10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to            

Commission file number: 001-32979

MOLECULAR TEMPLATES, INC.

(Exact name of registrant as specified in its charter)

Delaware	94-3409596
(State or other jurisdiction of incorporation or organization)	(IRS employer Identification number)
9301 Amberglen Blvd, Suite 100, Austin TX 78729	78729
(Address of principal executive office)	(Zip Code)

(512) 869-1555

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of Each Class	Trading Symbol	Name of Each Exchange On Which Registered
Common Stock, $0.001 Par Value Per Share	MTEM	The Nasdaq Capital Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☐    No  ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes  ☐    No  ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant (without admitting that any person whose shares are not included in such calculation is an affiliate) computed by reference to the closing price of $13.79 of the common stock on The Nasdaq Capital Market as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $410,327,063. The calculation of the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant excludes shares of Common Stock held by each officer, director and stockholder that the registrant concluded were affiliates on that date. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

On March 17, 2021 there were 56,052,306 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement for the registrant’s 2021 annual meeting of stockholders to be filed pursuant to Regulation 14A within 120 days of the registrant’s fiscal year ended December 31, 2020 are incorporated herein by reference into Part III of this Annual Report on Form 10-K.

Molecular Templates, Inc.

TABLE OF CONTENTS

		Page
	Part I	3
Item 1.	Business	4
Item 1A.	Risk Factors	39
Item 1B.	Unresolved Staff Comments	89
Item 2.	Properties	89
Item 3.	Legal Proceedings	89
Item 4.	Mine Safety Disclosures	89
	Part II	90
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	90
Item 6.	Selected Financial Data	90
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	91
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	107
Item 8.	Financial Statements and Supplementary Data	108
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	140
Item 9A.	Controls and Procedures	140
Item 9B.	Other Information	141
	Part III	142
Item 10.	Directors, Executive Officers and Corporate Governance	142
Item 11.	Executive Compensation	142
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	142
Item 13.	Certain Relationships and Related Transactions, and Director Independence	142
Item 14.	Principal Accounting Fees and Services	142
	Part IV	143
Item 15.	Exhibits and Financial Statement Schedules	143
Item 16.	10-K Summary	147
	Signatures	148

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PART I

Special Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K, including the sections entitled “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements, other than statements of historical facts contained herein, regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these identifying words. These forward-looking statements include, but are not limited to, statements about:

• the implementation of our business strategies, including our ability to pursue development pathways and regulatory strategies for MT-3724 and other engineered toxin body (“ETB”) biologic candidates;

• our ability to resolve the partial clinical hold placed on our clinical studies of MT-3724 and to potentially resume enrollment in our MT-3724 clinical studies;

• our utilization of a next-generation ETB scaffold that has been designed to reduce or eliminate the propensity for innate immunity, including capillary leak syndrome (“CLS”);

• the timing and our ability to advance the development of our drug or biologic candidates;

• our plans to pursue discussions with regulatory authorities, and the anticipated timing, scope and outcome of related regulatory actions or guidance;

• our ability to establish and maintain potential new partnering or collaboration arrangements for the development and commercialization of ETB biologic candidates;

• our ability to obtain the benefits we anticipate from partnering or collaboration agreements that we may enter into;

• our financial condition, including our ability to obtain the funding necessary to advance the development of our drug or biologic candidates;

• the anticipated progress of our drug or biologic candidate development programs, including whether our ongoing and potential future clinical trials will achieve clinically relevant results;

• our ability to generate data and conduct analyses to support the regulatory approval of our drug or biologic candidates;

• our ability to establish and maintain intellectual property rights for our drug or biologic candidates;

• whether any drug or biologic candidates that we are able to commercialize are safer or more effective than other marketed products, treatments or therapies;

• our ability to discover and develop additional drug or biologic candidates suitable for clinical testing;

• our ability to identify, in-license or otherwise acquire additional drug or biologic candidates and development programs;

• our anticipated research and development activities and projected expenditures;

• our ability to complete preclinical and clinical testing successfully for new drug or biologic candidates that we may develop or license;

• our ability to have manufactured active pharmaceutical ingredient, or API, and drug or biologic product that meet required release and stability specifications;

• our ability to have manufactured sufficient supplies of drug product for clinical testing and commercialization;

• our ability to obtain licenses to any necessary third-party intellectual property;

• our anticipated use of proceeds from any financing activities;

• our ability to retain and hire necessary employees and appropriately staff our development programs;

• the extent to which COVID-19 will continue to impact our business operations or financial condition;

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• our projected financial performance; and

• the sufficiency of our cash resources; and other risks and uncertainties, including those listed under Part I, Item 1A, “Risk Factors”.

Any forward-looking statements in this Annual Report on Form 10-K reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other 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 these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A, “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

This Annual Report on Form 10-K also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

As used in this Annual Report on Form 10-K, unless otherwise stated or the context otherwise indicates, references to “Molecular,” the “Company,” “we,” “our,” “us” or similar terms refer to Molecular Templates, Inc., and our wholly owned subsidiaries.

ITEM 1.BUSINESS

Molecular Templates, Inc., or Molecular, is a clinical-stage biopharmaceutical company focused on the discovery and development of differentiated, targeted, biologic therapeutics for cancer and other serious diseases. Molecular utilizes its proprietary biologic drug platform to design and generate engineered toxin bodies, or ETBs, which Molecular believes provide a differentiated mechanism of action that may be beneficial in patients resistant to currently available cancer therapeutics. ETBs use a genetically engineered version of the Shiga-like Toxin A subunit, or SLTA, a ribosome inactivating bacterial protein. In its wild-type form, SLT is thought to induce its own entry into a cell when proximal to the cell surface membrane, self-route to the cytosol, and enzymatically and irreversibly shut down protein synthesis via ribosome inactivation. SLTA is normally coupled to its cognate Shiga-like Toxin B subunit, or SLTB, to target the CD77 cell surface marker, a non-internalizing glycosphingolipid. In Molecular’s scaffold, a genetically engineered SLTA subunit with no cognate SLTB component is genetically fused to antibody domains or fragments specific to a cancer target, resulting in a biologic therapeutic that can identify the particular target and specifically kill the cancer cell. The antibody domains may be substituted with other antibody domains having different specificities to allow for the rapid development of new drugs to selected targets in cancer and other serious diseases.

ETBs combine the specificity of an antibody with SLTA’s potent mechanism of cell destruction. Based on the disease setting, Molecular has created ETBs that have reduced immunogenicity and are capable of delivering additional payloads into a target cell. Immunogenicity is the ability of a foreign substance to provoke an immune response in a host. ETBs have relatively predictable pharmacokinetic, or PK, and absorption, distribution, metabolism and excretion, or ADME, profiles and can be rapidly screened for desired activity in robust cell-based and animal-model assays. Because SLTA can induce internalization against non- and poorly-internalizing receptors, the universe of targets for ETBs should be substantially larger than that seen with antibody-drug conjugates, or ADCs, which are not likely to be effective if the target does not readily internalize the ADC payload.

ETBs have a differentiated mechanism of cell kill in cancer therapeutics (the inhibition of protein synthesis via ribosome destruction), and Molecular has preclinical and clinical data demonstrating the utility of these molecules in chemotherapy-refractory cancers. ETBs have shown good tolerability in multiple animal models as well as a generally favorable tolerability profile in Molecular’s clinical studies to date. Molecular believes the target specificity of ETBs, their ability to self-internalize, their potent and differentiated mechanism of cell kill and their tolerability profile provide opportunities for the clinical development of these agents to address multiple cancer types.

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Molecular’s initial approach to drug development in oncology involves the selection of lead compounds to validated targets in cancer. Molecular is developing ETBs for various targets, including CD20, CD38, HER2, and PD-L1. CD20 is central to B cell malignancies and is clinically validated as a target for the treatment of lymphomas and autoimmune disease. CD38 has been validated as a meaningful clinical target in the treatment of multiple myeloma. PD-L1 is central to immune checkpoint pathways and is a target expressed in a variety of solid tumor cancers. Molecular’s lead compound, MT-3724, is an ETB that recognizes CD20, a B cell marker and is currently in two Phase II studies: a monotherapy study and a combination study with lenalidomide. The combination study with lenalidomide has demonstrated preliminary evidence of tolerability and efficacy with lenalidomide at standard doses and MT-3724 at 10 μg/kg. The U.S. Food and Drug Administration, or FDA, placed Molecular’s MT-3724 studies on partial clinical hold in November 2020. MT-5111 (ETB targeting HER2) and TAK-169 (ETB targeting CD38) are both in ongoing Phase I studies. Molecular provided an update on the MT-5111 Phase I study in December 2020 and expects to announce interim clinical results from the dose escalation portion of the Phase I study in the second quarter of 2021 and additional data from both the dose escalation portion of the study and the HER2-positive breast cancer expansion cohort in the fourth quarter of 2021. Molecular filed an IND for MT-6402 (ETB targeting PD-L1) in December 2020 and the IND was accepted in January 2021. Molecular expects to initiate a Phase I study of MT-6402 in the first half of 2021. Molecular also expects to file an IND for CTLA-4 (ETB targeting CTLA-4) in 2021.

Molecular has built up multiple core competencies around the creation and development of ETBs. Molecular developed the ETB technology in-house and continues to make iterative improvements in the scaffold and to identify new uses of the technology. Molecular also developed the proprietary process for manufacturing ETBs under Current Good Manufacturing Practice, or cGMP, regulatory standards and continues to make improvements to its manufacturing processes. Molecular has conducted multiple cGMP manufacturing runs with its lead compound and believes this process is robust and could support commercial production with gross margins that are similar to those seen with antibodies.

Challenges in Oncology

Existing mechanisms of action, the specific biochemical interaction through which a drug substance produces its pharmacological effect, are subject to numerous limitations in oncology. The clinical benefit of a given drug is a function of the biological properties of the drug, the target with which the drug interacts and the tumor indication being treated, but the relative contribution of each of these factors is difficult to separate. To date, significant challenges exist in identifying the most appropriate cancer targets, applying the most effective mechanisms of action and selecting the appropriate disease indications and most responsive patient populations for a particular drug or biologic. These challenges include the following:

• Availability of viable targets. The limited number of cancer targets addressable with currently available mechanisms of action; for example, targets appropriate for ADC approaches are relegated to those extracellular targets that already readily and efficiently self-internalize;

• Drug resistance. ADC approaches generally use chemotherapy payloads which damage DNA, or disrupt or prevent microtubule assembly, and can be subject to the same mechanisms of resistance as in general chemotherapy;

• Limits of monotherapy. Established single-agent therapies are only effective in a minority of cancer patients;

• Target identification and prioritization. Current approaches to target prioritization are not comprehensively systematic and do not leverage a complete understanding of a drug’s effect on a given tumor type to best identify high value targets in certain patient populations;

• Clinical predictability of preclinical data. In vitro epitope selection on a given target may not be predictive of clinical optimization; and

• Biomarker use and utility. Predictive biomarkers, the value and use of which are relatively new, are not uniformly used to proactively select responsive patient populations and/or preferred indications, which can drive longer development timelines with higher associated costs.

Molecular’s Differentiated Approach

Molecular was founded on the principle that differentiated mechanisms of action are crucial for improving outcomes in oncology. Molecular has created a new ETB scaffold with a differentiated mechanism of action, coupled with a predictable PK and ADME profile. Molecular’s ETB scaffold permits rapid screening for lead identification and easily scalable production, which Molecular believes offers an opportunity to provide meaningful clinical benefits in oncology with more cost-efficient research and development than current treatments. Molecular believes the differentiated biological activity inherent to the ETB scaffold, particularly the ability to induce internalization and employ a differentiated mechanism of cell kill, may allow for differentiated clinical benefit in patients as monotherapy and in combination with standard of care therapies.

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Molecular likens the extensive de-immunization work it has conducted on SLTA to the chimerization of monoclonal antibodies. Monoclonal antibody chimerization is a process for reducing immunogenicity when an antibody from one species is introduced into a different species. Chimerization has allowed for the wide-spread use of antibodies as human therapeutics across multiple disease settings. Molecular believes that the de-immunization of SLTA may allow for ETB use across multiple indications in oncology, including solid tumors, as well as other potential non-oncology indications.

Molecular has seen in both preclinical models and in its Phase I trials to date that the differentiated mechanism of action employed by its ETBs can be effective in chemo-resistant tumor cells. Molecular believes this creates the potential for a rapid characterization of efficacy in carefully designed clinical trials in relapsed and refractory settings, particularly when targeting tumor markers that persist after treatment with multiple lines of therapy and whose targeting has been shown to provide a survival benefit. Molecular also has seen preclinically that its ETBs can have additive or synergistic activity in combination with a number of small molecule agents including chemotherapeutics, immunomodulatory agents and tyrosine kinase inhibitors. Molecular believes that the ability of ETBs to be additive or synergistic to a variety of current treatments may allow for combination therapy in earlier lines of disease.

Molecular believes it can develop ETBs against well-validated targets and new targets, enabling a phenotypically based clinical trial design that may result in shorter development timelines with lower associated costs. More specifically:

• Molecular’s research and design platform allows it to select lead ETBs from a comprehensive screen. Molecular’s ETB platform utilizes a suite of integrated technologies to screen ETB libraries for lead identification. Molecular performs initial preclinical screens on ETBs with lead selection around potency, affinity and expression. Critical components of Molecular’s approach include:

o the proprietary optimization of the genetic fusion between the immunoglobulin-targeting domain and Molecular’s proprietary SLTA scaffold;

o the proprietary de-immunizing modifications made to the SLTA scaffold, which reduce both adaptive and innate immune responses to ETBs;

o comprehensive screening for potency, affinity and specificity against target expressing versus non-expressing cells; and

o early evaluation of protein expression and stability of potential lead ETB candidates.

• Molecular’s ability to create lead ETBs to well-validated targets reduces the risk of target-mediated side effects and increases the likelihood of obtaining meaningful clinical benefit. Molecular has deployed its technology against targets in oncology that are central to disease progression and that are known to persist after a given modality has failed. Molecular believes these targets reduce the risk of clinical failure from either unacceptable target-mediated adverse events or from a failure to impact disease outcome because of loss of the target. For example, Molecular’s lead compound, MT-3724, targets the B-cell surface marker CD20. CD20 appears central to B-cell malignancies, and the FDA has approved multiple antibody therapies targeting CD20. Destruction of CD20-expressing cells has been generally safe and has not been found to cause significant damage to the patient, known as severe toxicity. CD20 cell surface expression persists in the majority of patients who have progressed after treatment with a CD20 monoclonal antibody. Molecular chose targeting of CD20 for Molecular’s lead ETB program because of its known lack of internalization upon antibody binding, centrality to disease progression, lack of associated toxicities and persistence after treatment failure. Molecular used a similar rationale in the selection of Molecular’s current pipeline, including ETBs targeting CD38, HER2, and PD-L1, which are targets central to disease outcome that persist after a given modality has failed.

• Molecular’s ETB platform allows Molecular to identify ETBs to target and select patients in the Phase I clinical trials that phenotypically match that ETB program. Molecular can screen a library of single chain variable fragments, or scFvs, expressed in Molecular’s ETB scaffold to a given target. The pharmacokinetic and ADME profile of these compounds are similar and relatively predictive in humans based on animal models. Once the lead is selected and Investigational New Drug Application, or IND-enabling studies are completed, Molecular can enrich a Phase I clinical trial with only patients expressing the target of the ETB. In these Phase I clinical trials, Molecular can get a faster read on the candidate’s safety as well as efficacy than is possible in many drug development programs. Molecular’s Phase I trial in non-Hodgkin’s lymphoma with MT-3724 established the PK, ADME, dose-limiting toxicities, or DLTs, maximum tolerated dose, or MTD, and recommended Phase II dose and monotherapy efficacy after just 21 patients were treated.

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Molecular’s Strategy

Molecular’s goal is to bring the right ETBs to the right patients to provide long-lasting benefits that ultimately improve patients’ lives. To achieve its goal, Molecular is:

• Implementing development strategies that capitalize on the differentiated pharmacological features of Molecular’s ETB technology and the validated nature of the targets it has chosen. Molecular believes the target specificity of its ETBs, their ability to self-internalize, their potent and differentiated mechanism of cell kill and their safety profiles will provide opportunities for the clinical development of these agents to address multiple cancer types. For example, Molecular is developing its lead product MT-3724 as a single agent therapy for relapsed and refractory diffuse large B-cell lymphoma, or DLBCL, patients and in combination with approved therapies in earlier stages of high-risk DLBCL. The targeting of CD20 with antibody therapeutics is known to confer clinical benefit in these settings. MT-3724’s differentiated mechanism of action, safety and pharmacological profiles targeting CD20 may provide an advantage over other modalities. Given the unique mechanism of direct cell kill, via ribosome inactivation, Molecular believes there is the potential for combination or sequential drug strategies that may be unique to its ETB drug candidates. Further, based on the safety data seen to date with ETBs, Molecular believes the different PK and ADME profiles of its ETBs may allow them to be more appropriate therapies for certain patient populations, particularly those who are unable to tolerate intensive chemotherapy as primary or conditioning therapy. For example, in the Phase I clinical trial for MT-3724, the median age was 65 and the median number of prior therapies was four. Molecular believes all of these attributes will enable Molecular to pursue development strategies not feasible with other therapeutic approaches.

• Efficiently building a broad pipeline of ETB therapeutics targeting defined patient populations through the use of Molecular’s research and design platform. Molecular believes its research and design platform is an efficient and productive discovery and development engine that can identify new targets across multiple cell types with the aim of creating a portfolio of novel, cell targeting ETBs. By selecting tumor targets best suited to ETB biology, Molecular can prioritize indications, including potential niche indications and/or niche subsets of indications. Molecular believes this will enable the identification of patients who may be more likely to respond to its therapies, allowing Molecular to potentially shorten development timelines and lower associated costs.

• Maximizing the value of Molecular’s early pipeline through the continual improvement of Molecular’s technology. Since its founding, Molecular has made substantial progress in improving its ETB technology. Molecular has created a proprietary SLTA that has been heavily modified to dramatically reduce innate and adaptive immunogenicity and is utilized in Molecular’s second and third generation ETBs. In addition, new approaches have been developed for the genetic fusion of the SLTA and antibody domain that enhances the potency of Molecular’s ETBs. Molecular has also developed ETBs that have the ability to deliver foreign class I antigens into target cells for expression in complex with MHC class I molecules on the target cell’s surface. Molecular has shown preclinically that certain foreign antigens can be functionally recognized by endogenous human T-cells thereby enabling a potentially new and differentiated approach to immuno-oncology.

• Building a fully integrated discovery-to-commercial biopharmaceutical company focused on compounds with unique and differentiated biology. Molecular believes that differentiated mechanisms of action are crucial for improving outcomes in cancer and other serious diseases. Molecular has created a robust translational platform that Molecular believes allows it to create a sustainable, novel pipeline of ETBs with differentiated mechanisms of tumor destruction, relatively predictable PK and ADME, and scalable and economical manufacturing. If MT-3724, MT-5111, or any future drug candidates Molecular may develop are approved, Molecular will consider commercializing them itself in select markets.

Molecular’s Engineered Toxin Body (ETB) Platform Technology

Although chemotherapy remains the cornerstone of treatment for most cancers, the advent of new and targeted classes of therapies has dramatically changed outcomes in the treatment of disease. The advent of monoclonal antibodies, signal transduction inhibitors and, most recently, immune-oncologics have provided substantial clinical benefit in both the relapsed and refractory setting and, when used in combinations, in earlier lines of therapy. Molecular believes that ETBs represent a new class of targeted agents with differentiated biology that are well-positioned to improve outcomes in cancer patients.

ETBs appear to induce the internalization of non- or poorly-internalizing targets, have a differentiated mechanism of action (enzymatic and irreversible ribosome inactivation), have relatively predictable PK and ADME profiles and can be readily manufactured to cGMP standards. From a library of antibody targeting domains, Molecular’s research and design platform allows for the comprehensive in vitro selection of a lead ETB to a given target based on affinity and specificity, potency and expression. Lead selection is confirmed through the use of animal models to verify PK, ADME and potency. ETBs possess potent direct cell killing effects via a differentiated mechanism of action, can force receptor internalization, and can be used to deliver payloads such as foreign class I antigen to the cytosol. MT-3724, Molecular’s lead ETB candidate, is being developed for treating B-cell malignancies and utilizes the wild-type SLTA. Because of the immune-compromised nature of patients with B-cell malignances, Molecular did not believe de-immunization of SLTA was critical in these patients; this hypothesis has been supported by clinical data in DLBCL patients.

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In subsequent ETBs, Molecular utilizes a highly potent and proprietarily de-immunized SLTA scaffold that elicits significantly reduced innate and adaptive immunogenic responses as demonstrated in preclinical and animal studies (presented at the 2017 American Association for Cancer Research, or AACR, Annual Meeting). For indications where tumors have been demonstrated to be sensitive to T-cell engagement, Molecular has developed ETBs that deliver foreign class I viral antigens for presentation on the surface of the tumor: Molecular’s Antigen Seeding Technology (AST), a differentiated approach to immune-oncology. Molecular has integrated its AST into the PD-L1 targeting ETB, MT-6402, and continues to build out animal models to further validate and screen additional ETB candidates to support this approach.

Molecular believes that its proprietary ETB technology platform represents a differentiated approach in oncology. ETBs possess the targeting specificity of antibody-based therapeutic approaches but deliver highly potent payloads that disrupt protein synthesis, a fundamental function of a cancer cell, in a manner not subject to traditional chemotherapy resistance mechanisms or target internalization limitations, as with ADCs. Molecular is also seeking to expand the universe of potential targets subject to pharmaceutical treatments by exploiting the ETB’s ability to force internalization against receptors that do not normally internalize. MT-3724 highlights this capability and approach. MT-3724 targets CD20, which is a canonical non-internalizing receptor that is not susceptible to traditional chemo-based ADC approaches.

Novel mechanisms of action are needed in oncology treatment, and Molecular believes that its ETB platform technology’s differentiated mechanisms of action may offer unique benefits over existing treatment modalities.

