMarch 31, 2019 , net cash used in operating activities was$18.3 million , primarily due to non-cash charges of$1.9 million partially offset by net cash used in our net loss of$4.2 million and changes in our operating assets and liabilities of$16.0 million . Net cash used in changes in our operating assets and liabilities for the three months endedMarch 31, 2019 consisted primarily of a$3.3 million decrease in accrued expenses and other current liabilities, a$14.4 million decrease in deferred revenue-related party, a$0.3 million decrease in operating lease liabilities, and a decrease of$1.1 million in prepaid expenses and other current assets. The decrease in accrued expenses and other current liabilities was primarily due to payments of manufacturing costs incurred to support ongoing clinical trial activities. The increase in operating lease liabilities relate to the adoption of the new leasing standard in the first quarter 2019. The decrease in deferred revenue-related party was primarily due to the removal of all future costs associated with IL-27 from the estimated total costs in the cost-to-cost model when Novartis informed us of their decision not to purchase its Option related to IL-27. 28
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Investing Activities
During the three months endedMarch 31, 2020 , net cash provided by investing activities was$24.8 million , primarily due to by$25.5 million of proceeds from sales or maturities of marketable securities partially offset by purchases of marketable securities of$0.7 million .
During the three months ended
Financing Activities
During the three months endedMarch 31, 2020 , net cash provided by financing activities was$0.4 million , consisting of proceeds of$0.3 million received from issuance of our shares of common stock at-the-market under the Sales Agreement and proceeds of$0.1 million received from the issuance of shares under our 2018 Employee Stock Purchase Plan. During the three months endedMarch 31, 2019 , net cash provided by financing activities was$0.2 million consisting primarily of$0.2 million of proceeds received from the exercise of stock options.
Contractual Obligations
We have entered into agreements in the normal course of business with CROs for clinical trials and clinical supply manufacturing and with vendors for preclinical research studies and other services and products for operating purposes. These contractual obligations are cancelable at any time by us, generally upon prior written notice to the vendor.
During the three months endedMarch 31, 2020 , there were no material changes, to our contractual obligations and commitments from those described under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations-Contractual Obligations and Commitments" in our Annual Report on Form 10-K filed with theSEC onMarch 10, 2020 .
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which we have prepared in accordance with the rules and regulations of theSEC , and generally accepted accounting principles inthe United States , or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as revenue and expenses during the reporting period. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies and the methodologies and assumptions we apply under them have not materially changed since our Annual Report on Form 10-K filed with theSEC onMarch 10, 2020 , except for our adoption of the new leasing standard which is discussed above.
Off-Balance Sheet Arrangements
We did not have, during the periods presented, and we do not currently have, any
off-balance sheet arrangements, as defined under applicable
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially
impact our financial position and results of operations is disclosed in Note 2
to our condensed consolidated financial statements appearing in this Quarterly
Report on Form 10-Q.
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Emerging Growth Company Status
As an "emerging growth company," the Jumpstart Our Business Startups Act of 2012 allows us to delay adoption of new or revised accounting standards applicable to public companies until such standards are made applicable to private companies. However, we have irrevocably elected not to avail ourselves of this extended transition period for complying with new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
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