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
ended December 31, 2019 included in our Annual Report on Form 10-K, filed with
the Securities and Exchange Commission or SEC.

                                    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. In June 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 on March 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 on April 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. In October 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 in February 2018. In December 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.
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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 of June 30, 2020, we had cash, cash equivalents and marketable
securities of $112.5 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 $7.8 million for the six months ended June 30, 2020. Our net loss was
$14.8 million for the three months ended June 30, 2020 and $17.8 and $22.0 for
the three and six months ended June 30, 2019, respectively. As of June 30, 2020,
we had an accumulated deficit of $113.8 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 June 30, 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.
Although COVID-19 has not yet had a material adverse impact on our operations
and our clinical and preclinical programs, 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
In January 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. In March 2018, Novartis notified us of its decision to
not exercise its previously purchased Option for SRF231, our CD47 product
candidate. In March 2018, we and Novartis also mutually agreed to cease
development of one of the undisclosed programs subject to the Collaboration
Agreement. In February 2019, Novartis notified us of its decision not to
purchase its Option related to IL-27. In January 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.
Through June 30, 2020, we had received an aggregate of $150.0 million from
Novartis in upfront payments, milestone payments, and option purchase payments.
As of January 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 in January 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 and six months ended June 30, 2019 we
recognized revenue of $0.1 million and $14.6 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;
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•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;
•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:

                                                                                                       Six months ended June
                                           Three months ended June 30,                                          30,
                                             2020                 2019                2020                  2019

                                                                        (in thousands)
SRF231                                 $        203           $    1,777          $      105          $      4,327
SRF388                                        2,160                1,794               2,918                 3,879
SRF617                                        1,132                3,183               3,329                 6,891
SRF813                                          955                  183               2,659                   348
SRF114                                           87                  105                 163                   191
Other early-stage programs                      518                  406                 547                   567
Unallocated research and discovery
expenses                                      4,493                5,788              11,115                11,342
Total research and development
expenses                               $      9,548           $   13,236          $   20,836          $     27,545



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 increase in the
future as we anticipate incurring increased clinical development costs as we
advance our SRF617 and SRF388 Phase 1 clinical trials as well as increased costs
relating to the SRF813 program as we pursue IND enabling activities. In the six
months ended June 30, 2020, we recognized $1.2 million in severance expense as a
result of the strategic restructuring in January 2020.
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;
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•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;
•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 in January 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 June 30, 2020 and 2019 The following table summarizes our results of operations for the three months ended June 30, 2020 and 2019, along with the changes in those items:



                                                                     Three months ended June 30,
                                                                    2020                    2019               2020 v 2019
                                                                                       (in thousands)
Collaboration revenue - related party                         $           -           $          143          $      (143)
Operating expenses:
Research and development                                              9,548                   13,236               (3,688)
General and administrative                                            4,995                    5,417                 (422)
Total operating expenses                                             14,543                   18,653               (4,110)
Loss from operations                                                (14,543)                 (18,510)               3,967
Interest and other income (expense), net                               (264)                     752               (1,016)
Net loss                                                      $     (14,807)          $      (17,758)         $     2,951



Collaboration Revenue
In January 2020, our performance obligations under the Collaboration Agreement
ended and we removed all costs from the cost-to-cost model. Therefore, we did
not record any collaboration revenue in the three months ended June 30, 2020.
Collaboration revenue was $0.1 million for the three months ended June 30, 2019,
all of which was derived from the Collaboration Agreement.
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Research and Development Expenses
The following table summarizes our research and development expenses for the
three months ended June 30, 2020 and 2019, along with the changes in those
items:

                                                                   Three months ended June 30,
                                                                   2020                   2019              2020 v 2019
                                                                                     (in thousands)
Direct research and development expenses by program:
SRF231                                                       $        203           $       1,777          $    (1,574)
SRF388                                                              2,160                   1,794                  366
SRF617                                                              1,132                   3,183               (2,051)
SRF813                                                                955                     183                  772
SRF114                                                                 87                     105                  (18)
Other early-stage programs                                            518                     406                  112
Research and discovery and unallocated expenses:
Personnel related (including stock-based compensation)              3,411                   4,168                 (757)
Facility related and other                                          1,082                   1,620                 (538)
Total research and development expenses                      $      9,548

$ 13,236 $ (3,688)