ETB Product Pipeline

Molecular is developing a pipeline of ETBs that Molecular believes will have the ability to provide a meaningful and long-lasting benefit to cancer patients. Molecular plans to develop each of these as single agents and/or in combination with other therapies, as applicable. The following table depicts Molecular’s current pipeline:

MT-3724—ETB Targeting CD20

Overview

CD20 is expressed on 90% of B-cell non-Hodgkin’s lymphoma, or NHL, cells and is a non-internalizing receptor. Rituxan (rituximab), an antibody to CD20, is approved for treatment of NHL in both the front and second-line settings. Rituxan has limited direct cell kill effects against CD20-expressing cells. Instead, it works through indirect methods of recruiting immune responses to CD20-expressing cells through antibody dependent cell-mediated cytotoxicity, or ADCC, and/or complement dependent cytotoxicity, or CDC. Rituxan’s indirect cell kill mechanism’s reliance on a favorable tumor microenvironment for immune stimulation is problematic because it allows opportunities for resistance to emerge. Therefore, direct cell kill, approaches that target CD20-expressing lymphomas are attractive. Two such agents are currently approved: the radioisotope-conjugated antibodies Bexxar, developed by GlaxoSmithKline, and Zevalin, developed by IDEC Pharmaceuticals (now part of Biogen), both of which use ionizing radiation to induce direct cell kill without internalization being necessary. These radioisotope conjugated antibodies are more effective than naked anti-CD20 antibody approaches such as Rituxan and HuMax-CD20 in the relapsed or refractory indolent NHL setting because they are far less dependent on

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the physiology of the tumor. However, despite their favorable efficacy profile, Bexxar and Zevalin are considered commercial disappointments and have not been widely adopted by oncologists primarily due to the constraints associated with the administration of nuclear medicines. Radioimmunotherapies are difficult to administer, with few institutions licensed for nuclear medicine. Because of these factors, the combined use of Bexxar and Zevalin accounted for only a minimal share of all administered second-line therapies for indolent NHL patients worldwide (seven major markets) despite superior clinical data in this setting. Bexxar was subsequently taken off the market in 2013. Molecular believes this provides a significant opportunity for a CD20-targeting therapy, such as MT-3724, that directly kills cells without the use of radioisotopes, and utilizes a mechanism of action of cell kill that is not subject to cross-resistance with chemotherapy or antibody approaches.

MT-3724 is an ETB specific to the B-cell marker CD20 protein. Molecular developed MT-3724 to provide a non-radioactive means of direct cell kill targeted to CD20 for the treatment of NHL. The differentiated mechanism of action of MT-3724 involves binding to the surface protein CD20, forcing internalization into the target cell, retrograde transport to the cytosol and subsequent enzymatic and permanent ribosome-inactivation. Following the completion of the Phase I dose escalation trial in 2017, Molecular conducted a Phase Ib expansion trial of MT-3724 in patients with relapsed/refractory DLBCL. In 2019, Molecular initiated a Phase II monotherapy study as well as two Phase II combination studies of MT-3724 in earlier lines of DLBCL; one in combination with chemotherapy (gemcitabine/oxaliplatin, or GemOx) and one in combination with lenalidomide. Since November 4, 2020, Molecular’s MT-3724 clinical studies have been on partial clinical hold by the FDA.

Clinical Overview

MT-3724 is being developed for the treatment of patients with relapsed or refractory NHL who have failed one or more chemotherapeutics and anti-CD20 antibody therapies and for whom all other approved therapies (biologic, chemotherapeutic or stem cell transplantation) are not an option. The primary objectives of the multicenter Phase I clinical trial of MT-3724 was to assess the tolerability of MT-3724 and to establish the maximum tolerated dose, or MTD of the drug. The secondary objectives of the Phase I clinical trial were to assess the pharmacokinetic profile of MT-3724 after intravenous dosing as well as to assess any biological and clinical activity. This Phase I clinical trial was not designed to show statistical significance of the study endpoints.

Molecular initially filed an IND application with the FDA, on July 31, 2014, and Molecular received the notification from the FDA that it could proceed with the Phase I trial on August 29, 2014 with the first patient dosed in March of 2015. The Phase I trial was a multi-center, open-label, multiple-dose Phase I, dose-escalation study of MT-3724 in subjects with relapsed, refractory B-cell NHL or chronic lymphocytic leukemia, or CLL. A total of 21 patients were treated with MT-3724 with doses ranging from 5 to 100 mcg/kg. Patients were dosed 3 times per week over two weeks (6 doses) followed by a two-week hiatus for the first cycle, as mandated by the FDA. Subsequent cycles were dosed over two weeks with a one-week hiatus. Originally, up to five cycles of treatment were allowed per protocol. This was subsequently amended to allow for extended dosing beyond five cycles.

Twenty-one patients were treated with escalating doses of MT-3724 starting at the 5 mcg/kg dose level. Nearly all patients experienced at least one adverse event, with peripheral edema, diarrhea, myalgia, cough, fatigue, constipation, nausea, anemia, stomatitis, pyrexia, dizziness, headache, insomnia, dyspnea, being the more commonly reported adverse events. During the Phase I study, there were no treatment-related deaths.

The first two patients treated in the 100 mcg/kg/dose cohort developed signs and symptoms of a systemic inflammatory response (a constellation of adverse events including a grade 2 decrease in serum albumin levels, which together were consistent with capillary leak syndrome) in the first cycle of treatment. Upon thorough evaluation of each case, the Data Monitoring Committee, or DMC, deemed the capillary leak syndrome the DLT and determined that the 100 mcg/kg/dose had exceeded the MTD and the cohort was closed to further enrollment. The symptoms related to the DLT were non-life threatening and resolved upon cessation of dosing MT-3724. Six patients were dosed at a reduced dose level of 75 mcg/kg cohort with no DLTs reported. Upon identifying 75 mcg/kg as the maximum tolerated dose, or MTD, the recommended Phase Ib/II dose was designated to be 75 mcg/kg.

In the Phase I study, 31 serious adverse events, or SAEs were reported. Most these events were attributed to exacerbation of a pre-existing condition or disease progression. Both subjects in the 100 mcg/kg/dose cohort were withdrawn in cycle 1 for SAEs which the investigator and DMC assessed as DLTs and determined that the MTD had been exceeded.

Molecular has observed promising signals of single-agent activity with MT-3724. Patients in the Phase I trial were of older age (median age = 65) and heavily pre-treated, with a median of four prior therapies. Those patients with ≤ four prior therapies (n=5) were generally chemo-intolerant patients who could not sustain multiple lines of chemo-based regiments. The majority of patients were of the DLBCL subtype (n=15). Of the 14 evaluable DLBCL patients who received MT-3724, eight patients entered the trial with low levels of serum anti-CD20 antibody while six patients had high levels of anti-CD20 antibody. As reported in Molecular’s presentation to the 2016 American Society of Hematology Annual Meeting, or the 2016

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ASH Meeting, patients with high anti-CD20 antibody did not respond to MT-3724, presumably due to target inaccessibility. In the eight DLBCL patients with low anti-CD20 antibody, the observed objective response rate, or ORR, was 25% (2/8) including a partial response, or PR, and a complete metabolic response, or CMR. Molecular observed clinical responses starting at the lowest dose level of 5 mcg/kg as shown in Figure 4. The patient who achieved a CMR was eligible for and received an allogeneic stem cell transplant, or SCT. Three patients had stable disease, or SD, with tumor reductions of 19% (10 mcg/kg), 48% (75 mcg/kg), and 49% (100 mcg/kg), respectively. The patient at 100 mcg/kg with 49% tumor reduction had received only a single dose of MT-3724 at the time of measurement. The remaining three patients had progressive disease, or PD. Notably, three of the eight DLBCL patients received fewer than two cycles of MT-3724 due to early withdrawal from the study (including the two patients at the DLT dose of 100 mcg/kg). Significant ADAs were not observed among DLBCL patients and did not appear to neutralize the efficacy of MT-3724 in patients.

Figure 4. PET images for DLBCL patient in the 5 mcg/kg dose cohort

Based on the clinical effect observed among DLBCL patients, Molecular opened a Phase Ib expansion study to further explore the potential of MT-3724 in DLBCL. The final results from Phase I/Ib study were presented at the American Society of Hematology (ASH) 2019 Annual Meeting, in December 2019. Observations included the following:    

• Of the 13 serum rituximab negative (RTX-neg) diffuse large B cell lymphoma, or DLBCL or mixed DLBCL/FL subjects, 5 responded (38% objective response rate) across the range of 5 to 100 μg/kg doses.

• Of the 5 responses, 2 were complete responses (CRs) and 3 were partial responses (PRs) of which one was a complete metabolic response (CMR). Three subjects had stable disease (including 2 subjects with 49% and 47% tumor reductions) and 5 subjects had progressive disease.

• Of the 5 serum RTX-neg subjects with DLBCL who received MT-3724 at 50 μg/kg, the maximum tolerated dose (MTD), 3 responded (2 CRs, 1 PR).

In 2019, Molecular initiated a Phase II monotherapy DLBCL study. Furthermore, Molecular is developing MT-3724 in earlier lines of therapy in combination with chemotherapy and non-chemotherapy based regiments. In 2019, Molecular also initiated a Phase II combination study with MT-3724 and chemotherapy (gemcitabine and oxaliplatin, or GemOx) in an earlier line of treatment for DLBCL and a second Phase II combination study with MT-3724 and Revlimid® (lenalidomide), also in an earlier line of DLBCL treatment. Interim results were presented at the virtual 25th Congress of the European Hematology Association (EHA) in June 2020. These data demonstrated preliminary evidence of tolerability and efficacy with lenalidomide at standard doses and MT-3724. Among 7 evaluable subjects, 2 were CRs and 3 were PRs. While there were no permanent discontinuations due to adverse events, grade 2 capillary leak syndrome (CLS) occurred at 25 mcg/kg, leading to the opening of a new cohort at 20 mcg/kg. The study had a revised schedule of therapy with MT-3724 being dosed twice rather than three times weekly for the first two cycles and then on a weekly schedule thereafter. The combination study with GemOx has demonstrated preliminary evidence of efficacy but grade 2 innate immune adverse effects were seen with standard doses of gemcitabine and oxaliplatin and 10 μg/kg doses of MT-3724. The study protocol has been amended to include a revised schedule where MT-3724 dosing is initially sequenced with GemOx dosing. 

On November 4, 2020, the FDA, notified Molecular that MT-3724 clinical studies were placed on partial clinical hold following a fatality in one subject in the Phase II monotherapy study due to treatment-related CLS on October 20, 2020. The fatality occurred in a DLBCL subject who had been treated with six prior lines of therapy including rapid progression through three lines of therapy in the six months prior to MT-3724 dosing (including most recently a first generation anti-CD19 CAR T-cell). The subject had transformed DLBCL from Waldenstrom’s Macroglobulinemia and came onto the MT-3724 study with a CD4/CD8 T-cell ratio of 0.47. The subject did not have a radiographic assessment of response but an

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elevated LDH was thought by the principal investigator to represent disease progression. The subject initially had Grade 2 CLS following treatment with MT-3724, recovered after a dosing interruption, resumed dosing and then had CLS that was ultimately fatal. While Grade 1 and 2 CLS is an expected potential adverse reaction of MT-3724, this was the only subject in any MT-3724 study to date with CLS that was more severe than Grade 2. At such time, subjects already enrolled in MT-3724 clinical studies who were receiving clinical benefit were permitted to continue dosing, but no new patients have been, or will be, enrolled in any MT-3724 study pending resolution of this matter.

As part of Molecular’s overall investigation into the partial clinical hold on MT-3724, Molecular investigated MT-3724 product quality attributes.  Based on Molecular’s findings, Molecular submitted a partial clinical hold response to the FDA in February 2021 in which it proposed to implement new drug product manufacturing and release criteria. Molecular also has determined that the MT-3724 product that has been manufactured to date for use in the MT-3724 studies Molecular plans to continue will not be consistent with the new criteria once they are implemented.

Based upon Molecular’s findings to date and after a thorough risk/benefit assessment, Molecular decided to discontinue dosing of subjects remaining on the Phase II combination study with MT-3724 and Revlimid® (lenalidomide). Additionally, following the decision to temporarily discontinue dosing for the remaining subject on the Phase II combination study with MT-3724 and chemotherapy (gemcitabine and oxaliplatin, or GemOx), the subject decided in collaboration with their physician to discontinue treatment. Although there have been no signs of CLS toxicity worse than grade 2 in either of these MT-3724 studies, Molecular’s decision to discontinue dosing in these studies was taken out of an abundance of caution with the study subjects’ health and safety in mind.  Further, after a review of the current competitive landscape and following the last subject discontinuing treatment, Molecular decided to discontinue its Phase II combination study with MT-3724 and GemOx. Molecular made this decision based upon its belief in the potential for more promising future combinations with its product candidates.  Accordingly, there are currently no subjects being treated under any MT-3724 protocol.

In connection with Molecular’s other MT-3724 studies, Molecular continues to work to address the partial clinical hold and MT-3724 product lot information requests from the FDA and will then seek agreement from the FDA to remove the partial clinical hold. Molecular submitted its partial clinical hold response to the FDA in February 2021. There can be no assurance with respect to Molecular’s ability to remove the partial clinical hold, or the timing thereof. As Molecular undertakes these efforts, it is also actively evaluating whether to resume development of MT-3724 or discontinue the MT-3724 program. This decision will be made in the context of opportunities to advance the development of a next-generation CD20-targeted ETB or other program in addition to funding the development of our clinical stage next-generation ETB programs, including MT-5111, TAK-169, and MT-6402. Molecular’s trials and plans for its other ETB product candidates, including MT-5111, TAK-169, and MT-6402, which utilize next-generation ETB technology, are not affected by the partial clinical hold imposed by FDA on MT-3724. Next-generation ETB scaffolds have been designed to reduce or eliminate the propensity for innate immunity, including CLS. To date, Molecular has not observed any cases of CLS (any grade) in human subjects who have been dosed with MT-5111. Molecular cannot comment on clinical data from the TAK-169 Phase I study due to confidentiality obligations. Molecular does not yet have clinical data with MT-6402 as the Phase I study of MT-6402 is expected to be initiated in the first half of 2021.  

MT-5111—ETB Targeting HER2

Overview

Molecular has launched additional programs against the key target HER2, which was selected because of its validated role in breast cancer. Targeting HER2 with different modalities (antibody, small molecule and ADC) has shown clinical benefit, and the target is known to persist after a given modality has failed. The clinical results seen with Kadcyla (an ADC to HER2) strongly suggests that a direct cell kill approach to HER2 can provide significant benefit and be well tolerated in patients. Molecular believes that attacking HER2-expressing tumor cells with a differentiated mechanism of destruction may provide meaningful clinical benefits, even in patients whose disease has progressed on other HER2-targeted modalities. Molecular’s lead HER2 ETB, MT-5111, has shown potent picomolar activity in Kadcyla insensitive HER2+ cell lines and has shown additive or synergistic benefit with Kadcyla in vitro in HER2+ cell lines.

Molecular filed an IND for MT-5111, its ETB targeting HER2, in March 2019 and the IND was accepted in April 2019. Molecular began dosing study subjects in a Phase I study of MT-5111 for the treatment of HER2-positive cancers in the fourth quarter of 2019. The ongoing Phase I study has two parts: Part 1 is dose escalation and Part 2 is dose expansion, which will begin when a maximum tolerated dose (MTD) or Recommended Phase II Dose (RP2D) is established in Part 1. Molecular provided an update on this study in December 2020. All of the following information on the Phase I study for MT-5111 was as of that update. 16 subjects, with a median of 4 prior lines of therapy and a median of 2 prior HER2-targeting regimens, have been treated with MT-5111; subjects with breast cancer received a median of 6 prior lines of therapy, 4 of which contained HER2-targeting agents (metastatic breast cancer n=6, metastatic biliary tract carcinoma n=6, metastatic

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pancreatic cancer n=2, and one each of metastatic colon adenocarcinoma and metastatic gastroesophageal junction adenocarcinoma). Five cohorts (0.5, 1.0, 2.0, 3.0, and 4.5 μg/kg/week) have been successfully completed and the sixth cohort (6.75 μg/kg) has been initiated. Pharmacokinetic (PK) data confirm the predicted human PK based on non-human primate studies. PK modeling has suggested that doses equal to or greater than 5.0 μg/kg are likely needed for efficacy. Thus far, no dose limiting toxicities (DLTs) have been observed in any cohort and MT-5111 appears to be well tolerated, with no cardiotoxicity observed to date (cardiotoxicity is a known potential toxicity for HER2 targeted therapies). To date, Molecular has observed no cases of CLS (any grade) in human subjects who have been dosed with MT-5111.

As of Molecular’s December 2020 update, no cardiac AEs or abnormalities in cardiac biomarkers have been noted thus far. The most commonly reported AEs that may be causally related among the 4 dosing cohorts to date and for which source-verified data were available include the following: fatigue (n=3), AST increased (n=2) at 0.5 μg/kg and 1 μg/kg, and chills (n=2). These most commonly reported AEs were all of grade 1 or 2 severity. No cases of capillary leak syndrome (any grade) were observed. One subject with metastatic breast cancer in cohort 2 (1 µg/kg) remained on treatment for 10 cycles with stable disease; although she had unmeasurable disease by RECIST criteria, she had three sub-centimeter hepatic lesions that disappeared at the end of cycle 8 before she discontinued at cycle 10.  This subject had received three prior HER-2 targeting regimens which initially included pertuzumab plus trastuzumab followed by trastuzumab and T‑DM1 as monotherapies. To date, 17 subjects have discontinued for disease progression and one subject is too early to evaluate. Cohort 6 (6.75 μg/kg/dose) is open for enrollment with cohort 7 (10 μg/kg) expected to open in the first half of 2021. The HER2- positive breast cancer expansion cohort is planned to begin in the first half of 2021 at a dose of 10 μg/kg (anticipated to be a therapeutic dose level), pending adequate safety data. Dose escalation will continue to determine the recommended Phase II dose while the breast cancer expansion cohort collects efficacy and safety data.

Molecular is encouraged by the safety profile to date in these heavily pretreated subjects and believes the study has reached clinically active dose levels. Molecular expects to present interim clinical results from the dose escalation portion of the Phase I study as of December 2020 in the second quarter of 2021. MTEM expects to provide an update on additional data from both the dose escalation portion of the study and the HER2-positive breast cancer expansion cohort in the fourth quarter of 2021.

TAK-169—ETB Targeting CD38

Overview

CD38 is a single-chain type II transmembrane glycoprotein that is expressed by a variety of hematologic cells in an activation- and differentiation-dependent manner. Its cellular functions are involved in the regulation of cell proliferation and survival. CD38 is expressed at high rates on patient myeloma samples, making it an important marker and potential target in the development of targeted biologics.

Daratumumab (trade name Darzalex^®) received FDA approval for the treatment of multiple myeloma in 2015. Daratumumab is a monoclonal antibody that binds CD38 on multiple myeloma cells and induces cell death indirectly. Approval was supported by a Phase II pivotal trial in fourth line myeloma patients and subsequent randomized studies in earlier lines of myeloma therapy. A careful analysis of this study’s results reveals that CD38 expression persists after patients have progressed on daratumumab and that the myeloma cells of patients who relapsed after daratumumab treatment showed an increase in cell surface receptors (CD55 and CD59) that inhibit daratumumab’s ability to recruit an immune response to the myeloma cells (Nijhof et al., 2016). Persistence of a surface marker that is central to disease strongly suggests that a different modality targeting that surface marker and that is not cross-resistant to antibody therapy may provide substantial clinical benefit in myeloma.

Despite cell specific expression, an ADC approach to CD38 has not been developed, likely because CD38 does not efficiently internalize, thereby limiting the amount of drug that could be delivered to myeloma cells. Because SLTA can force its own internalization and enzymatically inhibit ribosome function thereby killing the cell, Molecular theorized that the engineering of a potent and specific ETB targeted to CD38 could overcome the lack of internalization seen with CD38.

Molecular was developing MT-4019, an ETB that specifically targets CD38. Upon signing the collaboration agreement with Takeda in September 2018, TAK-169, an ETB that was jointly discovered with Takeda, became the lead CD38 ETB. The compound was evaluated in many of the same preclinical assays as daratumumab. Daratumumab is an anti-cancer drug originally developed by Genmab. The mechanism of action of TAK-169 is wholly different than daratumumab, and Molecular believes that TAK-169 may be active in CD38+ myeloma patients that have failed treatment with an anti-CD38 antibody.

The proposed development plan for TAK-169 is modeled on that of daratumumab. After a robust response rate in its Phase I trial, daratumumab was granted Breakthrough Therapy Designation, and its expanded Phase II trial (N=106) was considered sufficient for registration. If similar efficacy is seen with TAK-169, Molecular believes it may be possible to pursue a similar accelerated approval strategy via a Phase II clinical trial.    

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In 2019, Molecular and its partner Takeda presented preclinical data on TAK-169 at the American Association of Cancer Research (AACR) annual meeting, the IND for TAK-169 was accepted by the FDA in June 2019, and Takeda initiated a Phase 1 study in relapsed/refractory multiple myeloma in the fourth quarter of 2019. In December 2019, the FDA granted Orphan Drug Designation to TAK-169 for the treatment of multiple myeloma. Phase I dosing for TAK-169 began in the first quarter of 2020, was paused in March 2020 due to the COVID-19 pandemic and was re-initiated during the fourth quarter of 2020.

Preclinical Data with TAK-169

TAK-169 Structure

TAK-169 utilizes Molecular’s updated scaffold in which the fusion of the scFv to the SLTA has been optimized and in which the SLTA portion of the ETB has been de-immunized. TAK-169 has high affinity for the CD38 receptor and potent and specific cell kill activity against CD38-expressing cells.