Research and development expenses were $9.5 million for the three months ended
June 30, 2020, compared to $13.2 million for the three months ended June 30,
2019. The decrease of $3.7 million was primarily due to decreases of
$1.6 million in external costs for our SRF231 program, $2.1 million in external
costs for our SRF617 program, and $1.3 million for research and discovery and
unallocated costs which was partially offset by increases of $0.4 million in
external costs for our SRF388 program, $0.8 million in external costs for our
SRF813 program, and $0.1 million in our early-stage programs.
The decrease in research and development expenses for our SRF231 program was
primarily due to the deprioritization of SRF231 program, which we announced in
December 2018, and the conclusion of the Phase 1 clinical trial, which we
anticipate will occur in 2020.
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 progression of the Phase 1 clinical trial in the second quarter of 2020.
The decrease in research and discovery and unallocated expenses was primarily
due to the reduction in headcount as a result of the strategic restructuring
announced in January 2020.
The increase in research and development expenses for our SRF388 program was
primarily due to a the initial start-up costs and progression of the Phase 1
clinical trial in the second quarter of 2020, which was partially offset by a
decrease in contract manufacturing work and other IND enabling activities which
primarily occurred in 2019.
The increase in research and development expenses for our SRF813 program was
primarily due to increased contract manufacturing work and other IND enabling
activities incurred to advance the program in 2020.
General and Administrative Expenses

General and administrative expenses were $5.0 million for the three months ended
June 30, 2020, compared to $5.4 million for the three months ended June 30,
2019. The decrease of $0.4 million was primarily due to decreases in personnel
related costs as well as a reduction legal fees.
Interest and Other Income (Expense), Net
Interest and other income (expense), net were approximately $(0.3) million and
$0.8 million during the three months ended June 30, 2020 and 2019, respectively,
due primarily to interest income on invested balances of our cash, cash
equivalents and marketable securities.
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Table of Contents Comparison of Six Months Ended June 30, 2020 and 2019 The following table summarizes our results of operations for the six months ended June 30, 2020 and 2019, along with the changes in those items:



                                                                 Six months ended June 30,
                                                             2020                        2019               2020 v 2019
                                                                                    (in thousands)
Collaboration revenue - related party                  $     38,592                $       14,577          $    24,015
Operating expenses:
Research and development                                     20,836                        27,545               (6,709)
General and administrative                                    9,782                        10,510                 (728)
Total operating expenses                                     30,618                        38,055               (7,437)
Income (loss) from operations                                 7,974                       (23,478)              31,452
Interest and other income, net                                 (211)                        1,521               (1,732)
Net income (loss)                                      $      7,763                $      (21,957)         $    29,720



Collaboration Revenue
Collaboration revenue was $38.6 million and $14.6 million for the six months
ended June 30, 2020 and 2019, respectively, all of which was derived from the
Collaboration Agreement. 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.
Research and Development Expenses
The following table summarizes our research and development expenses for the six
months ended June 30, 2020 and 2019, along with the changes in those items:

                                                             Six months ended June 30,
                                                            2020                   2019              2020 v 2019
                                                                              (in thousands)
Direct research and development expenses by
program:
SRF231                                                $        105           $       4,327          $    (4,222)
SRF388                                                       2,918                   3,879                 (961)
SRF617                                                       3,329                   6,891               (3,562)
SRF813                                                       2,659                     348                2,310
SRF114                                                         163                     191                  (28)
Other early-stage programs                                     547                     567                  (20)
Research and discovery and unallocated
expenses:
Personnel related (including stock-based
compensation)                                                8,171                   8,043                  128
Facility related and other                                   2,944                   3,299                 (355)
Total research and development expenses               $     20,836

$ 27,545 $ (6,710)





Research and development expenses were $20.8 million for the six months ended
June 30, 2020, compared to $27.5 million for the six months ended June 30, 2019.
The decrease of $6.7 million was primarily due to decreases of $4.2 million in
external costs for our SRF231 program, $1.0 million in external costs for our
SRF388 program, $3.6 million in external costs for our SRF617 program, and $0.2
million for research and discovery and unallocated costs, which was partially
offset by an increase of $2.3 million in external costs for our SRF813 program.
The decrease in research and development expenses for our SRF231 program was
primarily due to the deprioritization of SRF231 program, which we announced in
December 2018, and the conclusion of the Phase 1 clinical trial, which we
anticipate will occur in 2020. Additionally, we received a refund of $0.7
million in the first quarter of 2020 relating to materials purchased in 2018.
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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 progression in the Phase 1 clinical trial throughout 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 progression in the Phase 1 clinical trial throughout 2020.
The decrease in research and discovery and unallocated expenses was primarily
due to the reduction in headcount as a result of the strategic restructuring
announced in January 2020.
The increase in research and development expenses for our SRF813 program was
primarily due to increased contract manufacturing work and other IND enabling
activities incurred to advance the program in 2020.
General and Administrative Expenses
General and administrative expenses were $9.8 million for the six months ended
June 30, 2020, compared to $10.5 million for the six months ended June 30, 2019.
The decrease of $0.7 million was primarily due to decreases in personnel related
costs as well as a reduction in legal fees.
Interest and Other Income (Expense), Net
Interest and other income (expense), net were approximately $(0.2) million and
$1.5 million during the six months ended June 30, 2020 and 2019, respectively,
due primarily to interest income on invested balances of our cash, cash
equivalents and marketable securities.