Figure 5. TAK-169 Drug Product

De- immunized SLTA scaffold

The host immune response to bacterial proteins used in the treatment of solid tumors has historically prevented prolonged dosing and limited the utility of immunotoxins as a class of molecules. There has been much greater success with immunotoxins in hematological malignancies, as patients tend to be immunosuppressed due both to the nature of their disease and the drugs used in treatment (Kreitman et al., 2006). Multiple myeloma patients show a decreased immune response to bacterial proteins (Jacobson, et al., 1986), and Molecular has further reduced the likelihood of high levels of neutralizing antibodies by using its proprietary de-immunized SLTA, as shown in Molecular’s MT-4019 presentation at the 2017 AACR Annual Meeting. TAK-169 also utilizes Molecular’s de-immunized SLTA scaffold.

MT-6402 – ETB Targeting PD-L1

Overview

PD-L1 is a focal point for immuno-oncology checkpoint antibodies; its expression on tumors is known to downregulate CD8 T-cell activity against tumor cells. In Molecular’s ETB program targeting the PD-L1 receptor, Molecular has focused on targeting PD-L1 with a direct cell kill approach rather than using it to induce an immune response. In addition, Molecular has integrated its Antigen Seeding Technology to the PD-L1 targeting ETB in order to induce targeted tumors to express CMV antigen in context with MHC-I on the tumor cell surface thereby redirecting an endogenous CMV-specific T-cell response to the tumor.  Molecular believes that targeting PD-L1 expressing tumors via this dual mechanism of ribosome-inactivation and redirected immunity via CMV-specific T-cell response represents a novel mechanism of action against PD-L1 expressing tumors.

MT-6402 is an ETB consisting of a single chain variable fragment (scFv) with affinity for PD-L1, fused to the enzymatically active de-immunized Shiga-like toxin-A subunit (SLTA) and a class I antigen derived from the human cytomegalovirus (HCMV) pp65 protein. MT-6402 was designed to induce potent anti-tumor effects via PD-L1 targeting through multiple mechanisms that may overcome the limitations of the PD-L1 antibodies. In preclinical studies, MT-6402 specifically binds and kills both tumor and immune PD-L1 expressing cells in a manner consistent with SLTA mediated cellular cytotoxicity through ribosomal inactivation, independent of checkpoint inhibition. Additionally, MT-6402 alters the immunophenotype of targeted cells by delivering foreign class I antigen from CMV for presentation in complex with MHC class I, which may provoke a CMV-specific immune response against the targeted cells. Third, MT-6402 may rehabilitate the tumor microenvironment (TME) and allow for immune recognition of tumors by destroying PD-L1-expressing immune cells in the TME through ribosomal inactivation.

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Molecular filed an IND for MT-6402 in December 2020, its ETB targeting PD-L1, and the IND was accepted in January 2021. A Phase I study of MT-6402 in PD-1/PD-L1 antibody relapsed/refractory patients is expected to be initiated in the first half of 2021.

ETB Pipeline

Molecular anticipates filing an IND for its ETB targeting CTLA-4 in 2021. Molecular is also conducting preclinical research on ETBs targeting SLAMF-7 and CD45.  

ETB Research & Development Partnerships

Takeda Pharmaceuticals

Takeda Collaboration and Individual Project Agreements

In October 2016, we entered into a collaboration and option agreement with Millennium Pharmaceuticals, Inc., a wholly owned subsidiary of Takeda Pharmaceutical Company Ltd., or Takeda, to discover and develop CD38-targeting ETBs, which included MT-4019 for evaluation by Takeda (the “Takeda Collaboration Agreement”). Under the terms of the agreement, we were responsible for providing to Takeda (i) new ETBs generated using Takeda’s proprietary fully human antibodies targeting CD38 and (ii) MT-4019 for in vitro and in vivo pharmacological and anti-tumor efficacy evaluations. We granted Takeda an exclusive option to negotiate an exclusive worldwide license agreement to develop and commercialize any ETB that may result from this collaboration, including MT-4019. We were entitled to receive up to $2.0 million in technology access fees and cost reimbursement associated with our performance and completion of our obligations under the Takeda Collaboration Agreement. To date, we have received the $2.0 million under this Takeda Collaboration Agreement.

In connection with the Takeda Collaboration Agreement, we entered into an Individual Project Agreement (the “Takeda Individual Project Agreement”) with Takeda in June 2018 that was subsequently amended in July 2018. Under the Takeda Individual Project Agreement, we are responsible to perform certain research and development services relating to Chemistry, Manufacturing, and Controls (“CMC”) work for three potential lead ETBs targeting CD38. In consideration of these services, we were entitled to receive up to $2.2 million in compensation. To date we have received the $2.2 million under the Takeda Individual Project Agreement.

Takeda Development and License Agreement

On September 18, 2018, we entered into a Development Collaboration and Exclusive License Agreement with Takeda (“Takeda Development and License Agreement”) for the development and commercialization of products incorporating or comprised of one or more CD38 SLT-A fusion proteins (“Licensed Products”) for the treatment of patients with diseases such as multiple myeloma.

Pursuant to the Takeda Development and License Agreement, we will initially co-develop with Takeda one or more of the Licensed Products up to and including Phase Ia clinical trials, with us having an option to continue to co-develop the Licensed Products following Phase Ia clinical trials. Pursuant to the terms of the Takeda Development and License Agreement, Takeda will be responsible for all regulatory activities and commercialization of the Licensed Products. We have granted Takeda specified intellectual property licenses to enable Takeda to perform its obligations and exercise its rights under the Takeda Development and License Agreement, including exclusive license grants to enable Takeda to conduct development, manufacturing, and commercialization activities pursuant to the terms of the Takeda Development and License Agreement.

The agreement has a total transaction price of $29.8 million, consisting of (1) the $30.0 million upfront payment, (2) a $10.0 million development milestone payment which was achieved in the first quarter of 2020, (3) minus $10.2 million in expected co-share payments payable to Takeda during Early-Stage Development. In July 2019, we exercised our co-development option and the agreed upon collaboration budget was increased to cover additional research and development activities whereby both parties will continue to cost share. If we continue our option to co-develop, we will be eligible to receive up to an additional $307.5 million in milestone payments upon the achievement of certain development and regulatory milestone events and up to an additional $325 million in milestone payments upon the achievement of certain sales milestone events. If we do not continue to exercise our co-development option, we may receive up to an additional $162.5 million in milestone payments upon the achievement of certain development and regulatory milestone events and up to an additional $175 million in milestone payments upon the achievement of certain sales milestone events. We will also be entitled to receive tiered royalties, subject to certain reductions, as percentages of annual aggregate net sales, if any, of Licensed Products. The royalty percentages would range from low double-digits to low twenties if we continue to exercise our option to co-develop, and from high-single digits to low teens if we do not continue to exercise our option to co-develop.

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The parties will share in co-development costs in accordance with the terms of the Takeda Development and License Agreement, and Takeda will be responsible for all costs incurred commercializing the Licensed Products.

Unless earlier terminated, the Takeda Development and License Agreement will expire upon the expiration of the last-to-expire co-development royalty term (or royalty term, if applicable) for a Licensed Product. Takeda has the right to terminate the Takeda Development and License Agreement at any time upon no less than ninety days’ prior written notice to us. We or Takeda may, subject to specified cure periods, terminate the Takeda Development and License Agreement in the event of the other party’s uncured material breach, and either party may terminate the Takeda Development and License Agreement under specified circumstances relating to the other party’s insolvency.

Takeda Multi-Target Agreement

In June 2017, we entered into a multi-target collaboration and license agreement with Takeda (the “Takeda Multi-Target Agreement”), pursuant to which we will collaborate with Takeda to identify, generate and evaluate ETBs, against certain targets designated by Takeda. Pursuant to the Takeda Multi-Target Agreement, Takeda will designate certain targets of interest as the focus of the research. Takeda will provide to us targeting moieties against the designated targets and we will create and characterize ETBs against those targets and provide them to Takeda for further evaluation. We are entitled to receive up to $5.0 million in technology access fees and research and development fees associated with our performance and completion of our obligations under the agreement. In December 2017, Takeda nominated both targets under the Takeda Multi-Target Agreement. As of December 31, 2020, we have received $5.0 million under the Takeda Multi-Target Agreement.

Under the Takeda Multi-Target Agreement, Takeda has an option to acquire an exclusive license under our intellectual property to develop, manufacture, commercialize and otherwise exploit ETBs against the designated targets. Upon exercise of the option, Takeda is obligated to use commercially reasonable efforts to develop and obtain regulatory approval of any licensed ETBs in major market countries, and thereafter to commercialize licensed ETBs in those countries. We are obligated to manufacture ETBs to support research and clinical development through Phase I clinical trials, provided that Takeda can assume manufacturing responsibility at any time.

Under the Multi-Target Agreement, license fees and research and early and late state development milestone payments which are based on various research and clinical milestones, including the initiation of certain clinical studies, the submission for approval of a drug candidate to certain regulatory authorities for marketing approval and the commercial launch of collaboration products could become due. We may receive additional net milestone payments of $25.0 million in aggregate through the exercise of the option to license ETBs under the Takeda Multi-Target Agreement. Additionally, we are entitled to receive up to approximately $547.0 million in additional milestone payments through preclinical and clinical development and commercialization. We are also entitled to tiered royalty payments of a mid-single to low-double digit percentage of net sales of any licensed ETBs, subject to certain reductions. Finally, we are entitled to receive up to $10.0 million in certain contingency fees.

The Takeda Multi-Target Agreement will expire on the expiration of the option period for the designated targets if Takeda does not exercise its options, or, following exercise of the option, on the later of the expiration of patent rights claiming the licensed ETB or ten years from first commercial sale of a licensed ETB. The Takeda Multi-Target Agreement may be sooner terminated by Takeda for convenience; or by us upon a change of control; or by either party for an uncured material breach of the agreement.

Vertex Pharmaceuticals

On November 18, 2019, we entered into a Master Collaboration Agreement (“Vertex Collaboration Agreement”) with Vertex Pharmaceuticals Incorporated (“Vertex”), in which the parties agreed to enter into a strategic research collaboration to leverage the Company’s ETB technology platform to discover and develop novel targeted biologic therapies for applications outside of oncology.

Pursuant to the terms of the Vertex Collaboration Agreement, the Company granted Vertex an exclusive option to obtain an exclusive license under the Company’s licensed technology to exploit one or more ETB products that are discovered by the Company against up to two designated targets. Vertex has selected an initial target. Vertex has the option to designate one additional target within specified time limits.

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Pursuant to the Vertex Collaboration Agreement, Vertex will pay the Company an upfront payment of $38 million, consisting of $23 million in cash and a $15 million equity investment pursuant to a Share Purchase Agreement (the “SPA”), described further below. In addition to the upfront payments, the Company may also receive an additional $22 million through the exercise of the options to license ETB products or to add an additional target. The Company shall provide, and Vertex will reimburse the Company for, certain mutually agreed manufacturing technology transfer activities.

The Company may, for each target under the Vertex Collaboration Agreement, receive up to an additional $180 million in milestone payments upon the achievement of certain development and regulatory milestone events and up to an additional $70 million in milestone payments upon the achievement of certain sales milestone events. The Company will also be entitled to receive, subject to certain reductions, tiered mid-single digit royalties as percentages of calendar year net sales, if any, on any licensed product.

The Company will be responsible for conducting the research activities through the designation, if any, of one or more development candidates. Upon the exercise by Vertex of its option for a development candidate, Vertex will be responsible for all development, manufacturing, regulatory and commercialization activities with respect to that development candidate.

Unless earlier terminated, the Vertex Collaboration Agreement will expire (i) on a country-by-country basis and licensed product-by-licensed product basis on the date of expiration of all payment obligations under the Vertex Collaboration Agreement with respect to such licensed product in such country and (ii) in its entirety upon the expiration of all payment obligations thereunder with respect to all licensed products in all countries or upon Vertex’s decision not to exercise any option on or prior to the applicable deadlines. Vertex has the right to terminate the Vertex Collaboration Agreement for convenience upon prior written notice to the Company. Either party has the right to terminate the Vertex Collaboration Agreement (a) for the insolvency of the other party or (b) subject to specified cure periods, in the event of the other party’s uncured material breach.

In connection with the Vertex Collaboration Agreement, the Company and Vertex also entered into the SPA pursuant to which Vertex agreed to purchase 1,666,666 shares of the Company’s common stock, par value $0.001 per share, at a price per share of $9.00. The issuance of these shares was pursuant to a private placement exemption from registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D thereunder.

Bristol Myers Squibb Company

On February 10, 2021, the Company entered into a Collaboration Agreement (the “BMS Collaboration Agreement”) with Bristol Myers Squibb Company (“Bristol Myers Squibb”), pursuant to which the parties agreed to enter into a strategic research collaboration to leverage the Company’s ETB technology platform to discover and develop novel products containing ETBs directed to multiple targets.

Pursuant to the terms of the BMS Collaboration Agreement, the Company granted Bristol Myers Squibb a series of exclusive options to obtain one or more exclusive licenses under the Company’s intellectual property to exploit products containing ETBs directed against certain targets designated by Bristol Myers Squibb.

Pursuant to the BMS Collaboration Agreement, Bristol Myers Squibb will pay the Company an upfront payment of $70 million. In addition to the upfront payment, the Company may receive near term and development and regulatory milestone payments of up to $874.5 million. The Company will also be eligible to receive up to an additional $450 million in payments upon the achievement of certain sales milestones, and subject to certain reductions, tiered royalties ranging from mid-single digits up to mid-teens as percentages of calendar year net sales, if any, on any licensed product.

The Company will be responsible for conducting the research activities through the designation, if any, of one or more development candidates. Upon the exercise of its option for a development candidate, Bristol Myers Squibb will be responsible for all development, manufacturing, regulatory and commercialization activities with respect to that development candidate, subject to the terms and conditions of the BMS Collaboration Agreement.

Unless earlier terminated, the BMS Collaboration Agreement will expire (i) on a country-by-country basis and licensed product-by-licensed product basis, on the date of expiration of the royalty payment obligations under the BMS Collaboration Agreement with respect to such licensed product in such country and (ii) in its entirety upon the earlier of (a) the expiration of the royalty payment obligations under the BMS Collaboration Agreement with respect to all licensed products in all countries or (b) upon Bristol Myers Squibb’s decision not to exercise any option on or prior to the applicable option deadlines. Bristol Myers Squibb has the right to terminate the BMS Collaboration Agreement for convenience upon prior written notice to the Company. Either party has the right to terminate the BMS Collaboration Agreement (a) for the insolvency of the other party or (b) subject to specified cure periods, in the event of the other party’s uncured material breach. The Company has the right upon prior written notice to terminate the BMS Collaboration Agreement in the event that Bristol Myers Squibb or any of its affiliates asserts a challenge against the Company’s patents.

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Other Research & Development Collaborations

Henry M. Jackson Foundation

In July 2014, Molecular entered into a non-exclusive license agreement with the Henry M. Jackson Foundation for certain biological materials for use in conjunction with the development of Molecular’s lead clinical stage ETB MT-3724. Under the terms of the agreement, Molecular is required to pay the Henry M. Jackson Foundation aggregate payments totaling $110,000 with respect to this license, upon completion of certain clinical milestones. We may terminate this agreement at any time with 45 days prior written notice.

CPRIT Grant

On September 18, 2018, we entered into a Cancer Research Grant Contract (the “CD38 CPRIT Agreement”) with the Cancer Prevention Research Institute of Texas (CPRIT), which was extended in October 2020, in connection with a grant of approximately $15.2 million awarded by CPRIT to us in November 2016 to fund research of a cancer therapy involving an ETB that is targeting CD38 (the “Award”). Pursuant to the CD38 CPRIT Agreement, we may also use such funds to develop a replacement CD38 targeting ETB (such as TAK-169), with or without a partner. The Award is contingent upon funds being available during the term of the CD38 CPRIT Agreement and subject to CPRIT’s ability to perform its obligations under the CD38 CPRIT Agreement as well as our progress towards achievement of specified milestones, among other contractual requirements. In December 2011, Private Molecular (defined below) was awarded a $10.6 million product development grant from CPRIT for its CD20-targeting ETB MT-3724. 

Subject to the terms of the CD38 CPRIT Agreement, full ownership of any CPRIT funded technology and CPRIT funded intellectual property rights developed pursuant to the CD38 CPRIT Agreement will be retained by us, our Collaborators (as defined in the CD38 CPRIT Agreement) and, to the extent applicable, any participating third party (the “Project Results”). With respect to any Project Results, we agreed to grant to CPRIT a nonexclusive, irrevocable, royalty-free, perpetual, worldwide license, solely for academic, research and other non-commercial purposes, under the Project Results and to exploit any necessary additional intellectual property rights, subject to certain exclusions.

We will pay to CPRIT, during the term of the CD38 CPRIT Agreement, certain payments equal to a percentage of revenue ranging from the low- to mid-single digits. These payments will continue up to and until CPRIT receives an aggregate amount of 400% of the sum of all monies paid to us by CPRIT under the CD38 CPRIT Agreement. If we are required to obtain a license from a third party to sell any such product, the revenue sharing percentages may be reduced. In addition, once we pay CPRIT 400% of the monies we have received under the CD38 CPRIT Agreement, we will continue to pay CPRIT a revenue-sharing percentage of 0.5%.

The CD38 CPRIT Agreement will terminate, with certain obligations extending beyond termination, on the earlier of (a) May 30, 2021 or (b) the occurrence of any of the following events: (i) by mutual written consent of the parties, (ii) by CPRIT for an Event of Default (as defined in the CD38 CPRIT Agreement) by us, (iii) by CPRIT if allocated funds should become legally unavailable during the term of the CD38 CPRIT Agreement and CPRIT is unable to obtain additional funds or (iv) by us for convenience. CPRIT may approve a no cost extension for the CD38 CPRIT Agreement for a period not to exceed six months after the termination date if additional time is required to ensure adequate completion of the approved project, subject to the terms and conditions of the CD38 CPRIT Agreement.

Manufacturing

Molecular has built a cGMP manufacturing facility located in Austin, TX to supply future clinical trial materials for internal and partnered ETB programs. Molecular relies in part on third-party contract manufacturing organizations, or CMOs, to manufacture and supply Molecular with cGMP drug substance and drug product materials to support Molecular’s clinical trials. The manufacturing processes for MT-3724, MT-5111, TAK-169, MT-6402 and the preclinical ETB candidates have been developed by Molecular’s manufacturing staff. Once a process is developed and defined for an ETB, it is transferred to CMOs to scale-up and optimize for manufacturing that conforms to cGMP standards.

Molecular has established well-defined, cost efficient manufacturing under cGMP regulations, including bioanalytical, quality control and quality assurance, logistics, distribution and supply chain management. After manufacturing, Molecular’s ETB candidates are tested and released by Molecular’s analytical and quality systems staff in conjunction with some select contract research organizations, or CROs. The quality control organization performs a series of release assays designed to ensure that the product meets all applicable specifications. Molecular’s quality assurance staff also reviews manufacturing and quality control records prior to batch release in an effort to assure conformance with cGMP as mandated by the FDA and foreign regulatory agencies.

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Molecular’s manufacturing staff is trained and routinely evaluated for conformance to rigorous manufacturing procedures and quality standards. This oversight is intended to ensure compliance with FDA and foreign regulations and to provide consistent ETB output. Molecular’s quality control and quality assurance staff are similarly trained and evaluated as part of Molecular’s effort to ensure consistency in the testing and release of the product, as well as consistency in materials, equipment and facilities.

For the purposes of internal research and support for Molecular’s ongoing collaborations, Molecular has small scale manufacturing capabilities that are sufficient to manufacture drug materials for preclinical research.

As part of our manufacturing process, we endeavor to utilize cGMP grade materials and reagents, if commercially available; however, certain critical materials and reagents are currently qualified for research use only. Additionally, we obtain key components required for the manufacture of our investigational products from third-party manufacturers and suppliers, which include, in some instances, sole source manufacturers and suppliers. We do not currently have long-term commitments or supply agreements in place to obtain certain key components used in the manufacture of our drug candidates.

Intellectual Property Portfolio

Molecular seeks to protect proprietary rights in its platform technologies through a combination of patents and patent applications, trade secrets and know-how. Molecular’s platform technologies include ETBs, in which a Shiga toxin A subunit construct is associated, directly or indirectly, to immunoglobulin domains directed to the molecular target, resulting in ETBs for treating cancer, killing cancer cells and selectively delivering payload molecules into target cells. While each ETB targets at least one specific molecular target, many of Molecular’s platform technologies are target agnostic. Molecular’s platform technologies include the Shiga toxin components of ETBs, including improved Shiga toxin A subunit constructs engineered to have reduced innate and adaptive immunogenicity, including by disrupting of B-cell epitopes and T-cell epitopes.

To cover its proprietary technologies and its current pipeline of proprietary ETB therapeutic candidates and related methods, such as methods for therapeutic use, Molecular has 24 patent families, together covering over 200 patents and pending U.S. and foreign applications worldwide, including over 35 granted U.S. and foreign patents and over 165 pending patent applications in the U.S., Europe and in thirteen other jurisdictions outside of the U.S. and Europe (such as, e.g., Australia, Canada, China, Hong Kong, Israel, India, Japan, Mexico, and South Korea).  Patents have been granted from ten of these patent families, including in Australia, China, Europe, Hong Kong, Israel, Japan, Mexico, South Korea, and the U.S.

Molecular has 11 patent families covering ETBs and modified ETB scaffolds for the targeted killing of cancer cells or for the selective delivery of molecules into a target cell, as well as methods of screening large ETB libraries and methods of manufacturing ETBs. Patent rights in these patent families, if granted and if all relevant maintenance fees or annuities are paid, are expected to expire during 2034–2041. With respect to its ETB pipeline, Molecular’s lead compound MT-3724, which targets CD20, and pharmaceutical compositions and uses of MT-3724, are covered by four patent families. Patents in these patent families, if granted and if all relevant maintenance fees or annuities are paid, are expected to expire in 2034 to 2041.  Molecular’s current pipeline also includes ETBs which target CD38, HER2, and PD-L1, and are covered by numerous patent applications and patent families.  In certain circumstances, Molecular’s patents may be eligible for adjustment of patent term due to patent office delay, or extension of patent term to compensate for loss of patent term during drug development and regulatory review. The expected expiration dates referenced above do not include these adjustments or extensions.

As of December 31, 2020, Molecular owned over 80 U.S. and foreign patents and patent applications relating to hypoxia-activated prodrugs, including the investigational prodrug Evofosfamide currently in clinical development for treating cancer, which Molecular sold to an unrelated third party in December 2020; the manufacturing of prodrugs’, formulation of the prodrugs; and their use. These patents and patent applications include issued U.S. patents expected to expire from 2024 to 2031, and issued foreign patents expected to expire from 2024 to 2036 (in each case, if all relevant maintenance fees are annuities are paid, and without accounting for any patent term extension), as well as pending U.S., international (Patent Cooperation Treaty) and foreign patent applications, which, if issued and if all relevant maintenance fees or annuities are paid, would in each case be expected to expire from 2024 to 2037 (without accounting for any patent term extension or adjustment).

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Impact of COVID-19

In March 2020, the outbreak of COVID-19 caused by a novel strain of the coronavirus was recognized as a pandemic by the World Health Organization. It has impacted, and is continuing to impact, all aspects of society, including the operation of the healthcare system and other business and economic activity worldwide. The COVID-19 pandemic, and other similar outbreaks of contagious diseases, may adversely impact Molecular’s business, financial condition, and results of operations. For example, Molecular and the third-party clinical trial sites or investigators involved in its current and future clinical trials may experience significant interruptions or delays as a result of this pandemic, and these could impact the conduct of Molecular’s clinical trials and the ability to complete them in a timely manner or at all, which in turn could delay and/or negatively impact the regulatory review and approval of Molecular’s drug or biologic candidates.

Molecular is carefully and continually evaluating the potential individual patient risk associated with continuing to enroll subjects in existing clinical studies during the ongoing COVID-19 pandemic, in accordance with FDA and foreign regulatory authorities’ recommendations for clinical trials. Molecular’s MT-5111 Phase I study remains open and able to treat enrolled subjects and screen new subjects. For Molecular’s MT-3724 studies, which are currently on partial clinical hold as ordered by the FDA, Molecular decided following the partial clinical hold going into effect, in collaboration with treating investigators and as permitted by the FDA, to allow existing subjects who were receiving clinical benefit to continue dosing but no new patients have been, or will be, enrolled in any MT-3724 study pending resolution of the partial clinical hold. These decisions were predicated on the treating investigator determining that the potential benefit to the patient of investigational therapy outweighs the potential risk of contracting COVID-19 as the subjects enrolled in Molecular’s trials had relapsed or refractory incurable malignancies with few or no standard-of-care therapeutic options and limited life expectancy. However, more recently and following the results of an investigation into MT-3724 product quality attributes as well as a thorough risk/benefit assessment, Molecular decided to discontinue dosing of subjects remaining on our Phase II combination study with MT-3724 and Revlimid® (lenalidomide). Additionally, following our decision to temporarily discontinue dosing for the remaining subject on our Phase II combination study with MT-3724 and chemotherapy (gemcitabine and oxaliplatin, or GemOx), the subject decided in collaboration with his physician to discontinue treatment. Subsequently, after a review of the current competitive landscape and following the last subject discontinuing treatment, we decided to discontinue our Phase II combination study with MT-3724 and chemotherapy GemOx. We made this decision based upon our belief in the potential for more promising future combinations with our product candidates. Accordingly, there are currently no subjects being treated under any MT-3724 protocol. COVID-19 led to a significant slowdown in the pace of site initiations and patient enrollment into Molecular’s clinical trials. The degree of disruption was, and continues to be, variable by geography and individual clinical site, with some sites closed to new enrollment, some screening and enrolling only subjects with an urgent need for treatment, and some attempting to operate as usual.  The COVID-19 pandemic resulted in a significant slowdown in the pace of site initiations and patient enrollment across Molecular’s MT-3724 Phase II programs prior to the partial clinical hold going into effect. As a CD20-targeting agent for the treatment of hematological malignancy, MT-3724 may impair the ability to generate humoral immunity to coronavirus infection. To date, screening and enrollment for the MT-5111 Phase I study has been less adversely affected than the MT-3724 studies were prior to the partial clinical hold. To date, Molecular has been able to continue to work at our cGMP manufacturing facility and laboratories without significant interruption from COVID-19. As a result, manufacturing of product supply for clinical trials and research activities to support advancement of our preclinical pipeline (including partnered programs) have not been adversely affected by COVID-19 to date.

The extent to which the COVID-19 pandemic may impact Molecular’s business, financial condition and results of operations will depend on the manner in which this pandemic continues to evolve and future developments in response thereto, which are highly uncertain and cannot be predicted with confidence and which may include, among other things, the ultimate severity and duration of this pandemic; governmental, business or other actions that have been, or will be, taken in response to this pandemic, including restrictions on travel and mobility, business closures and imposition of social distancing measures; impacts of the pandemic on the vendors or distribution channels in Molecular’s or its partners’ supply chain and ability to continue to manufacture our investigational products; impacts of the pandemic on the conduct of Molecular’s clinical trials, including with respect to enrollment rates, availability of investigators and clinical trial sites or monitoring of data; and impacts of the pandemic on the regulatory agencies with which Molecular interacts in the development, review, approval and commercialization of its therapeutic products.

Government Regulation

Government authorities in the United States at the federal, state and local level and in other countries regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of drug and biological products, such as MT-3724, MT-5111, TAK-169, MT-6402 and any future drug candidates. Generally, before a new drug or biologic can be marketed, considerable data demonstrating its quality, safety and efficacy must be obtained, organized into a format specific for each regulatory authority, submitted for review and approved by the regulatory authority.

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U.S. Drug Development

In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and its implementing regulations and biologics under the FDCA, the Public Health Service Act, or PHSA, and their implementing regulations. Both drugs and biologics also are subject to other federal, state and local statutes and regulations. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or post-market may subject an applicant to administrative or judicial sanctions. These sanctions could include, among other actions, the FDA’s refusal to approve pending applications, withdrawal of an approval, a clinical hold, untitled or warning letters, product recalls or market withdrawals, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement and civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on Molecular.

MT-3724, MT-5111, TAK-169, MT-6402 and any ETB drug candidates must be approved by the FDA through either a New Drug Application, or NDA, or Biologics License Application, BLA, before they may be legally marketed in the United States. The process generally involves the following:

• Completion of extensive preclinical studies in accordance with applicable regulations, including studies conducted in accordance with good laboratory practice, or GLP, requirements;

• Submission to the FDA of an Investigational New Drug, or IND, application, which must become effective before human clinical trials may begin;

• Approval by an independent institutional review board, or IRB, or ethics committee covering each clinical trial site before a trial may be initiated at that site;

• Performance of adequate and well-controlled human clinical trials in accordance with applicable IND regulations, good clinical practice requirements, or GCP, and other clinical trial-related requirements to establish the safety and efficacy of the investigational product for each proposed indication;

• Submission to the FDA of an NDA or BLA for marketing approval, including payment of application user fees;

• A determination by the FDA within 60 days of its receipt of an NDA or BLA that the NDA or BLA is sufficiently complete to permit a substantial review, in which case the NDA or BLA is filed;

• Satisfactory completion of a FDA pre-approval inspection of the manufacturing facility or facilities where the drug or biologic will be produced to assess compliance with cGMP requirements to assure that the facilities, methods and controls are adequate to preserve the drug or biologic’s identity, strength, quality and purity;

• Potential FDA audit of the preclinical and/or clinical trial sites that generated the data in support of the NDA or BLA; and

• FDA review and approval of the NDA or BLA, including consideration of the views of an FDA advisory committee, if one was involved, prior to any commercial marketing or sale of the drug or biologic in the United States.

The preclinical testing, clinical trials and the approval process requires substantial time, effort and financial resources, and Molecular cannot be certain that any approvals for MT-3724, MT-5111, TAK-169, MT-6402 and any future drug candidates will be granted on a timely basis, or at all. The data required to support an NDA or BLA are generated in two distinct developmental stages: preclinical and clinical. The preclinical developmental stage generally involves laboratory evaluations of drug chemistry, formulation and stability, as well as studies to evaluate the molecule’s toxicity in animals, which support subsequent clinical testing. The sponsor must submit the results of the preclinical studies, together with manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, to the FDA as part of the IND. An IND is a request for authorization from the FDA to administer an investigational new drug to humans and must become effective before human clinical trials may begin.

The clinical stage of development involves the administration of the investigational product to healthy volunteers or patients under the supervision of qualified investigators, generally physicians not employed by or under the trial sponsor’s control, in accordance with GCP requirements, which include the requirement that all research subjects provide their informed consent for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria and the parameters to be used to monitor subject safety and assess efficacy. Each protocol, and any subsequent amendments to the protocol, must be submitted to the FDA as part of the IND. Furthermore, each clinical trial must be reviewed and approved by an IRB on behalf of each institution at which the clinical trial will be conducted to ensure that the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the informed consent form that must be provided to each clinical trial subject or his or her legal representative and must monitor the clinical trial until completed. There also are requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries. 

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A sponsor who wishes to conduct a clinical trial outside of the United States may, but need not, obtain FDA authorization to conduct the clinical trial under an IND. If a foreign clinical trial is not conducted under an IND, the sponsor may submit data from the clinical trial to the FDA in support of an NDA or BLA. The FDA will accept a well-designed and well-conducted foreign clinical trial not conducted under an IND if the trial was conducted in accordance with GCP requirements, and the FDA is able to validate the data through an onsite inspection if deemed necessary.

Preclinical Studies and IND

Preclinical studies include laboratory evaluation of product chemistry and formulation, as well as in vitro and animal studies to assess the potential for adverse events and in some cases to establish a rationale for the investigational product’s therapeutic use. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical trials, among other things, to the FDA as part of an IND. Some long-term preclinical testing, such as animal tests of effects on reproduction and carcinogenicity, may continue after the IND is submitted. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time, the FDA raises concerns or questions and places the IND on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence. Clinical holds also may be imposed by the FDA at any time before or during studies due to safety concerns or non-compliance. As of November 4, 2020, Molecular’s MT-3724 clinical studies were placed on partial clinical hold by the FDA following a fatality in one subject in the Phase II monotherapy study due to treatment-related CLS on October 20, 2020. At such time, subjects already enrolled in MT-3724 clinical studies who were receiving clinical benefit were permitted to continue dosing but no new patients have been, or will be, enrolled in any MT-3724 study pending resolution of this matter.  As part of our overall investigation into this partial hold on MT-3724, Molecular investigated MT-3724 product quality attributes. Based on Molecular’s findings, Molecular submitted a partial clinical hold response to the FDA in February 2021 in which it proposed to implement new drug product manufacturing and release criteria. Molecular has also determined that the MT-3724 product that has been manufactured to date for use in the MT-3724 studies Molecular plans to continue will not be consistent with the new criteria once they are implemented. Based upon Molecular’s findings to date and after a thorough risk/benefit assessment, Molecular decided to discontinue dosing of subjects remaining on its Phase II combination study with MT-3724 and Revlimid® (lenalidomide). Additionally, following Molecular’s decision to temporarily discontinue dosing for the remaining subject on its Phase II combination study with MT-3724 and chemotherapy (gemcitabine and oxaliplatin, or GemOx), the subject decided in collaboration with their physician to discontinue treatment. Although there have been no signs of capillary leak syndrome toxicity worse than grade 2 in either of these MT-3724 studies, Molecular’s decision to discontinue dosing in these studies was taken out of an abundance of caution with our subjects’ health and safety in mind. Further, after a review of the current competitive landscape and following the last subject discontinuing treatment, Molecular decided to discontinue its Phase II combination study with MT-3724 and chemotherapy (gemcitabine and oxaliplatin, or GemOx). Molecular made this decision based upon its belief in the potential for more promising future combinations with its product candidates. Accordingly, there are currently no subjects being treated under any MT-3724 protocol. In connection with Molecular’s other MT-3724 studies, Molecular is continuing to work to address the partial clinical hold and MT-3724 product lot information requests from the FDA and will then seek agreement from FDA to remove the partial clinical hold. Molecular submitted its partial clinical hold response to the FDA in February 2021. Molecular’s trials and plans for its other ETB drug or biologic candidates, including MT-5111, TAK-169, and MT-6402, which utilize next-generation ETB technology, are not affected.

Clinical trials

Clinical trials generally are conducted in three sequential phases, known as Phase I, Phase II and Phase III, which may overlap.

• Phase I clinical trials generally involve a small number of healthy volunteers or disease-affected patients who are initially exposed to a single dose and then multiple doses of the drug candidate. The primary purpose of these clinical trials is to assess the metabolism, pharmacologic action, side effect tolerability and safety of the drug.

• Phase II clinical trials involve studies in disease-affected patients to determine the dose required to produce the desired benefits. At the same time, safety and further pharmacokinetic and pharmacodynamic information is collected, possible adverse effects and safety risks are identified and a preliminary evaluation of efficacy is conducted.

• Phase III clinical trials generally involve a large number of patients at multiple sites and are designed to provide the data necessary to demonstrate the effectiveness of the product for its intended use, its safety in use and to establish the overall benefit/risk relationship of the product and provide an adequate basis for product approval. These trials may include comparisons with placebo and/or other comparator treatments. The duration of treatment is often extended to mimic the actual use of a product during marketing.

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Post-approval trials, sometimes referred to as Phase IV clinical trials, may be conducted after initial marketing approval. These trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, the FDA may mandate the performance of Phase IV clinical trials as a condition of approval of an NDA or BLA.

Progress reports detailing the results of the clinical trials, among other information, must be submitted at least annually to the FDA and written IND safety reports must be submitted to the FDA and the investigators for serious and unexpected suspected adverse events, findings from other studies suggesting a significant risk to humans exposed to the investigational drug, findings from animal or in vitro testing that suggest a significant risk for human subjects and any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure.

In addition, an IRB on behalf of each institution that is participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must conduct a continuing review and reapprove the trial at least annually. The IRB must review and approve, among other things, the trial protocol and informed consent information to be provided to clinical trial subjects. An IRB must operate in compliance with FDA regulations. Information about certain clinical trials, including details of the protocol and eventually study results, also must be submitted within specific timeframes to the National Institutes of Health for public dissemination on the ClinicalTrials.gov data registry. Information related to the investigational product, patient population, phase of investigation, study sites and investigators and other aspects of the clinical trial is made public as part of the registration of the clinical trial. Sponsors are also obligated to disclose the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed in some cases for up to two years after the date of completion of the trial. Competitors may use this publicly available information to gain knowledge regarding the progress of development programs.

Phase I, Phase II and Phase III clinical trials may not be completed successfully within any specified period, if at all. The FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug or biologic has been associated with unexpected serious harm to patients. Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This group provides authorization for whether a trial may move forward at designated check points based on access to certain data from the trial.

During the development of a new drug or biologic, sponsors have the opportunity to meet with the FDA at certain points, including prior to submission of an IND, at the end of Phase II, and before submission of an NDA or BLA. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date, for the FDA to provide advice, and for the sponsor and the FDA to reach agreement on the next phase of development. Sponsors typically use the end of Phase II meeting to discuss their Phase II clinical results with the agency and to present their plans for the pivotal Phase III studies that they believe will support approval of the new drug or biologic.

Concurrent with clinical trials, companies may perform additional animal studies and develop additional information about the chemistry and physical characteristics of the drug or biologic as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the drug candidate and, among other things, the manufacturer must develop methods for testing the identity, strength, quality, potency and purity of the final drug or biologic. For biologics in particular, the PHSA emphasizes the importance of manufacturing control for products whose attributes cannot be precisely defined in order to help reduce the risk of the introduction of adventitious agents. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that MT-3724, MT-5111, TAK-169, MT-6402 and any future drug candidates do not undergo unacceptable deterioration over their respective labeled shelf lives.

NDA/BLA Submission and FDA Review Process

Following completion of the clinical trials, all of the data are analyzed to assess whether the investigational product is safe and effective for its proposed indicated use or uses. The results of preclinical studies and clinical trials are then submitted to the FDA as part of an NDA or BLA, along with proposed labeling, chemistry and manufacturing information to ensure product quality and other relevant data. In short, the NDA or BLA is a request for approval to market the drug or biologic for one or more specified indications and must contain proof of safety and efficacy for a drug or safety, purity, potency and efficacy for a biologic. Data may come from company-sponsored clinical trials intended to test the safety and efficacy of a product’s use or from a number of alternative sources, including studies initiated by investigators or company-sponsored expanded access programs. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and efficacy of the investigational product to the satisfaction of FDA. FDA approval of an NDA or BLA must be obtained before a drug or biologic may be marketed in the United States.

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Under the Prescription Drug User Fee Act, or PDUFA, as amended, each NDA or BLA must be accompanied by a user fee. FDA adjusts the PDUFA user fees on an annual basis. PDUFA also imposes annual prescription drug product program fees and an annual establishment fee on facilities used to manufacture prescription drugs and biologics. Fee waivers or reductions are available in certain circumstances, including a waiver of the application fee for the first application filed by a small business (fewer than 500 employees). Additionally, no user fees are assessed on NDAs or BLAs for products designated as orphan drugs, unless the product also includes a non-orphan indication. The fee for the submission of an NDA or BLA for which clinical data is required is substantial (for example, for fiscal year 2021 this application fee exceeds $2.8 million), and the annual program fee assessed on each sponsor of an approved NDA or BLA is currently more than $330,000 per program.   

The FDA reviews all submitted NDAs and BLAs to ensure that they are sufficiently complete for substantive review before it accepts them for filing. It may refuse to file the application and request additional information rather than accept an NDA or BLA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. The FDA must make a decision on accepting an NDA or BLA for filing within 60 days of receipt and inform the sponsor by the 74th day after the FDA’s receipt of the submission whether an application is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in-depth review of the NDA or BLA. Under the goals and policies agreed to by the FDA under PDUFA, the FDA has 10 months, from the filing date, in which to complete its review of a new molecular-entity (NME) NDA or an original BLA and respond to the applicant, and six months from the filing date of an NME NDA or original BLA designated for priority review. For non-NME NDAs, the review goals are ten months from the date of receipt for a standard application and six months from the date of receipt for a priority submission. The FDA does not always meet its PDUFA goal dates for standard and priority NDAs or BLAs, and the review process is often extended by FDA requests for additional information or clarification. After the submission is accepted for filing, the FDA begins an in-depth substantive review. As noted above, the FDA has agreed to specified performance goals in the review process of NDAs and BLAs. The review process may be extended by the FDA for three additional months to consider new information or in the case of a clarification provided by the applicant to address an outstanding deficiency identified by the FDA following the original submission.

Before approving an NDA or BLA, the FDA will conduct a pre-approval inspection of the manufacturing facilities for the new product to determine whether the manufacturing processes and facilities comply with cGMP requirements. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. The FDA also may audit data from clinical trials to ensure compliance with GCP requirements by each of the entities involved in the clinical trials, including clinical investigators and any third-party clinical research organizations (“CROs”).

Additionally, the FDA may refer applications for novel drug products or drug products which present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other independent scientific experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions, if any. The FDA is not bound by recommendations of an advisory committee, but it considers such recommendations when making final agency decisions on marketing approval. The FDA likely will reanalyze the clinical trial data, which could result in extensive discussions between the FDA and the applicant during the review process. The FDA also may require submission of a risk evaluation and mitigation strategy, or “REMS” plan, if it determines that a REMS is necessary to ensure that the benefits of the drug outweigh its risks and to assure the safe use of the drug or biologic. The REMS plan could include medication guides, physician communication plans, assessment plans and/or elements to assure safe use, such as restricted distribution methods, patient registries or other risk minimization tools. The FDA determines the requirement for a REMS, as well as the specific REMS provisions, on a case-by-case basis. If the FDA concludes a REMS plan is needed, the sponsor of the NDA or BLA must submit a proposed REMS. The FDA will not approve an NDA or BLA without a REMS, if one is required.

The approval process is lengthy and often difficult, and the FDA may refuse to approve an NDA or BLA if the applicable regulatory criteria are not satisfied or may require additional clinical or other data and information. The FDA reviews an NDA to determine, among other things, whether a product is safe and effective for its intended use and whether its manufacturing is cGMP-compliant to assure and preserve the product’s identity, strength, quality and purity. The FDA reviews a BLA to determine, among other things, whether the product is safe, pure and potent and the facility in which it is manufactured, processed, packed or held meets standards designed to assure the product’s continued safety, purity and potency. On the basis of the FDA’s evaluation of the NDA or BLA and accompanying information, including the results of the inspection of the manufacturing facilities, the FDA may issue either an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete and the application will not be approved in its present form. A Complete Response Letter usually describes all of the specific deficiencies in the NDA or BLA and may require substantial additional testing or information in order for the FDA to reconsider the application. The Complete Response Letter may require additional clinical or other data, additional pivotal Phase III clinical trial(s) and/or other significant and time-consuming requirements related to clinical trials, preclinical studies or manufacturing. If a Complete Response Letter is issued, the applicant may choose either to resubmit the NDA or BLA, addressing all of the deficiencies identified in the letter, or to withdraw the application. If and when all deficiencies have been addressed to the FDA’s satisfaction in a resubmitted NDA or BLA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in response to an issued Complete Response Letter in either two or six months, depending on the type of information included. Even if such data and information are submitted, however, the FDA may ultimately decide

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that the NDA or BLA does not satisfy the regulatory criteria for approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than the applicant interprets the same data. If a product receives regulatory approval from the FDA, the approval is limited to the conditions of use (e.g., patient population, indication) described in the application. Further, depending on the specific risk(s) to be addressed, the FDA may require that contraindications, warnings or precautions be included in the product labeling, require that post-approval trials, including Phase IV clinical trials, be conducted to further assess a product’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution and use restrictions or other risk management mechanisms under a REMS, which can materially affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post-marketing trials or surveillance programs. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and approval.