                        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 June 30, 2020, we had received gross proceeds of $48.6 million from our
sales of preferred stock, $17.5 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 Demand™ Sales Agreement, or the 2019
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
June 30, 2020, we sold 11,229,174 shares of common stock at-the-market under the
2019 Sales Agreement for net proceeds of $29.1 million. As of June 30, 2020, the
Company has fully utilized and closed the 2019 ATM Facility.
In May 2020, we entered into a Capital on Demand™ Sales Agreement, or the 2020
Sales Agreement, with JonesTrading Institutional Services to issue and sell up
to $50.0 million in shares of our common stock, from time to time. Through
June 30, 2020, we have not sold any shares of common stock at-the-market under
the 2020 Sales Agreement.
As of June 30, 2020, we had cash, cash equivalents and marketable securities of
$112.5 million.
Future Funding Requirements
We expect our expenses will increase in the future as we anticipate incurring
increased clinical development costs as we advance our SRF617 and SRF388 Phase 1
clinical trials as well as increased costs relating to the SRF813 program as we
pursue IND enabling activities. Additionally, we expect to continue to incur
additional costs associated with operating as a public company.
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We believe that our existing cash, cash equivalents, and marketable securities,
as of August 11, 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.
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.
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Cash Flows
The following table summarizes information regarding our cash flows for each of
the periods presented:

                                                                            Six months ended June 30,
                                                                           2020                     2019
                                                                                  (in thousands)
Net cash provided by (used in):
Operating activities                                                 $    (32,048)              $  (32,409)
Investing activities                                                       38,977                  (12,996)
Financing activities                                                       39,441                      244

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

$     46,370               $  (45,161)


Operating Activities
During the six months ended June 30, 2020, net cash used in operating activities
was $32.0 million, primarily due changes in our operating assets and liabilities
of $45.9 million, partially offset by net income of $7.8 million and non-cash
charges of $6.1 million. Net cash used in changes in our operating assets and
liabilities for the six months ended June 30, 2020 consisted primarily of a
$38.6 million decrease in deferred revenue-related party, a $2.9 million
decrease in accrued expenses and other current liabilities, a $2.9 million
decrease in accounts payable, a $1.1 million increase in other liabilities, and
an increase of $2.3 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 in January 2020. The increase in other
liabilities represents a commercial option fee which we incurred under the
Adimab agreement in January 2020, but is not payable within twelve months of the
balance sheet date. The decrease in accounts payable and accrued expenses is a
result of the strategic restructuring announced in January 2020.
During the six months ended June 30, 2019, net cash used in operating activities
was $32.4 million, primarily due to a net loss of $22.0 million and changes in
our operating assets and liabilities of $14.3 million, partially offset by
non-cash charges of $3.9 million. Net cash used in operating assets and
liabilities for the six months ended June 30, 2019 consisted primarily of a
$14.6 million decrease in deferred revenue-related party, a $0.8 million
decrease in accrued expenses and other current liabilities, a $0.9 million
decrease in accounts payable, a $0.6 million decrease in operating lease
liabilities, and a decrease of $2.5 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 associated with IL-27 from the estimated
total costs in the cost-to-cost model as a result of Novartis' decision not to
purchase the Option related to IL-27. The decrease in accrued expenses and other
current liabilities was primarily due to a $1.1 million accrual for a commercial
option fee license with Adimab in June 2018. The decrease in operating lease
liabilities relates to lease payments made in the current year.
Investing Activities
During the six months ended June 30, 2020, net cash provided by investing
activities was $39.0 million, primarily due to by $39.7 million of proceeds from
sales or maturities of marketable securities partially offset by purchases of
marketable securities of $0.7 million.
During the six months ended June 30, 2019, net cash used in investing activities
was $13.0 million, primarily due to purchases of marketable securities of $93.5
million and $1.1 million of purchases of property and equipment, partially
offset by $81.6 million of proceeds from sales or maturities of marketable
securities.
Financing Activities
During the six months ended June 30, 2020, net cash provided by financing
activities was $39.4 million, consisting of proceeds of $29.1 million received
from issuance of our shares of common stock at-the-market under the 2019 Sales
Agreement, proceeds from the issuance of the second tranche of our convertible
note payable of $10.0 million, and proceeds form the exercise of common stock of
$0.3 million
During the six months ended June 30, 2019, net cash provided by financing
activities was $0.2 million, consisting of proceeds received from the exercise
of stock options.
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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 six months ended June 30, 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 the SEC on March 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 the SEC, and generally
accepted accounting principles in the 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 the SEC on March 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 SEC rules.
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.
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.
Item 3.  Quantitative and Qualitative Disclosures About Market Risk
Our cash, cash equivalents and marketable securities as of June 30, 2020
consisted of cash, a money market fund invested primarily in short-term U.S.
Treasury obligations and U.S. government agency bonds. Interest income is
sensitive to changes in the general level of interest rates; however, due to the
nature of these investments, we do not believe that we have any material
exposure to changes in the fair value of our investment portfolio as a result of
changes in interest rates.
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