Orphan Drug Designation and Exclusivity

Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biological product intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States for which there is no reasonable expectation that the cost of developing and making the product available in the United States for this type of disease or condition will be recovered from sales of the product. Orphan drug designation must be requested before submitting an NDA or BLA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.

If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications to market the same drug for the same indication for seven years from the date of such approval, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity by means of greater effectiveness, greater safety or providing a major contribution to patient care or in instances of drug supply issues. Competitors, however, may receive approval of either a different product for the same indication or the same product for a different indication but that could be used off-label in the orphan indication.

In December 2019, the FDA granted Orphan Drug Designation to TAK-169 for the treatment of multiple myeloma; this orphan designation is held by Millennium Pharmaceuticals, Inc., a wholly owned subsidiary of Molecular’s partner Takeda, who is responsible for submitting annual reports to the FDA and otherwise maintaining the orphan status of the product candidate.

Expedited Development and Review Programs

The FDA is authorized to designate certain products for expedited development or review if they are intended to address an unmet medical need in the treatment of a serious or life-threatening disease or condition. These programs include fast track designation, breakthrough therapy designation and priority review designation.

To be eligible for a fast-track designation, the FDA must determine, based on the request of a sponsor, that a product is intended to treat a serious or life-threatening disease or condition and demonstrates the potential to address an unmet medical need by providing a therapy where none exists or a therapy that may be potentially superior to an existing therapy based on efficacy or safety factors. Fast track designation provides opportunities for more frequent interactions with the FDA review team to expedite development and review of the product. The FDA may also review sections of the NDA or BLA for a fast-track product on a rolling basis before the complete application is submitted, if the sponsor and the FDA agree on a schedule for the submission of the application sections, and the sponsor pays any required user fees upon submission of the first section of the NDA or BLA. In addition, fast track designation may be withdrawn by the sponsor or rescinded by the FDA if the designation is no longer supported by data emerging in the clinical trial process. The sponsor can request the FDA to designate the product for fast-track status any time before receiving NDA or BLA approval, but ideally no later than the pre-NDA or pre-BLA meeting.

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The FDA also may designate a product for priority review if it is a drug or biologic that treats a serious condition and, if approved, would provide a significant improvement in safety or effectiveness. When a marketing application is submitted with a request for priority review, the FDA determines on a case-by-case basis whether the proposed drug represents a significant improvement in treatment, prevention or diagnosis of disease when compared with other available therapies. Significant improvement may be illustrated by evidence of increased effectiveness in the treatment of a condition, elimination or substantial reduction of a treatment-limiting drug reaction, documented enhancement of patient compliance that may lead to improvement in serious outcomes, or evidence of safety and effectiveness in a new subpopulation. A priority review designation is intended to direct overall attention and resources to the evaluation of such applications, and to shorten the FDA’s goal for taking action on a marketing application from ten months to six months for an original BLA or an NME NDA from the date of filing (or from ten months to six months from the date of receipt for a non-NME NDA).

Additionally, a drug or biologic may be eligible for designation as a breakthrough therapy if the product is intended, alone or in combination with one or more other drugs or biologics, to treat a serious or life-threatening condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over currently approved therapies on one or more clinically significant endpoints. The FDA must take certain actions with respect to breakthrough therapies, such as holding timely meetings with and providing advice to the product sponsor, intended to expedite the development and review of an application for approval of a breakthrough therapy.

Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened. Fast track designation, priority review, and breakthrough therapy designation do not change the standards for approval but may expedite the development or approval process.

Accelerated Approval Pathway

Products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may receive accelerated approval from the FDA and may be approved on the basis of adequate and well-controlled clinical trials establishing that the drug product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit. The FDA may also grant accelerated approval for such a drug or biologic when the product has an effect on an intermediate clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality, or IMM, and that is reasonably likely to predict an effect on IMM or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments or on the basis of an effect on a clinical endpoint other than survival or irreversible morbidity. As a condition of approval, the FDA may require that a sponsor of a drug or biologic receiving accelerated approval perform adequate and well-controlled post-marketing clinical trials to verify and describe the predicted effect on IMM or other clinical endpoint, and the product may be subject to expedited withdrawal procedures. If the FDA concludes that a drug or biologic shown to be effective can be safely used only if distribution or use is restricted, it will require such post-marketing restrictions, as it deems necessary to assure safe use of the product. Drugs and biologics granted accelerated approval must meet the same statutory standards for safety and effectiveness as those granted traditional approval.

For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign, or other measure that is thought to predict clinical benefit but is not itself a measure of clinical benefit. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. An intermediate clinical endpoint is a measurement of a therapeutic effect that is considered reasonably likely to predict the clinical benefit of a drug, such as an effect on IMM. The FDA has limited experience with accelerated approvals based on intermediate clinical endpoints but has indicated that such endpoints generally may support accelerated approval when the therapeutic effect measured by the endpoint is not itself a clinical benefit and basis for traditional approval, if there is a basis for concluding that the therapeutic effect is reasonably likely to predict the ultimate long-term clinical benefit of a drug.

The accelerated approval pathway is most often used in settings in which the course of a disease is long and an extended period of time is required to measure the intended clinical benefit of a drug, even if the effect on the surrogate or intermediate clinical endpoint occurs rapidly. For example, accelerated approval has been used extensively in the development and approval of drugs for treatment of a variety of cancers in which the goal of therapy is generally to improve survival or decrease morbidity and the duration of the typical disease course requires lengthy and sometimes large clinical trials to demonstrate a clinical or survival benefit.

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The accelerated approval pathway is usually contingent on a sponsor’s agreement to conduct, in a diligent manner, additional post-approval confirmatory studies to verify and describe the drug’s clinical benefit. As a result, a drug candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase IV or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or to confirm the predicted clinical benefit of the product during post-marketing studies, would allow the FDA to withdraw approval of the drug or biologic. All promotional materials for products approved for marketing under the accelerated approval program are subject to prior review by the FDA.

Pediatric Information

Under the Pediatric Research Equity Act, or PREA, amendments to the FDCA, an NDA or BLA or supplement to an NDA or BLA must contain data that are adequate to assess the safety and efficacy of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may grant deferrals for submission of pediatric data or full or partial waivers. The Food and Drug Administration Safety and Innovation Act, or FDASIA, enacted in 2012, made permanent PREA to require that a sponsor who is planning to submit a marketing application for a drug that includes a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration submit an initial Pediatric Study Plan, or PSP, within 60 days of an end-of-Phase II meeting or, if there is no such meeting, as early as practicable before the initiation of the Phase III or Phase II/III study. The initial PSP must include an outline of the pediatric study or studies that the sponsor plans to conduct, including study objectives and design, age groups, relevant endpoints and statistical approach, or a justification for not including such detailed information and any request for a deferral of pediatric assessments or a full or partial waiver of the requirement to provide data from pediatric studies along with supporting information. The FDA and the sponsor must reach an agreement on the PSP. A sponsor can submit amendments to an agreed-upon initial PSP at any time if changes to the pediatric plan need to be considered based on data collected from preclinical studies, early phase clinical trials and/or other clinical development programs.

Post-marketing Requirements

Following approval of a new product, the manufacturer and the approved product are subject to continuing regulation by the FDA, including, among other things, monitoring and record-keeping activities, reporting of adverse experiences, and complying with promotion and advertising requirements, which include restrictions on promoting approved drugs for unapproved uses or patient populations (known as “off-label use”). Although physicians may prescribe legally available drugs for off-label uses, manufacturers may not market or promote such uses. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability. Prescription drug promotional materials also must be submitted to the FDA in conjunction with their first use. Further, if there are any modifications to the drug or biologic, including changes in indications, labeling or manufacturing processes or facilities, the applicant may be required to submit and obtain FDA approval of a new NDA/BLA or NDA/BLA supplement, which may require the applicant to develop additional data or conduct additional preclinical studies or clinical trials.

The FDA may also place other conditions on approvals including the requirement for a REMS plan to assure the safe use of the product. A REMS plan could include medication guides, physician communication plans or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of products. Product approvals may be withdrawn for non-compliance with regulatory standards or if problems occur following initial marketing.

FDA regulations require that products be manufactured in specific approved facilities and in accordance with cGMPs. The cGMP regulations include requirements relating to organization of personnel, buildings and facilities, equipment, control of components and drug product containers and closures, production and process controls, packaging and labeling controls, holding and distribution, laboratory controls, records and reports and returned or salvaged products. The manufacturing facilities for our drug candidates must meet cGMP requirements and satisfy the FDA or comparable foreign regulatory authorities before any product is approved and commercial products can be manufactured or distributed. Molecular relies in part, and expects to continue to rely in part, on third parties for the production of clinical and commercial quantities of Molecular’s products in accordance with cGMPs. These manufacturers must comply with cGMPs that require, among other things, quality control and quality assurance, the maintenance of records and documentation and the obligation to investigate and correct any deviations from cGMP. Manufacturers and other entities involved in the manufacture and distribution of approved drugs or biologics are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP requirements and other laws. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance. The discovery of violative conditions, including failure to conform to cGMPs, could result in enforcement actions, and the discovery of problems with a product after approval may result in restrictions on a product, or on the manufacturer or holder of an approved NDA or BLA, including recall or product seizure.

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Once an approval or clearance of a drug is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in mandatory revisions to the approved labeling to add new safety information; imposition of post-market or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:

• restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;

• fines, warning letters or other enforcement-related letters or clinical holds on post-approval clinical trials;

• refusal of the FDA to approve pending NDAs/BLAs or supplements to approved NDAs/BLAs, or suspension or revocation of product approvals;

• product seizure or detention, or refusal to permit the import or export of products;

• injunctions or the imposition of civil or criminal penalties; and

• consent decrees, corporate integrity agreements, debarment, or exclusion from federal health care programs; or mandated modification of promotional materials and labeling and the issuance of corrective information.

In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act, or PDMA, which regulates the distribution of drugs and drug samples at the federal level and sets minimum standards for the registration and regulation of drug distributors by the states. Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure accountability in distribution. Most recently, the Drug Supply Chain Security Act, or DSCSA, was enacted with the aim of building an electronic system to identify and trace certain prescription drugs distributed in the United States, including most biological products. The DSCSA mandates phased-in and resource-intensive obligations for pharmaceutical manufacturers, wholesale distributors and dispensers over a 10-year period that is expected to culminate in November 2023. From time to time, new legislation and regulations may be implemented that could significantly change the statutory provisions governing the approval, manufacturing and marketing of products regulated by the FDA. It is impossible to predict whether further legislative or regulatory changes will be enacted, or FDA regulations, guidance or interpretations changed or what the impact of such changes, if any, may be.

Companion Diagnostics and Complementary Diagnostics

Molecular believes that the success of Molecular’s drug candidates may depend, in part, on the development and commercialization of either a companion diagnostic or complementary diagnostic. Companion diagnostics and complementary diagnostics can identify patients who are most likely to benefit from a particular therapeutic product; identify patients likely to be at increased risk for serious side effects as a result of treatment with a particular therapeutic product; or monitor response to treatment with a particular therapeutic product for the purpose of adjusting treatment to achieve improved safety or effectiveness. Companion diagnostics and complementary diagnostics are regulated as medical devices by the FDA. The level of risk associated with a new diagnostic test combined with available controls to mitigate risk determines whether a companion diagnostic device requires Premarket Approval (PMA) from the FDA or if it can be cleared by the agency through the 510(k) premarket notification process based on a showing of substantial equivalence to a commercially available device. For a novel therapeutic product for which a companion diagnostic device is essential for the safe and effective use of the product, the companion diagnostic device should be developed and PMA-approved or 510(k)-cleared contemporaneously with the FDA’s approval of the therapeutic product. The use of the companion diagnostic device will be stipulated in the labeling of the therapeutic product.

U.S. Patent-term Extension

Depending upon the timing, duration and specifics of FDA approval of MT-3724, MT-5111, TAK-169, MT-6402 and any future drug candidates, some of Molecular’s U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Amendments to the FDCA. The Hatch-Waxman Amendments permit extension of the patent term of up to five years as compensation for patent term lost during product development and FDA regulatory review process. Patent-term extension, however, cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent-term extension period is generally one-half the time between the effective date of an IND and the submission date of an NDA or BLA plus the time between the submission date of an NDA or BLA and the approval of that application, except that the review period is reduced by any time during which the applicant failed to exercise due diligence. Only one patent applicable to an approved

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drug is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent. The U.S. Patent and Trademark Office, or USPTO, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, Molecular may apply for extension of patent term for Molecular’s currently owned or licensed patents to add patent life beyond its current expiration date, depending on the expected length of the clinical trials and other factors involved in the filing of the relevant NDA or BLA. 

Marketing Exclusivity for Small-Molecule Drug Products

In 1984, with passage of the Hatch-Waxman Amendments, Congress authorized the FDA to approve generic drugs that are the same as drugs previously approved by the FDA under the NDA provisions of the statute. To obtain approval of a generic drug, an applicant must submit an abbreviated new drug application, or ANDA, to the agency. In support of such applications, a generic manufacturer may rely on the preclinical and clinical testing conducted for a drug product previously approved under an NDA, known as the reference listed drug, or RLD. Specifically, in order for an ANDA to be approved, the FDA must find that the generic version is identical to the RLD with respect to the active ingredients, the route of administration, the dosage form, and the strength of the drug. At the same time, the FDA must also determine that the generic drug is “bioequivalent” to the innovator drug. Under the statute, a generic drug is bioequivalent to a RLD if “the rate and extent of absorption of the drug do not show a significant difference from the rate and extent of absorption of the listed drug.”

Following approval of an ANDA, the FDA indicates whether the generic product is “therapeutically equivalent” to the RLD in its publication “Approved Drug Products with Therapeutic Equivalence Evaluations,” also referred to as the “Orange Book.” In addition, by operation of certain state laws and numerous health insurance programs, the FDA’s designation of therapeutic equivalence often results in substitution of the generic drug without the knowledge or consent of either the prescribing physician or patient.

Upon approval of an NDA or a supplement thereto, NDA sponsors are required to list with the FDA each patent with claims that cover the applicant’s product or an approved method of using the product. Each of the patents listed by the NDA sponsor is published in the Orange Book. When an ANDA applicant submits its application to the FDA, the applicant is required to certify to the FDA concerning any patents listed for the RLD in the Orange Book, except for patents covering methods of use for which the ANDA applicant is not seeking approval. To the extent that a Section 505(b)(2) NDA applicant is relying on studies conducted for an already approved product, such an applicant also is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would. Section 505(b)(2) permits the filing of a new drug application, or NDA, where at least some of the information required for approval comes from studies that were not conducted by or for the applicant, and for which the applicant has not received a right of reference. Unlike the ANDA pathway used by developers of bioequivalent versions of innovator drugs, which does not allow applicants to submit new clinical data other than bioavailability or bioequivalence data, the 505(b)(2) regulatory pathway does not preclude the possibility that a follow-on applicant would need to conduct additional clinical trials or nonclinical studies; for example, they may be seeking approval to market a previously approved drug for new indications or for a new patient population that would require new clinical data to demonstrate safety or effectiveness.

Specifically, an ANDA or 505(b)(2) applicant for a follow-on drug product must certify with respect to each patent that:

• the required patent information has not been filed;

• the listed patent has expired;

• the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or

• the listed patent is invalid, unenforceable or will not be infringed by the new product.

A certification that the new product will not infringe the already approved product’s listed patents or that such patents are invalid or unenforceable is called a Paragraph IV certification. If the applicant does not challenge the listed patents or indicates that it is not seeking approval of a patented method of use, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired (other than method of use patents involving indications for which the ANDA applicant is not seeking approval).

If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA owner and patent holders once the ANDA in question has been accepted for filing by the FDA. The NDA owner and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days after the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months after the receipt of the Paragraph IV notice, expiration of the patent or a decision in the infringement case that is favorable to the ANDA applicant.

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In addition, under the Hatch-Waxman Amendments, the FDA may not approve an ANDA until any applicable period of non-patent exclusivity for the RLD has expired. These market exclusivity provisions under the FDCA also can delay the submission or the approval of certain applications. The FDCA provides a five-year period of non-patent marketing exclusivity within the United States to the first applicant to gain approval of an NDA for a drug containing a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an ANDA or a 505(b)(2) NDA submitted by another company for another version of such drug where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement.

The FDCA also provides three years of marketing exclusivity for a NDA, 505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the conditions of use associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the original active agent. Five-year and three-year exclusivity will not delay the submission or approval of a traditional NDA filed under Section 505(b)(1) of the FDCA. However, an applicant submitting a traditional NDA would be required to either conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.

Reference Product Exclusivity for Biological Products

In March 2010, the Patient Protection and Affordable Care Act was enacted in the United States and included the Biologics Price Competition and Innovation Act of 2009, or the BPCIA. The BPCIA amended the PHSA to create an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. This amendment to the PHSA, in part, attempts to minimize duplicative testing.

A federal district court ruling in Texas struck down the Affordable Care Act in its entirety based on constitutionality in December 2018 after the individual mandate was repealed by Congress as part of the Tax Cuts and Jobs Act, effective January 1, 2019, and in December 2019 the Fifth Circuit Court of Appeals upheld lower court’s finding that the individual mandate in the law was unconstitutional. However, the Fifth Circuit also reversed and remanded the case to the district court to determine if other reforms enacted as part of the Affordable Care Act but not specifically related to the individual mandate or health insurance, including the BPCIA, could be severed from the rest of the Affordable Care Act so as not to be declared invalid. On March 2, 2020, the United States Supreme Court granted the petitions for writs of certiorari to review this case and allocated one hour for oral arguments, which occurred on November 10, 2020. A decision from the Supreme Court is expected to be issued in spring 2021. It is unclear how this litigation and other efforts to repeal and replace the Affordable Care Act will affect the implementation of that law and our business. To date, the FDA has approved a number of biosimilars, and numerous biosimilars have been approved in Europe. The FDA has also issued several guidance documents outlining its approach to reviewing and approving biosimilars and interchangeable biosimilars.

Biosimilarity requires that the follow-on biological product be highly similar to the reference product notwithstanding minor differences in clinically inactive components and that there be no clinically meaningful differences between the follow-on product and the reference product in terms of safety, purity and potency. The biosimilar applicant must demonstrate that its product is biosimilar based on data from (1) analytical studies showing that the biosimilar product is highly similar to the reference product; (2) animal studies (including toxicity); and (3) one or more clinical studies to demonstrate safety, purity and potency in one or more appropriate conditions of use for which the reference product is approved. In addition, the applicant must show that the biosimilar and reference products have the same mechanism of action for the conditions of use on the label, route of administration, dosage and strength, and the production facility must meet standards designed to assure product safety, purity and potency. Interchangeability requires that a biological product be biosimilar to the reference product and that the product can be expected to produce the same clinical results as the reference product in any given patient and, for products administered multiple times to an individual, that the product and the reference product may be alternated or switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biological product without such alternation or switch. Upon licensure by the FDA, an interchangeable biosimilar may be substituted for the reference product without the intervention of the health care provider who prescribed the reference product, although to date no such products have been approved for marketing in the United States. Complexities associated with the larger, and often more complex, structure of biological products as compared to small molecule drugs, as well as the processes by which such products are manufactured, pose significant hurdles to implementation that are still being worked out by the FDA.

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A reference biological product is granted twelve years of data exclusivity from the time of first licensure of the product, and the first approved interchangeable biologic product will be granted an exclusivity period of up to one year after it is first commercially marketed. If pediatric studies are performed and accepted by the FDA as responsive to a Written Request, as described further below, the 12-year exclusivity period will be extended for an additional six months. In addition, the FDA will not accept an application for a biosimilar or interchangeable product based on the reference biological product until four years after the date of first licensure of the reference product. “First licensure” typically means the initial date the particular product at issue was licensed in the United States. Date of first licensure does not include the date of licensure of (and a new period of exclusivity is not available for) a biological product if the licensure is for a supplement for the biological product or for a subsequent application by the same sponsor or manufacturer of the biological product (or licensor, predecessor in interest, or other related entity) for a change (not including a modification to the structure of the biological product) that results in a new indication, route of administration, dosing schedule, dosage form, delivery system, delivery device or strength, or for a modification to the structure of the biological product that does not result in a change in safety, purity, or potency. Therefore, one must determine whether a new product includes a modification to the structure of a previously licensed product that results in a change in safety, purity or potency to assess whether the licensure of the new product is a first licensure that triggers its own period of exclusivity. Whether a subsequent application, if approved, warrants exclusivity as the “first licensure” of a biological product is determined on a case-by-case basis with data submitted by the sponsor.

The BPCIA is complex and only beginning to be interpreted and implemented by the FDA. In addition, recent government proposals have sought to reduce the 12-year reference product exclusivity period. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. As a result, the ultimate impact, implementation and meaning of the BPCIA continue to be subject to significant uncertainty.

Pediatric Exclusivity

Pediatric exclusivity is another type of non-patent marketing exclusivity available in the United States. Pediatric exclusivity, if granted, provides for the attachment of an additional six months of marketing protection to the term of any existing regulatory exclusivity or listed patents. This six-month exclusivity may be granted if an NDA or BLA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data. The data do not need to show the product to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the FDA’s request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity or patent protection cover the product are extended by six months. This is not a patent term extension, but it effectively extends the regulatory period during which the FDA cannot approve another application. The issuance of a Written Request does not require the sponsor to undertake the described studies.

If granted, pediatric exclusivity attaches to both the twelve-year and four-year exclusivity periods for reference biologics approved pursuant to BLAs, as well as the five-year and three-year marketing exclusivity periods available to NDA sponsors under the Hatch-Waxman Amendments and the seven-year orphan drug exclusivity period, as may be applicable to the FDA-approved therapeutic product.

Other U.S. Health Care Laws and Regulations

Manufacturing, sales, promotion and other activities following product approval may also be subject to regulation by other regulatory authorities in the United States in addition to the FDA. Depending on the nature of the product, those authorities may include the Centers for Medicare and Medicaid Services (CMS), other divisions of the Department of Health and Human Services (HHS), the Department of Justice, the Drug Enforcement Administration, the Consumer Product Safety Commission, the Federal Trade Commission, the Occupational Safety and Health Administration, the Environmental Protection Agency and state and local governments.

For example, in the United States, sales and marketing for prescription biopharmaceutical products must comply with state and federal fraud and abuse laws. These laws include the federal Anti-Kickback Statute, which makes it illegal for any person, including a prescription drug manufacturer (or a party acting on its behalf), to knowingly and willfully solicit, receive, offer or pay any remuneration that is intended to induce or reward referrals, including the purchase, recommendation, order or prescription of a particular drug, for which payment may be made under a federal healthcare program, such as Medicare or Medicaid. Violations of this law are punishable by up to ten years in prison, criminal fines, administrative civil money penalties and exclusion from participation in federal healthcare programs. In addition, the Patient Protection and Affordable Care Act, or ACA, among other things, amended the intent requirement of the federal Anti-Kickback Statute and two of the five criminal healthcare fraud statutes created by the Health Insurance Portability and Accountability Act of 1996, or HIPAA. A person or entity no longer needs to have actual knowledge of these two provisions in the statute or specific intent to violate them; specifically with respect to the prohibition on executing or attempting to execute a scheme or artifice to defraud or to fraudulently obtain money or property of any health care benefit program and the prohibition on disposing of assets to enable a person to become eligible for Medicaid. Moreover, the government may now assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act.

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Pricing and rebate programs must comply with the Medicaid rebate requirements of the U.S. Omnibus Budget Reconciliation Act of 1990 and more recent requirements in the ACA. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. There also are federal transparency requirements under the Physician Payments Sunshine Act that require manufacturers of FDA-approved drugs, devices, biologics and medical supplies covered by Medicare or Medicaid to report, on an annual basis, to CMS information related to payments and other transfers of value to physicians, teaching hospitals, and certain advanced non-physician health care practitioners and physician ownership and investment interests. Prescription drug and biologic products also must meet applicable child-resistant packaging requirements under the U.S. Poison Prevention Packaging Act.

Manufacturing, sales, promotion and other activities also are potentially subject to federal and state consumer protection and unfair competition laws. Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines, or the relevant compliance guidance promulgated by the federal government, in addition to requiring drug manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures to the extent that those laws impose requirements that are more stringent than the Physician Payments Sunshine Act. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

The failure to comply with any of these laws or regulatory requirements subjects firms to possible legal or regulatory action. Depending on the circumstances, failure to meet applicable regulatory requirements can result in criminal prosecution, fines or other penalties, injunctions, requests for recall, seizure of products, total or partial suspension of production, denial or withdrawal of product approvals or refusal to allow a firm to enter into supply contracts, including government contracts. Any action against Molecular for violation of these laws, even if Molecular successfully defends against it, could cause Molecular to incur significant legal expenses, divert Molecular’s management’s attention from the operation of Molecular’s business and harm Molecular’s reputation. Prohibitions or restrictions on sales or withdrawal of future products marketed by Molecular could materially affect Molecular’s business in an adverse way.

Changes in regulations, statutes or the interpretation of existing regulations could impact Molecular’s business in the future by requiring, for example: (i) changes to Molecular’s manufacturing arrangements; (ii) additions or modifications to product labeling; (iii) the recall or discontinuation of Molecular’s products; or (iv) additional record-keeping requirements. If any such changes were to be imposed, they could adversely affect the operation of Molecular’s business.

European Union and United Kingdom Drug Development

In the European Union, Molecular’s future products also may be subject to extensive regulatory requirements. As in the United States, drugs and biologics, which are referred to collectively in Europe as medicinal products, can be marketed only if a marketing authorization from the competent regulatory agencies has been obtained. Whether or not we obtain FDA approval for a drug candidate, we must obtain approval by the comparable regulatory authorities of foreign countries or economic areas, such as the European Union, before we may commence clinical trials or market products in those countries or areas. It is not yet clear how the United Kingdom’s withdrawal from the European Union, which took place on January 31, 2020, with a transitional period that expired on December 31, 2020 will affect the approval of medicinal products in the United Kingdom. The United Kingdom entered into a trade agreement known as the Trade and Cooperation Agreement, which is provisionally applicable as of January 1, 2021 but has not yet been ratified by the European Parliament.  In addition, the United Kingdom’s Medicines and Healthcare products Regulatory Agency (MHRA) has approved, on a transitional basis, two potential regulatory pathways that permit the MHRA to rely on certain clinical data submitted to support centralized European or decentralized EU Member State marketing authorization applications.  We are currently evaluating the potential impacts on our business of the new Trade and Cooperation Agreement and the MHRA’s transitional marketing authorization pathways.

Similar to the United States, the various phases of preclinical and clinical research in the European Union are subject to significant regulatory controls. Although the EU Clinical Trials Directive 2001/20/EC has sought to harmonize the EU clinical trials regulatory framework, setting out common rules for the control and authorization of clinical trials in the EU, the EU Member States have transposed and applied the provisions of the Directive differently. This has led to significant variations in the member state regimes. Under the current regime, before a clinical trial can be initiated, a clinical trial application must be approved in each of the EU countries where the trial is to be conducted by two distinct bodies: the National Competent Authority, or NCA, and one or more Ethics Committees, or ECs. Under the current regime all suspected unexpected serious adverse reactions to the investigated drug that occur during the clinical trial have to be reported to the NCA and ECs of the Member State where they occurred.

The EU clinical trials legislation currently is undergoing a transition process mainly aimed at harmonizing and streamlining clinical-trial authorization, simplifying adverse-event reporting procedures, improving the supervision of clinical trials and increasing their transparency. Specifically, in April 2014, the new Clinical Trials Regulation, (EU) No 536/2014 (Clinical Trials Regulation) was adopted and it is anticipated to come into application in 2021. The Clinical Trials Regulation will be directly applicable in all the EU Member States, repealing the current Clinical Trials Directive 2001/20/EC. Conduct of all clinical trials performed in the European Union will continue to be bound by currently applicable

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provisions until the new Clinical Trials Regulation becomes applicable. The extent to which ongoing clinical trials will be governed by the Clinical Trials Regulation will depend on when the Clinical Trials Regulation becomes applicable and on the duration of the individual clinical trial. If a clinical trial continues for more than three years from the day on which the Clinical Trials Regulation becomes applicable the Clinical Trials Regulation will at that time begin to apply to the clinical trial.

European Union Drug Review and Approval

In the European Economic Area, or EEA, which is comprised of the 27 Member States of the European Union plus Norway, Iceland and Liechtenstein, medicinal products can only be commercialized after obtaining a Marketing Authorization, or MA. There are two types of marketing authorizations.

• The Community MA is issued by the European Commission through the Centralized Procedure, based on the opinion of the Committee for Medicinal Products for Human Use, or CHMP, of the European Medicines Agency, or EMA, and is valid throughout the entire territory of the EEA. The Centralized Procedure is mandatory for certain types of products, such as biotechnology medicinal products, orphan medicinal products, advanced-therapy medicines such as gene-therapy, somatic cell-therapy or tissue-engineered medicines and medicinal products containing a new active substance indicated for the treatment of HIV, AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune and other immune dysfunctions and viral diseases. The Centralized Procedure is optional for products containing a new active substance not yet authorized in the EEA, or for products that constitute a significant therapeutic, scientific or technical innovation or which are in the interest of public health in the EU.

• National MAs, which are issued by the competent authorities of the Member States of the EEA and only cover their respective territory, are available for products not falling within the mandatory scope of the Centralized Procedure. Where a product has already been authorized for marketing in a Member State of the EEA, this National MA can be recognized in another Member States through the Mutual Recognition Procedure. If the product has not received a National MA in any Member State at the time of application, it can be approved simultaneously in various Member States through the Decentralized Procedure. Under the Decentralized Procedure an identical dossier is submitted to the competent authorities of each of the Member States in which the MA is sought, one of which is selected by the applicant as the Reference Member State, or RMS. The competent authority of the RMS prepares a draft assessment report, a draft summary of the product characteristics, or SPC, and a draft of the labeling and package leaflet, which are sent to the other Member States (referred to as the Member States Concerned) for their approval. If the Member States Concerned raise no objections, based on a potential serious risk to public health, to the assessment, SPC, labeling, or packaging proposed by the RMS, the product is subsequently granted a national MA in all the Member States (i.e., in the RMS and the Member States Concerned).

Under the above-described procedures, before granting the MA, the EMA or the competent authorities of the Member States of the EEA make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy.

European Union New Chemical Entity Exclusivity

In the European Union, new chemical entities, sometimes referred to as new active substances, qualify for eight years of data exclusivity upon marketing authorization and an additional two years of market exclusivity. The data exclusivity, if granted, prevents regulatory authorities in the European Union from referencing the innovator’s data to assess a generic or biosimilar application for eight years, after which generic marketing authorization can be submitted, and the innovator’s data may be referenced, but not approved for two years. The overall ten-year period can be extended to a maximum of 11 years if, during the first eight years of those 10 years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are determined to bring a significant clinical benefit in comparison with currently approved therapies.

European Union Orphan Designation and Exclusivity

In the European Union, the EMA’s Committee for Orphan Medicinal Products grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating conditions affecting not more than 5 in 10,000 persons in the European Union community (or where it is unlikely that the development of the medicine would generate sufficient return to justify the investment) and for which

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no satisfactory method of diagnosis, prevention or treatment has been authorized (or, if a method exists, the product would be a significant benefit to those affected).

In the European Union, orphan drug designation entitles a party to financial incentives such as reduction of fees or fee waivers and 10 years of market exclusivity is granted following medicinal product approval. Orphan drug designation must be requested before submitting an application for marketing approval. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. The 10-year period of exclusivity may be reduced to six years if the orphan drug designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity. Additionally, marketing authorization may be granted to a similar product for the same indication at any time if:

• the second applicant can establish that its product, although similar, is safer, more effective or otherwise clinically superior;

• the applicant consents to a second orphan medicinal product application; or

• the applicant cannot supply enough orphan medicinal product.

United Kingdom regulatory framework and operational impacts post-Brexit

The United Kingdom left the European Union on January 31, 2020 (commonly referred to as “Brexit”), with a transitional period that expired on December 31, 2020. The United Kingdom and the European Union entered into a trade agreement known as the Trade and Cooperation Agreement, which is provisionally applicable as of January 1, 2021 but has not yet been ratified by the European Parliament.  It remains to be seen how, if at all, Brexit and the Trade and Cooperation Agreement will impact regulatory requirements for product candidates and products in the United Kingdom. We are currently evaluating the potential impacts on our business of the new Trade and Cooperation Agreement.

Since the regulatory framework for pharmaceutical products in the United Kingdom covering quality, safety and efficacy of pharmaceutical products, clinical trials, marketing authorization, commercial sales and distribution of pharmaceutical products is derived from European Union directives and regulations, Brexit could materially impact the future regulatory regime which applies to products and the approval of product candidates in the United Kingdom. Such outcomes could make it more difficult and expensive for us to do business in Europe, complicate our clinical, manufacturing and regulatory strategies and impair our ability to obtain and maintain regulatory approval for, and, if approved, commercialize, our products and product candidates in Europe. In addition, our ability to continue to conduct our international operations out of the United Kingdom, where the headquarters for our international operations is located, may be materially and adversely affected. While we have undertaken a number of Brexit-related contingency planning initiatives, the full potential financial, legal, regulatory and other implications of Brexit are uncertain and we cannot make any assurances regarding the extent to which our business may be adversely affected thereby.

Rest of the World Regulation

For other countries outside of the European Union and the United States, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. Additionally, the clinical trials must be conducted in accordance with GCP requirements and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.

If Molecular fails to comply with applicable foreign regulatory requirements, Molecular may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

Coverage, Pricing, and Reimbursement

Sales of Molecular’s products approved for marketing by the FDA and foreign regulatory authorities will depend, in part, on the extent to which Molecular’s products will be covered by third-party payors, such as government health programs, commercial insurance and managed care organizations. In the United States no uniform policy of coverage and reimbursement for drug or biological products exists. Accordingly, decisions regarding the extent of coverage and amount of reimbursement to be provided for any of Molecular’s products will be made on a payor-by-payor basis. As a result, the coverage determination process is often a time-consuming and costly process that will require Molecular to provide scientific and clinical support for the use of Molecular’s products to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained.

The United States government, state legislatures and foreign governments have shown significant interest in implementing cost containment programs to limit the growth of government-paid health care costs, including price-controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs. For example, the ACA contains provisions that may reduce the profitability of drug products through increased rebates for drugs

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reimbursed by Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies’ share of sales to federal health care programs. Adoption of general controls and measures, coupled with the tightening of restrictive policies in jurisdictions with existing controls and measures, could limit payments for pharmaceutical drugs. The Medicaid Drug Rebate Program requires pharmaceutical manufacturers to enter into and have in effect a national rebate agreement with the Secretary of the Department of HHS as a condition for states to receive federal matching funds for the manufacturer’s outpatient drugs furnished to Medicaid patients. The ACA made several changes to the Medicaid Drug Rebate Program, including increasing pharmaceutical manufacturers’ rebate liability by raising the minimum basic Medicaid rebate on most branded prescription drugs from 15.1% of average manufacturer price, or AMP, to 23.1% of AMP and adding a new rebate calculation for “line extensions” (i.e., new formulations, such as extended release formulations) of solid oral dosage forms of branded products, as well as potentially impacting their rebate liability by modifying the statutory definition of AMP. The ACA also expanded the universe of Medicaid utilization subject to drug rebates by requiring pharmaceutical manufacturers to pay rebates on Medicaid managed care utilization and by enlarging the population potentially eligible for Medicaid drug benefits. Since its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA, and as a result certain sections of the ACA have not been fully implemented or effectively repealed. In particular, in December of 2018, a Texas U.S. District Court Judge ruled that the ACA is unconstitutional in its entirety because the individual mandate was repealed by Congress as part of the Tax Cuts and Jobs Act, effective January 1, 2019. On December 18, 2019, the U.S. Court of Appeals for the Fifth Circuit upheld the District Court ruling that the individual mandate was unconstitutional but remanded the case back to the District Court to determine whether other reforms enacted as part of the ACA but not specifically related to the individual mandate or health insurance could be severed from the rest of the ACA so as not to be declared invalid as well. On March 2, 2020, the United States Supreme Court granted the petitions for writs of certiorari to review this case and allocated one hour for oral arguments, which occurred on November 10, 2020. A decision from the Supreme Court is expected to be issued in spring 2021. It is unclear how this litigation and other efforts to repeal and replace the ACA will impact the ACA and the pharmaceutical industry more generally.

In addition, other legislative changes have been proposed and adopted since the ACA was enacted. These changes include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year pursuant to the Budget Control Act of 2011, which began in 2013 and will remain in effect through 2030 unless additional Congressional action is taken. The Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, which was signed into law on March 27, 2020 and was designed to provide financial support and resources to individuals and businesses affected by the COVID-19 pandemic, suspended the 2% Medicare sequester from May 1, 2020 through December 31, 2020, and extended the sequester by one year, through 2030, in order to offset the added expense of the 2020 cancellation. The 2021 Consolidated Appropriations Act was subsequently signed into law on December 27, 2020 and extends the CARES Act suspension period to March 31, 2021.

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, established the Medicare Part D program to provide a voluntary prescription drug benefit to Medicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities that provide coverage of outpatient prescription drugs. Unlike Medicare Part A and B, Part D coverage is not standardized. While all Medicare drug plans must give at least a standard level of coverage set by Medicare, Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Government payment for some of the costs of prescription drugs may increase demand for products for which Molecular receive marketing approval. However, any negotiated prices for Molecular’s products covered by a Part D prescription drug plan likely will be lower than the prices Molecular might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-governmental payors.

For a drug product to receive federal reimbursement under the Medicaid or Medicare Part B programs or to be sold directly to U.S. government agencies, the manufacturer must extend discounts to entities eligible to participate in the 340B drug pricing program. The maximum amount that a manufacturer may charge a 340B covered entity for a given product is the AMP reduced by the rebate amount paid by the manufacturer to Medicaid for each unit of that product. As of 2010, the ACA expanded the types of entities eligible to receive discounted 340B pricing, although, under the current state of the law, with the exception of children’s hospitals, these newly eligible entities will not be eligible to receive discounted 340B pricing on orphan drugs. In addition, as 340B drug pricing is determined based on AMP and Medicaid rebate data, the revisions to the Medicaid rebate formula and AMP definition described above could cause the required 340B discount to increase.

Moreover, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. HHS has solicited feedback on various measures intended to lower drug prices and reduce the out of pocket costs of drugs and has implemented others under its existing authority. For example, in September 2020, the FDA finalized a rulemaking to establish a system whereby state governmental entities could lawfully import and distribute prescription drugs sourced from Canada. Those new regulations became effective on November 30, 2020, although the impact of such future programs is

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uncertain, in part because lawsuits have been filed challenging the government’s authority to promulgate them. The final regulations may also be vulnerable to being overturned by a joint resolution of disapproval from Congress under the procedures set forth in the Congressional Review Act, which could be applied to regulatory actions taken by the Trump Administration on or after August 21, 2020 (i.e., in the last 60 days of legislative session of the 116th Congress). Congress and the executive branch have each indicated that they will continue to seek new legislative and/or administrative measures to control drug costs making this area subject to ongoing uncertainty.

As another example, in July 2020, President Trump announced four executive orders related to prescription drug pricing that attempt to implement several of his Administration’s proposals, including a policy that would tie Medicare Part B drug prices to international drug prices; one that directed HHS to finalize the Canadian drug importation proposed rule previously issued by HHS (which has since been finalized, as noted above) and made other changes allowing for personal importation of drugs from Canada; one that directed HHS to finalize the rulemaking process on modifying the anti-kickback law safe harbors for plans, pharmacies, and pharmaceutical benefit managers after HHS confirms that the action is not projected to increase federal spending, Medicare beneficiary premiums, or patients’ total out-of-pocket costs (which HHS finalized in November 2020, also making those rules subject to potentially being overturned under the Congressional Review Act); and one that reduces costs of insulin and epinephrine auto-injectors to patients of federally qualified health centers. President Trump also issued another executive order on September 13, 2020 that directed HHS to undertake rulemaking in order to test an international reference pricing model for prescription drug products, which was also implemented by HHS and then challenged in federal court by industry groups in December 2020. On December 28, 2020, the U.S. District Court for the Northern District of California issued a nationwide preliminary injunction that enjoins HHS from implementing the so-called “Most Favored Nation Rule.” Given this preliminary injunction, the rule was not implemented on January 1, 2021 and will not be implemented without further rulemaking, according to recent statements by HHS. The probability of success of these newly announced policies and their impact on the U.S. prescription drug marketplace is unknown. There are likely to be continued political and legal challenges associated with implementing these reforms as they are currently envisioned, and the January 20, 2021 transition to a new Democrat-led presidential administration created further uncertainty. Following his inauguration, President Biden took immediate steps to order a regulatory freeze on all pending substantive executive actions in order to permit incoming department and agency heads to review whether questions of fact, policy, and law may be implicated and to determine how to proceed. Moreover, although the Biden Administration also has indicated that lowering prescription drug prices is a priority, it is not yet clear what steps the new administration will take or whether such steps will be successful.

At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures. In December 2020, the U.S. Supreme Court held unanimously that federal law does not preempt the states’ ability to regulate pharmaceutical benefit managers (“PBMs”) and other members of the health care and pharmaceutical supply chain, an important decision that may lead to further and more aggressive efforts by states in this area.

As noted above, the marketability of any products for which Molecular receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate coverage and reimbursement. Molecular expects that the increasing emphasis on cost containment measures in the United States will continue to increase the pressure on pharmaceutical pricing. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which Molecular receives regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

In addition, in most foreign countries, the proposed pricing for a medicinal product must be approved before it may be lawfully marketed. The requirements governing drug pricing and reimbursement vary widely from country to country. Some countries provide that drug products may be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of a new drug candidate to currently available therapies (so called health technology assessment, or HTA) in order to obtain reimbursement or pricing approval. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of Molecular’s future commercial products. Historically, products launched in the European Union do not follow price structures of the United States and generally prices tend to be significantly lower.

Health Care Reform in the U.S. and Potential Changes to Health Care Laws

The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our drug candidates. For example, in December 2016, the 21st Century Cures Act, or Cures Act, was signed into law. The Cures Act, among other things, is intended to modernize the regulation of drugs and devices and to spur innovation, but its ultimate implementation is uncertain. In addition, in August 2017, the FDA Reauthorization Act was signed into law, which reauthorized the FDA’s user fee programs and included additional drug and device provisions that build on the Cures Act. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we

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may lose any marketing approval that we otherwise may have obtained and we may not achieve or sustain profitability, which would adversely affect our business, prospects, financial condition and results of operations.

As previously mentioned, the primary trend in the US health care industry and elsewhere is cost containment. Government authorities and other third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medical products and services, implementing reductions in Medicare and other health care funding and applying new payment methodologies. For example, in March 2010, the Affordable Care Act was enacted, which, among other things, increased the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program; introduced a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected; extended the Medicaid Drug Rebate Program to utilization of prescriptions of individuals enrolled in Medicaid managed care plans; imposed mandatory discounts for certain Medicare Part D beneficiaries as a condition for manufacturers’ outpatient drugs coverage under Medicare Part D; and established a Center for Medicare Innovation at the US Centers for Medicare and Medicaid Services, or CMS, to test innovative payment and service delivery models to lower Medicare and Medicaid spending. The uncertainty related to the Affordable Care Act and the regulatory and executive actions pertaining to drug costs and drug pricing matters is described above under “Coverage, Pricing, and Reimbursement”. As another example, the 2021 Consolidated Appropriations Act signed into law on December 27, 2020 incorporated extensive health care provisions and amendments to existing laws, including a requirement that all manufacturers of drugs and biological products covered under Medicare Part B report the product’s average sales price to HHS beginning on January 1, 2022, subject to enforcement via civil money penalties.

Other legislative changes have been proposed and adopted in the United States since the Affordable Care Act that may affect health care expenditures. For example, on December 20, 2019, President Trump signed the Further Consolidated Appropriations Act for 2020 into law (P.L. 116-94) that includes a piece of bipartisan legislation called the Creating and Restoring Equal Access to Equivalent Samples Act of 2019 or the “CREATES Act.” The CREATES Act aims to address the concern articulated by both the FDA and others in the industry that some brand manufacturers have improperly restricted the distribution of their products, including by invoking the existence of a REMS for certain products, to deny generic and biosimilar product developers access to samples of brand products. Because generic and biosimilar product developers need samples to conduct certain comparative testing required by the FDA, some have attributed the inability to timely obtain samples as a cause of delay in the entry of generic and biosimilar products. To remedy this concern, the CREATES Act establishes a private cause of action that permits a generic or biosimilar product developer to sue the brand manufacturer to compel it to furnish the necessary samples on “commercially reasonable, market-based terms.” Whether and how generic and biosimilar product developments will use this new pathway, as well as the likely outcome of any legal challenges to provisions of the CREATES Act, remain highly uncertain and its potential effects on our future commercial products are unknown. The Consolidated Appropriations Act, 2021 also includes, among other things, a new requirement for patent information to be submitted to the FDA and published in a “Purple Book” that contains detailed information about each FDA-licensed biological product, analogous to the Orange Book that provides information about approved small-molecule drug products and their patent and exclusivity information under the Hatch-Waxman Amendments. In addition, the next cycle of Congressional reauthorization for FDA’s prescription drug, biologic, and medical device user fee programs must be completed by mid-2022 and that periodic must-pass legislation is typically used as a vehicle to implement federal policy changes or other substantive amendments to the FDCA.

We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad. We expect that additional state and federal health care reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for health care products and services. Moreover, if we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, our drug or biologic candidates may lose any marketing approval that may have been obtained and we may not achieve or sustain profitability, which would adversely affect our business.

U.S. Foreign Corrupt Practices Act

In general, the Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, prohibits offering to pay, paying, promising to pay, or authorizing the payment of money or anything of value to a foreign official in order to influence any act or decision of the foreign official in his or her official capacity or to secure any other improper advantage in order to obtain or retain business for or with, or in order to direct business to, any person. The prohibitions apply not only to payments made to “any foreign official,” but also those made to “any foreign political party or official thereof,” to “any candidate for foreign political office” or to any person, while knowing that all or a portion of the payment will be offered, given, or promised to anyone in any of the foregoing categories. “Foreign officials” under the FCPA include officers or employees of a department, agency, or instrumentality of a foreign government. The term “instrumentality” is broad and can include state-owned or state-controlled entities.

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Importantly, United States authorities that enforce the FCPA, including the Department of Justice, deem most health care professionals and other employees of foreign hospitals, clinics, research facilities and medical schools in countries with public health care or public education systems to be “foreign officials” under the FCPA. When we interact with foreign health care professionals and researchers in testing and marketing our products abroad, we must have policies and procedures in place sufficient to prevent us and agents acting on our behalf from providing any bribe, gift or gratuity, including excessive or lavish meals, travel or entertainment in connection with marketing our products and services or securing required permits and approvals such as those needed to initiate clinical trials in foreign jurisdictions. The FCPA also obligates companies whose securities are listed in the United States to comply with accounting provisions requiring the maintenance of books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and the development and maintenance of an adequate system of internal accounting controls for international operations. The SEC is involved with the books and records provisions of the FCPA.

Competition

Molecular competes directly with companies that focus on oncology as well as companies dedicating their resources to novel forms of cancer therapies. Molecular also faces competition from academic research institutions, governmental agencies and various other public and private research institutions. With the proliferation of new drugs and therapies into oncology, Molecular expects to face increasingly intense competition as new technologies become available. Any ETB candidates that Molecular successfully develops and commercializes will compete with existing therapies and new therapies that may become available in the future.

Many of Molecular’s competitors have significantly greater financial, manufacturing, marketing, drug development, technical and human resources than Molecular. Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of Molecular’s competitors. Smaller or early-stage companies also may prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with Molecular in recruiting and retaining top qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, Molecular’s programs.

The key competitive factors affecting the success of all of Molecular’s ETB candidates, if approved, are likely to be their efficacy, safety, dosing convenience, price, the effectiveness of companion diagnostics in guiding the use of related therapeutics, the level of generic competition and the availability of reimbursement from government and other third-party payors.

Molecular’s commercial opportunity could be reduced or eliminated if its competitors develop and commercialize products that are safer, more effective, less expensive, more convenient or easier to administer, or have fewer or less severe effects than any products that Molecular may develop. Molecular’s competitors also may obtain FDA, EMA or other regulatory approval for their products more rapidly than Molecular may obtain approval for its products, which could result in Molecular’s competitors establishing a strong market position before Molecular is able to enter the market. Even if Molecular’s ETB candidates achieve marketing approval, they may be priced at a significant premium over competitive products if any have been approved by then.

In addition to currently marketed therapies, there are also a number of products in late-stage clinical development directed to the same biological targets as Molecular’s programs, including antibodies, antibody drug conjugates and bi-specific antibodies.

• Approved antibody-based products targeting CD20 include rituximab (Genentech/Roche), ofatumumab (Novartis), obinutuzumab (Genentech/Roche) and ibritumomab tiuxetan (Spectrum Pharmaceuticals).

• Antibody-based products, including bi-specific antibodies, and antibody targeting T-cell approaches targeting CD20 in development include odronextamab (Regeneron Pharmaceuticals), mosunetuzumab (Genentech/Roche), glofitamab (Genentech/Roche), XmAb13676 (Novartis/Xencor) and epcoritamab (Genmab).

• The approved antibody-based products targeting CD38 are daratumumab (Janssen/Genmab) and isatuximab (Sanofi).

• Antibody-based products, including bi-specific antibodies, targeting CD38 in development include XmAb13551 (Amgen/Xencor), TJ202 (I-Mab), ISB1342 (Ichnos), TAK573 and TAK079 (both Takeda).

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• Approved antibody-based products, including antibody drug conjugates, targeting HER2 include trastuzumab, pertuzumab, trastuzumab emtansine (all from Genentech/Roche), trastuzumab deruxtecan (Daiichi Sankyo) and margetuximab (Macrogenics). Antibody-based products, including bi-specific antibodies, targeting HER2 in development include zenocutuzumab (Merus), zanidatamab (Zymeworks), and PRS-343 (Pieris).

• Approved antibody-based products targeting PD-L1 include atezolizumab (Genentech/Roche), durvalumab (AstraZeneca) and avelumab (Merck KGaA/Pfizer).

• Antibody-based products targeting PD-L1 in development include REGN2810 (Regeneron) and LY3300054 (Lilly).

 Employees and Human Capital

We have approximately 236 full‑time employees as of December 31, 2020. None of our employees are represented by a collective bargaining agreement, nor have we experienced any work stoppage. We believe that our relations with our employees are good.

We are committed to developing therapies that can potentially benefit patients who are resistant to conventional cancer therapies or current therapies for other serious diseases. To that end, we recognize that our industry is specialized and dynamic, and a significant aspect of our success is our continued ability to execute our human capital strategy of attracting, engaging, developing and retaining highly skilled talent. There is fierce competition for highly skilled talent, particularly in the Austin, Texas and New York areas, and we offer a robust set of benefits covering employees’ physical, emotional and financial health, a strong company culture and initiatives aligned with our mission, vision, and values. We offer competitive compensation for our employees and strongly embrace pay for performance. We also strive to provide a collegial atmosphere where teamwork and collaboration are emphasized and valued. Our employee led group, One MTEM, greatly contributes to the open, collaborative and team-driven culture with its dedication to community outreach, professional development and cross functional collaboration and understanding. This group sponsors a variety of community fundraisers and company events in furtherance of its mission of empowering and engaging employees. We also have dedicated full-time employees who oversee all aspects of our human capital management process including professional talent acquisition team members whose objective is to locate and attract qualified experienced professionals. We are continuously exploring new markets as sources of talent.

Our Employee Handbook and Code of Business Conduct and Ethics clearly outlines our unwavering commitment to diversity and inclusion, where all employees are welcomed in an environment designed to make them feel comfortable, respected, and accepted regardless of their age, race, national origin, gender, religion, disability or sexual orientation. We have a set of policies explicitly setting forth our expectations for nondiscrimination and a harassment-free work environment. We also have an employee-led Diversity, Equity and Inclusion (“DEI”) Committee which aims to support all members of our community and works to ensure all employees feel welcomed, respected and capable of performing their best work. We are also a proud equal opportunity employer and cultivate a highly collaborative and entrepreneurial culture.

Corporate Information

On August 1, 2017, we completed our business combination with Molecular Templates OpCo, Inc., or what was then known as “Molecular Templates, Inc.” (“Private Molecular”; formerly D5 Pharma Inc., a Delaware corporation incorporated on February 19, 2009), in accordance with the terms of an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), dated as of March 16, 2017, by and among us (formerly known as Threshold Pharmaceuticals, Inc. (Nasdaq: THLD) (“Threshold”), Trojan Merger Sub, Inc. (“Merger Sub”), our wholly owned subsidiary, and Private Molecular, pursuant to which Merger Sub merged with and into Private Molecular, with Private Molecular surviving as our wholly owned subsidiary, now “Molecular Templates OpCo,  Inc.” (the “Merger”).

On August 1, 2017, in connection with and prior to the consummation of the Merger, we effected an 11-for-1 reverse stock split of the shares of our common stock. Each outstanding share of Private Molecular common stock was converted into 7.7844 shares of common stock of the post-Merger combined company. As a result, we issued approximately 11.7 million shares of our common stock to the stockholders of Private Molecular in exchange for shares of common stock of Private Molecular. Upon the consummation of the Merger, we changed our name to “Molecular Templates, Inc.” For accounting purposes, Private Molecular is considered to have acquired Threshold in the Merger.

Immediately after the Merger, there were approximately 18,164,843 shares of our common stock outstanding. Immediately after the Merger, the former Private Molecular stockholders, warrant holders and option holders owned approximately 65.6% of our fully-diluted common stock, with the Threshold’s stockholders and warrant holders immediately prior to the Merger, whose warrants and shares of the common stock remain outstanding after the Merger, owning approximately 34.4% of our fully-diluted common stock.

Molecular and Molecular Templates OpCo, Inc. each have a principal executive office at 9301 Amberglen Boulevard, Suite 100, Austin, Texas 78729 and telephone number (512) 869-1555.

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Available Information

We file electronically with the Securities and Exchange Commission, or SEC, our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Exchange Act. The SEC maintains an Internet site that contains reports, proxy information and information statements, and other information regarding issuers that file electronically with the SEC. The address of that website is http://www.sec.gov. The materials are also available at the SEC’s Public Reference Room, located at 100 F Street, Washington, D.C. 20549. The public may obtain information through the public reference room by calling the SEC at 1-800-SEC-0330.

You may obtain a free copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports on the day of filing with the SEC on our website at http://www.mtem.com or by contacting the Investor Relations Department at our corporate offices by calling (512) 869-1555. The information contained in, or that can be accessed through, our website is not part of, and is not incorporated into, this annual report on Form 10-K.

ITEM 1A.RISK FACTORS

We have identified the following risks and uncertainties that may have a material adverse effect on our business, financial condition or results of operations. The risks described below are not the only ones we face. Additional risks not presently known to us or other factors not perceived by us to present significant risks to our business at this time may also significantly impair our business operations. Our business could be harmed by any of these risks. Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all other information contained in this Annual Report on Form 10-K, including our condensed consolidated financial statements and the related notes, before making any decision to purchase our common stock. If any of the possible adverse events described below actually occurs, we may be unable to conduct our business as currently planned and our prospects, financial condition, operating results and cash flows could be materially harmed. In addition, the trading price of our common stock could decline due to the occurrence of any of the events described below, and you may lose all or part of your investment. In assessing these risks, you should refer to the other information contained in this Annual Report on Form 10-K, including our condensed consolidated financial statements and related notes.

Summary Risk Factors

We are subject to a number of risks that if realized could affect our business, financial condition, results of operations and cash flows. As a clinical stage biopharmaceutical company, certain elements of risk are inherent to our business. Accordingly, we encounter risks as part of the normal course of our business. Some of the more significant challenges and risks include the following:

• Uncertainty regarding future revenue from product sales.

o We are a clinical-stage biopharmaceutical company that currently generates no revenue from sales of any products and we may never be able to develop or commercialize a drug or biologic candidate. Even if we receive approval to market one or more products, we may never become profitable if we are unable to establish market acceptance, adequate market share or reimbursement from third-party payors. Additionally, if we receive approval, we expect our expenses to increase significantly in order to successfully launch such approved drug or biologic candidate and such increases may not be commercially feasible. Further, if we cannot generate revenue from the sale of any approved products, we may never become profitable.

• Clinical trial delays, adverse events, and/or clinical trial results may affect our business adversely.

o Clinical development is expensive, time consuming and involves significant risk. If there is a failure of one or more of our clinical trials, at any stage of development, or if we experience serious adverse events, such failure may lead to additional costs to us or impair our ability to generate revenue. In addition, many of the factors, including the incidence of serious adverse events, that cause or lead to a delay in the commencement or completion of a clinical trial may also lead to the denial of marketing approval for our drug or biologic candidates, which would lead to material harm to our business.

• We rely on third parties to manage our clinical programs, manufacture our drug or biologic candidates and perform other services.

o We rely on third-party vendors for key components of the development of our drug or biologic candidates, including the manufacturing, management of clinical trials and other critical services. If such third-party vendors fail to comply with applicable laws, regulations or guidelines or are unable to obtain the materials needed for the manufacture of our drug or biologic candidates, we may have a disruption in our clinical trials and potentially, commercial sale of a future approved product. While we completed the construction of our cGMP manufacturing facility and developed the capability to manufacture drug or biologic

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candidates for use in the conduct of our clinical trials, we may not be able to manufacture drug or biologic candidates or there may be substantial technical or logistical challenges to supporting manufacturing demand for drug or biologic candidates either by us or by our third-party manufacturers. Additionally, as we rely upon these vendors to perform release testing on our drug or biologic candidate prior to delivery to subjects in our clinical trials or patients being treated with our drug or biologic candidates, if approved in the future, such subjects or patients could be put at risk for serious harm and we may face damaging product liability suits.

• We are subject to substantial regulation.

o As a biopharmaceutical company, we are subject to extensive regulation by government and regulatory agencies, such as the FDA and the EMA, among others. We may not receive the governmental approvals needed to market and commercialize our drug or biologic candidates, which could have a material adverse effect on our financial condition, operations and prospects. The FDA and comparable foreign regulatory authorities have limited experience with ETB products like our product candidates, which may increase the uncertainty surrounding as well as the expenses involved in the regulatory approval process for our drug or biologic candidates. Such delays, unexpected costs or failure to obtain regulatory approval to market our drug or biologic candidates could harm our ability to generate product revenue and our business, financial condition, results or operations and prospects may be harmed. Even if we obtain regulatory approval for a product, maintaining such compliance with regulatory requirements will result in additional expenses to us, which may be difficult to maintain.

• We are reliant on our intellectual property and are subject to the risk that we will not be able to protect our intellectual property rights.

o We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect our intellectual property related to our technologies and drug or biologic candidates. Our commercial success depends on our ability to obtain, maintain and enforce patent and other intellectual property protections for our current and future technologies and drug or biologic candidates. If we are unable to do so, our business may be materially harmed, our ability to commercialize our drug or biologic candidates may be limited and our profitability may be delayed or may never occur.

• We depend on third party licensing or collaboration agreements.

o Our business strategy, along with our short- and long-term operating results depend in part on our ability to execute on existing strategic collaborations, including those with Takeda, Vertex and Bristol Myers Squibb, and to license or partner with new strategic partners. As of December 31, 2020, our research and development revenue from our strategic collaborations was $15.6 million. If, disputes arise between us and our partners in such agreements, there may be increased costs due to related litigation or if we decide to fund such programs ourselves. Disputes with partners may lead to substantial delays or possible termination of such agreements or related clinical trials and the need to seek a new partner for the development or commercialization of such drug or biologic candidate. In addition, if commercialization collaboration partners do not commit sufficient resources to commercialize our future drugs or biologics, and if we are unable to develop the necessary marketing and sales capabilities on our own, we will be unable to generate sufficient product revenue to sustain or grow our business.

• We are subject to substantial competition.

o We compete with large pharmaceutical companies that have access to significant capital and materially greater manufacturing, marketing, research and drug development resources. We also compete with specialty pharmaceutical companies and biotechnology companies, including but not limited to, Roche/Genentech, Bayer, Bristol Myers Squibb, Merck, Daiichi Sankyo, Novartis and Pfizer, among others, as well as, universities and other research institutions worldwide that are developing drug or biological products for the same indications as us that could be more effective or less costly than our drug or biologic candidates, which may render our candidates obsolete and noncompetitive.

• We are vulnerable to disruptions and volatility in the financial markets.

o We are reliant in part on the financial markets to finance our future capital needs through public equity offerings, debt financings and other funding arrangements. Disruptions and volatility in the financial markets can have a material adverse effect on our ability to access capital and liquidity on acceptable financial terms. Negative and fluctuating economic conditions may present challenges in us obtaining additional capital needed to fund our operations. If we do not obtain funding on a timely basis and on acceptable terms, we may need to delay or discontinue one or more of our programs or the commercialization of our drug or biologic candidates.

• We and others in our industry face cybersecurity risks.

o We take protective measures and monitor and develop our systems continuously to protect our technology infrastructure and sensitive data, such as personally identifiable information about our employees and intellectual property, from cyberattacks. However, cybersecurity risks continue to increase for our industry,

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including for our third party vendors, who may hold some of our data, and the proliferation of new technologies and the increased sophistication and activities of the actors behind such attacks present risks for compromised or lost data, which could result in substantial costs and harm to our reputation as well as delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce such data.  

The above list is not exhaustive, and we face additional challenges and risks. Please carefully consider all of the information in this Form 10-K including matters set forth in this “Risk Factors” section.

Risks Related to Our Financial Condition and Capital Requirements

We have incurred losses since inception, have a limited operating history on which to assess our business, and anticipate that we will continue to incur significant losses for the foreseeable future.

We are a clinical development-stage biopharmaceutical company with a limited operating history. We currently generate no revenue from sales of any products, and we may never be able to develop or commercialize a drug or biologic candidate. We have incurred net losses in each year since 2009, including net losses attributable to common shareholders of $104.9 million for the year ended December 31, 2020. At December 31, 2020, we had an accumulated deficit of $269.0 million.

We have devoted substantially all of our financial resources to identify, acquire, and develop our drug or biologic candidates, including conducting clinical trials and providing general and administrative support for our operations. To date, we have financed our operations primarily through the sale of equity securities, debt financing and collaborations. The amount of our future net losses will depend, in part, on the rate of our future expenditures and our ability to obtain funding through equity or debt financings, strategic collaborations or grants. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We expect losses to increase as we complete Phase I development and advance into Phase II development of our lead drug or biologic candidates. We have not yet commenced pivotal clinical trials for any drug or biologic candidate and it may be several years, if ever, before we complete pivotal clinical trials and have a drug or biologic candidate approved for commercialization. We expect to invest significant funds into the research and development of our current drug or biologic candidates to determine the potential to advance these drug or biologic candidates to regulatory approval.

If we obtain regulatory approval to market one or more products, our future revenue will depend upon the size of any markets in which our drug or biologic candidates may receive approval, and our ability to achieve sufficient market acceptance, pricing, reimbursement from third-party payors and adequate market share for our drug or biologic candidates in those markets. Even if we obtain adequate market share for one or more products, because the potential markets in which our drug or biologic candidates may ultimately receive regulatory approval could be very small, we may never become profitable despite obtaining such market share and acceptance of our products.

We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future and our expenses will increase substantially if and as we:

• continue the clinical development of our drug or biologic candidates;

• continue efforts to discover or acquire via assignment or in-license new drug or biologic candidates;

• undertake the manufacturing of our drug or biologic candidates or increase volumes manufactured by third parties;

• advance our programs into larger, more expensive clinical trials;

• initiate additional preclinical, clinical, or other trials or studies for our drug or biologic candidates;

• seek regulatory and marketing approvals and reimbursement for our drug or biologic candidates;

• establish a sales, marketing, and distribution infrastructure to commercialize any products for which we may obtain marketing approval and market for ourselves;

• seek to identify, assess, acquire, and/or develop other drug or biologic candidates;

• make milestone, royalty or other payments under third-party license agreements;

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• seek to maintain, protect, and expand our intellectual property portfolio;

• evaluate possible, or participate in actual, development partnerships with one or more third parties;

• seek to attract and retain skilled personnel; and

• experience any delays or encounter issues with the development and potential for regulatory approval of our clinical candidates such as safety issues, clinical trial accrual delays, longer follow-up for planned studies, additional major studies or supportive studies necessary to support marketing approval, or delays as a result of the COVID-19 pandemic.

Further, the net losses we incur may fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison of our results of operations may not be a good indication of our future performance.

We will continue to require substantial additional capital to continue our clinical development and potential commercialization activities. Accordingly, we will need to raise substantial additional capital to continue to fund our operations. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our clinical development efforts. Failure to raise capital as and when needed, on favorable terms or at all, would have a negative impact on our financial condition and our ability to develop our drug or biologic candidates.

We expect that we will need substantial additional funding. If we are unable to raise capital when needed or to do so on terms that are favorable to us, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.

Unless and until we can generate a substantial amount of revenue from our drug or biologic candidates, we expect to finance our future cash needs through public or private equity offerings, debt financings or collaborations, licensing arrangements and government funding arrangements. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans. On August 7, 2020, we filed a universal shelf registration statement on Form S-3 (Registration No. 333-242078) with the SEC, which was declared effective on August 17, 2020. In August 2020, we entered into a sales agreement (the “Sales Agreement’) with Cowen and Company, LLC (“Cowen”), pursuant to which we may offer and sell to or through Cowen acting as agent and/or principal shares of our common stock having an aggregate offering price of up to $100,000,000. Under the Sales Agreement, Cowen may sell the shares by any method permitted by law and deemed to be an “at the market” offering as defined in Rule 415 of the Securities Act. To date, we have not sold any shares under the Sales Agreement.

Disruptions in the financial markets in general and more recently due to the COVID-19 pandemic have made equity and debt financing more difficult to obtain and may have a material adverse effect on our ability to meet our fundraising needs. To the extent that we raise additional capital through the sale of equity, convertible debt or other securities convertible into equity, the ownership interest of our stockholders will be diluted, and the terms of these new securities may include liquidation or other preferences that adversely affect rights of our stockholders. Debt financing, if available at all, would likely involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, making additional product acquisitions or declaring or paying dividends. For instance, our loan and security agreement with K2 HealthVentures LLC limits additional indebtedness, liens, mergers and acquisitions, dispositions, investments and distributions, subordinated debt, transactions with affiliates and fundamental changes. If we raise additional funds through strategic collaborations or licensing arrangements with third parties, we may have to relinquish valuable rights to our drug or biologic candidates or future revenue streams or grant licenses on terms that are not favorable to us. We cannot be assured that we will be able to obtain additional funding if and when necessary to fund our entire portfolio of drug or biologic candidates to meet our projected plans. If we are unable to obtain funding on a timely basis, we may be required to delay or discontinue one or more of our development programs or the commercialization of any drug or biologic candidates or be unable to expand our operations or otherwise capitalize on potential business opportunities, which could materially harm our business, financial condition, and results of operations. In addition, securing additional financing would require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management’s ability to oversee the development of our drug, biologic candidates or programs.

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We also have historically received, and may receive in the future, funds from state or federal government grants for research and development. The grants have been, and any future government grants and contracts we may receive may be, subject to the risks and contingencies set forth below under this section in the risk factor titled “—Risks Related to the Development of Our Drug or Biologic Candidates—Reliance on government funding for our programs may add uncertainty to our research and commercialization efforts with respect to those programs that are tied to such funding and may impose requirements that limit our ability to take certain actions, increase the costs of commercialization and production of drug or biologic candidates developed under those programs and subject us to potential financial penalties, which could materially and adversely affect our business, financial condition and results of operations.” Although we might apply for government contracts and grants in the future, we cannot assure that we will be successful in obtaining additional grants for any drug or biologic candidates or programs.

Our ability to use our net operating losses to offset future taxable income, if any, may be subject to certain limitations.

We currently have federal net operating loss carryforwards, which will begin to expire in 2024, if not utilized, and the remainder of which can be carried forward indefinitely. Tax loss carryforwards that were created prior to December 31, 2017 expire through 2037, all tax loss carryforwards created after that date do not expire. In the United States, utilization of the net operating loss carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), and similar state provisions due to ownership change limitations that have occurred previously or that could occur in the future. The merger with Private Molecular (the “Merger”) resulted in an ownership change under Section 382 of the Code for us, and our pre-Merger NOL carryforwards and certain other tax attributes will be subject to limitation or elimination. The NOL carryforwards and certain other tax attributes of ours may also be subject to limitations as a result of future ownership changes. If we were to lose the benefits of these loss carryforwards, our future earnings and cash resources would be materially and adversely affected. We have incurred net losses since our inception, and we anticipate that we will continue to incur significant losses for the foreseeable future; thus, we do not know whether or when we will generate the U.S. federal taxable income necessary to utilize our NOLs.

We have remediated a material weakness in our internal control over financial reporting, however, if we are unable to maintain effective internal control over financial reporting in the future, there could be an elevated possibility of a material misstatement, and such a misstatement could cause investors to lose confidence in our financial statements, which could have a material adverse effect on our stock price.

We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on the effectiveness of our internal control over financial reporting. In addition, until the SEC eliminated this requirement for smaller reporting companies in March 2020, our independent registered public accounting firm was required to report on its evaluation of our internal control over financial reporting. As of December 31, 2020, our management team remediated the material weakness which we had previously identified in our internal control over financial reporting related to our information technology general controls over systems that are relevant to our financial statements. This material weakness caused our external auditors to issue an adverse opinion indicating that we had not maintained effective internal control over financial reporting as of December 31, 2019.

Our management team remediated the material weakness, primarily through improved processes, policies, training and skilled personnel. Although the material weakness was remediated, it remains possible that in future periods, we may identify additional deficiencies in our system of internal control over financial reporting that may require additional work and remediation efforts to address. Any future material weaknesses in internal control over financial reporting could result in material misstatements in our financial statements and we could be required to restate our financial results, which could lead to substantial additional costs for accounting and legal fees and shareholder litigation. Moreover, any future disclosures of additional weaknesses, or errors as a result of those weaknesses, could result in investors losing confidence in our reported financial information and may lead to a decline in the stock price. For more information about this material weakness, see Item 9A, “Controls and Procedures”.

Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our stock price.

Section 404 of the Sarbanes-Oxley Act and the related rules and regulations of the SEC require annual management assessments of the effectiveness of our internal control over financial reporting. If we fail to maintain the adequacy of our internal control over financial reporting, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act and the related rules and regulations of the SEC. If we

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cannot favorably assess the effectiveness of our internal control over financial reporting, investor confidence in the reliability of our financial reports may be adversely affected, which could have a material adverse effect on our stock price.

We have never generated any revenue from product sales and may never become profitable.

We have no products approved for commercialization and have never generated any revenue. Our ability to generate revenue and achieve profitability depends on our ability, alone or with strategic collaboration partners, to successfully complete the development of, and obtain the regulatory and marketing approvals necessary to commercialize one or more of our drug or biologic candidates. We do not anticipate generating revenue from product sales for the foreseeable future. Our ability to generate future revenue from product sales depends heavily on our success in many areas, including but not limited to:

• completing research and development of one or more of our drug or biologic candidates;

• obtaining regulatory and marketing approvals for one or more of our drug or biologic candidates;

• manufacturing one or more drug or biologic candidates and establishing and maintaining supply and manufacturing relationships with third parties that are commercially feasible;

• marketing, launching and commercializing one or more drug or biologic candidates for which we obtain regulatory and marketing approval, either directly or with a collaborator or distributor;

• gaining market acceptance of one or more of our drug or biologic candidates as treatment options;

• meeting our supply needs in sufficient quantities to meet market demand for our drug or biologic candidates, if approved;

• addressing any competing products;

• protecting, maintaining and enforcing our intellectual property rights, including patents, trade secrets and know-how;

• negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter;

• obtaining reimbursement or pricing for one or more of our drug or biologic candidates that supports profitability;

• taking temporary precautionary measures to help minimize the risk of the COVID-19 pandemic to our employees; and

• attracting, hiring and retaining qualified personnel.

Even if one or more of the drug or biologic candidates that we develop is approved for commercial sale, we anticipate incurring significant costs associated with launching and commercializing any approved drug or biologic candidate. We also will have to develop or acquire manufacturing capabilities or continue to contract with contract manufacturing organizations (“CMOs”), in order to continue development and potential commercialization of our drug or biologic candidates. For instance, if our costs of manufacturing our drug products are not commercially feasible, then we will need to develop or procure our drug products in a commercially feasible manner to successfully commercialize any future approved product, if any. Additionally, if we are not able to generate revenue from the sale of any approved products, we may never become profitable.

Changes in interpretation or application of U.S. GAAP may adversely affect our operating results.

We prepare our condensed consolidated financial statements to conform to U.S. GAAP. These principles are subject to interpretation by the Financial Accounting Standards Board, or FASB, American Institute of Certified Public Accountants, the SEC and various other regulatory and accounting bodies. A change in interpretations of, or our application of, these principles can have a significant effect on our reported results and may even affect our reporting of transactions completed before a change is announced. In addition, when we are required to adopt new accounting standards, our methods of accounting for certain items may change, which could cause our results of operations to fluctuate from period to period and make it more difficult to compare our financial results to prior periods.

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Risks Related to the Development of Our Drug or Biologic Candidates

Manufacturing difficulties, disruptions or delays could limit supply of our drug or biologic candidates and adversely affect our clinical trials.

We currently have a current good manufacturing practices, or cGMP, manufacturing facility and we have developed the capability to manufacture drug or biologic candidates for use in the conduct of our clinical trials. We may not be able to manufacture drug or biologic candidates or there may be substantial technical or logistical challenges to supporting manufacturing demand for drug or biologic candidates. We may also fail to comply with cGMP requirements and standards which would require us to not utilize the manufacturing facility to make clinical trial supply.

We plan to rely in part on third-party manufacturers, and their responsibilities will include purchasing from third-party suppliers the materials necessary to produce our drug or biologic candidates for our clinical trials and future regulatory approval. We expect there to be a limited number of suppliers for some of the raw materials that we expect to use to manufacture our drug or biologic candidates, and we may not be able to identify alternative suppliers to prevent a possible disruption of the manufacture of our drug or biologic candidates for our clinical trials, and, if approved, ultimately for commercial sale.

Although we generally do not expect to begin a clinical trial unless we believe we have a sufficient supply of a drug or biologic candidate to complete the trial, any significant delay or discontinuity in the supply of a drug or biologic candidate, or the raw materials or other material components in the manufacture of the drug or biologic candidate, could delay completion of our clinical trials and potential timing for regulatory approval of our drug or biologic candidates, which would harm our business and results of operations. We do not yet have sufficient information to reliably estimate the cost of the commercial manufacturing of our drug or biologic candidates and our current costs to manufacture our drug products may not be commercially feasible, and the actual cost to manufacture our drug or biologic candidates could materially and adversely affect the commercial viability of our drug or biologic candidates. As a result, we may never be able to develop a commercially viable product.

In addition, as a drug or biologic candidate manufacturer with one manufacturing facility, we are exposed to the following additional risks:

• limited capacity of manufacturing facilities;

• contamination of drug or biologic candidates in the manufacturing process;

• events that affect, or have the potential to affect, general economic conditions, including but not limited to political unrest, global trade wars, natural disasters, acts of war, terrorism, or disease outbreaks (such as the global pandemic of COVID-19);

• labor disputes or shortages, including the effects of health emergencies, epidemics, pandemics, including the COVID-19 pandemic, or natural disasters;

• compliance with regulatory requirements;

• changes in forecasts of future demand;

• timing and actual number of production runs and production success rates and yields;

• contractual disputes with our suppliers and contract manufacturers;

• timing and outcome of product quality testing;

• power failures and/or other utility failures;

• breakdown, failure, substandard performance or improper installation or operation of equipment;

• following New Drug Application, or NDA, or Biologics License Application, or BLA, approval, a change in the manufacturing site could require additional approval from the FDA. This approval would require new testing and compliance inspections;

• we may be unable to timely formulate and manufacture our product or produce the quantity and quality required to meet our clinical and commercial needs, if any; and

• as a drug or biologic candidate manufacturer, we are subject to ongoing periodic unannounced inspection by the FDA and some state agencies to ensure strict compliance with cGMPs and other U.S. and corresponding foreign requirements, and we carry the risk of non-compliance with these regulations and standards.

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For example, in December 2019, a novel strain of coronavirus was first identified in Wuhan, Hubei Province, China and the disease it causes (COVID-19) was declared to be a global pandemic by the World Health Organization in March 2020. The ongoing pandemic has caused financial, social and business disruptions throughout the world. Any outbreak of contagious diseases such as coronavirus, or other adverse public health developments, could have a material and adverse effect on our business operations. Such adverse effects could include disruptions or restrictions on the ability of our, our collaborators’, or our suppliers’ personnel to travel, and could result in temporary closures of our facilities or the facilities of our collaborators or suppliers. Any disruption to our operations or the operations of our collaborators or suppliers would likely impact our drug development efforts, operating results, and our financial condition. The extent to which the current coronavirus pandemic may impact our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus.

Each of these risks could delay our clinical trials, the marketing approval, if any, of our drug or biologic candidates, or the commercialization of our drug or biologic candidates or result in higher costs or deprive us of potential product revenue. In addition, we rely on third parties to perform release testing on our drug or biologic candidates prior to delivery to subjects in our clinical trials. If these tests are not appropriately conducted and test data are not reliable, subjects in our clinical trials, or patients treated with our products, if any are approved in the future, could be put at risk of serious harm, which could result in product liability suits.

Clinical trials are costly, time consuming and inherently risky, and we may fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities, and may never obtain regulatory approval for, or successfully commercialize certain or any of our drug or biologic candidates.

Clinical development is expensive, time consuming and involves significant risk. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. A failure of one or more clinical trials can occur at any stage of development. Events that may prevent successful or timely completion of clinical development include but are not limited to:

• continued delays in patient enrollment for our clinical trials due to COVID-19, which may affect ability to initiate and/or complete preclinical studies, conduct ongoing clinical trials, and delay initiation of planned and future clinical trials;

• inability to generate satisfactory preclinical, toxicology or other in vivo or in vitro data or to develop diagnostics capable of supporting the initiation or continuation of clinical trials;

• delays in reaching agreement on acceptable terms with clinical research organizations (“CROs”), and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical trial sites;

• delays or failure in obtaining required IRB approval at each clinical trial site;

• failure to obtain or delays in obtaining a permit from regulatory authorities to conduct a clinical trial;

• delays in recruiting or failure to recruit sufficient eligible volunteers or subjects in our clinical trials;

• failure by clinical trial sites or CROs or other third parties to adhere to clinical trial requirements;

• failure by our clinical trial sites, CROs or other third parties to perform in accordance with the good clinical practices requirements of the FDA or applicable foreign regulatory guidelines;

• subjects withdrawing from our clinical trials;

• adverse events or other issues of concern significant enough for the FDA, or comparable foreign regulatory authority, to put a clinical trial or an IND on clinical hold;

• occurrence of adverse events associated with our drug or biologic candidates;

• changes in regulatory requirements and guidance that require amending or submitting new clinical protocols;

• the cost of clinical trials of our drug or biologic candidates;

• negative or inconclusive results from our clinical trials which may result in us deciding, or regulators requiring us, to conduct additional clinical trials or abandon development programs in other ongoing or planned indications for a drug or biologic candidate; and

• delays in reaching agreement on acceptable terms with third-party manufacturers or an inability to manufacture sufficient quantities of our drug or biologic candidates for use in clinical trials.

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Any inability to successfully complete clinical development and obtain regulatory approval for one or more of our drug or biologic candidates could result in additional costs to us or impair our ability to generate revenue. In addition, if we make manufacturing or formulation changes to our drug or biologic candidates, we may need to conduct additional nonclinical studies and/or clinical trials to show that the results obtained from such new formulation are consistent with previous results. Clinical trial delays, including those caused by the COVID-19 pandemic, could also shorten any periods during which our drug or biologic candidates have patent protection and may allow competitors to develop and bring products to market before we do, which could impair our ability to successfully commercialize our drug or biologic candidates and may harm our business and results of operations.

Additionally, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of marketing approval for our drug or biologic candidates which would materially harm our business.

The approach we are taking to discover and develop next generation immunotoxin therapies, also commonly known as engineered toxin bodies, or ETBs, is unproven and may never lead to marketable products.

The scientific discoveries that form the basis for our efforts to discover and develop our drug or biologic candidates are relatively recent. To date, neither we nor any other company has received regulatory approval to market products utilizing ETBs. The scientific evidence to support the feasibility of developing drugs based on these discoveries is both preliminary and limited. Successful development of ETB therapeutic products by us will require addressing a number of issues, including identifying appropriate receptor targets, screening for and selecting potent and safe ETB drug or biologic candidates, developing a commercially feasible manufacturing process, successfully completing all required preclinical studies and clinical trials, successfully implementing all other requirements that may be mandated by regulatory agencies from clinical development through post-marketing periods, ensuring intellectual property protection in any territory where an ETB product may be commercialized and commercializing an ETB product successfully in a competitive product landscape. In addition, any drug or biologic candidates that we develop may not demonstrate in patients the biological or pharmacological properties ascribed to them in laboratory and preclinical testing, and they may interact with human biological systems in unforeseen, ineffective or even harmful ways. If we do not successfully develop and commercialize one or more drug or biologic candidates based upon this scientific approach, we may not become profitable and the value of our common stock may decline.

Further, our focus on ETB technology for developing drug or biologic candidates as opposed to multiple, more proven technologies for drug development increases the risk associated with our business. If we are not successful in developing an approved product using ETB technology, we may not be able to identify and successfully implement an alternative product development strategy. In addition, work by other companies pursuing similar immunotoxin technologies may encounter setbacks and difficulties that regulators and investors may attribute to our drug or biologic candidates, whether appropriate or not.

Our clinical trials of MT-3724 are currently subject to a partial clinical hold imposed by the FDA. A clinical hold on any of our clinical trials could result in delays of our clinical development timeline.

On November 4, 2020, the FDA notified us that MT-3724 clinical studies have been placed on partial clinical hold following a treatment-related fatality in one subject who experienced Grade 5 capillary leak syndrome (“CLS”) in the Phase 2 MT-3724 monotherapy study. At such time, subjects already enrolled in MT-3724 clinical studies who were receiving clinical benefit were permitted to continue dosing but no new subjects have been, or will be, enrolled in any MT-3724 study pending resolution of this matter. There can be no assurance that the FDA will lift the partial clinical hold; furthermore, the FDA may expand the scope of the partial clinical hold in the future. If the FDA does not lift the partial clinical hold in the near future or at all, our clinical development of MT-3724 will be materially and adversely delayed and impaired. There can be no assurance that our current or future clinical trials will not be subject to additional partial or full clinical holds, which could delay or impair the commencement and completion of our clinical trials and the regulatory approval of our drug or biologic candidates.

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As part of our overall investigation into the partial hold on MT-3724, we investigated MT-3724 product quality attributes.  Based on our findings, we submitted a partial clinical hold response to the FDA in February 2021 in which we proposed to implement new drug product manufacturing and release criteria. We have determined that the MT-3724 product that has been manufactured to date for use in the MT-3724 studies we plan to continue will not be consistent with the new criteria once it is implemented. Based upon our findings to date and after a thorough risk/benefit assessment, we have decided to discontinue dosing of subjects remaining on our Phase II combination study with MT-3724 and Revlimid® (lenalidomide). Additionally, following our decision to temporarily discontinue dosing for the remaining subject on our Phase II combination study with MT-3724 and chemotherapy (gemcitabine and oxaliplatin, or GemOx), the subject decided in collaboration with their physician to discontinue treatment. Although there have been no signs of capillary leak syndrome toxicity worse than grade 2 in either of these MT-3724 studies, our decision to discontinue dosing in these studies was taken out of an abundance of caution with the study subjects’ health and safety in mind.   Further, after a review of the current competitive landscape and following the last subject discontinuing treatment, we decided to discontinue our Phase II combination study with MT-3724 and chemotherapy (gemcitabine and oxaliplatin, or GemOx). We made this decision based upon our belief in the potential for more promising future combinations with our product candidates.  Accordingly, there are currently no subjects being treated under any MT-3724 protocol. In connection with our other MT-3724 studies, we continue to work towards addressing the partial clinical hold and MT-3724 product lot information requests from the FDA and will then seek agreement from FDA to remove the partial clinical hold.  Molecular submitted its partial clinical hold response to the FDA in February 2021. There can be no assurance with respect to our ability to remove the partial clinical hold, or the timing thereof.  As we undertake these efforts, we are also actively evaluating whether to resume development of MT-3724 or discontinue the MT-3724 program. This decision will be made in the context of opportunities to advance the development of a next-generation CD20-targeted ETB or other program in addition to funding the development of our clinical stage next-generation ETB programs, including MT-5111, TAK-169, and MT-6402.

We are heavily dependent on the success of our drug or biologic candidates, the most advanced of which is in the early stages of clinical development. Our ETB therapeutic drug or biologic candidates are based on a relatively novel technology, which makes it difficult to predict the time and cost of development and of subsequently obtaining regulatory approval, if at all. Some of our drug or biologic candidates have produced results in preclinical settings to date and we cannot give any assurance that we will generate data for any of our drug or biologic candidates sufficient to receive regulatory approval in our planned indications, which will be required before they can be commercialized. To date, no ETB products have been approved for marketing in the United States or elsewhere.

We have concentrated our research and development efforts to date on a limited number of drug or biologic candidates based on our ETB therapeutic platform and identifying our initial targeted disease indications. We have invested substantially all of our efforts and financial resources to identify, acquire and develop our portfolio of drug or biologic candidates. Our future success is dependent on our ability to successfully further develop, obtain regulatory approval for, and commercialize one or more drug or biologic candidates. We currently generate no revenue from sales of any products, and we may never be able to develop or commercialize a drug or biologic candidate. Our lead ETB candidate, MT-3724, has been administered to subjects with non-Hodgkin’s lymphoma in Phase I and Phase II trials but was placed on a partial clinical hold by the FDA in November 2020 following a study subject death due to treatment-related CLS. No studies with this compound will enroll new patients until or unless all safety questions from the FDA are addressed and the partial clinical hold is lifted. A second ETB drug or biologic candidate, MT-5111, is currently being tested in a Phase I study, which began dosing patients in the fourth quarter of 2019. Our CD38-targeted SLT-A fusion protein, TAK-169, developed in collaboration with Takeda, is also being tested in a Phase I study, which began dosing patients in the first quarter of 2020 although it was paused in March due to COVID-19 and was re-initiated during the fourth quarter of 2020. We filed an IND for MT-6402, our ETB targeting PD-L1, in the fourth quarter of 2020, which was accepted by the FDA as of January 2021. We anticipate the initiation of a Phase 1 study of MT-6402 in PD-1/PD-L1 antibody relapsed/refractory patients in the first half of 2021. The remainder of our drug or biologic candidates are in preclinical development. There can be no assurance that we will not experience problems or delays in developing our drug or biologic candidates and that such problems or delays will not cause unanticipated costs, or that any such development problems can be solved. Additionally, not all of our clinical and preclinical data to date have been validated and we have no way of knowing if after validation our clinical trial data will be complete and consistent. There can be no assurance that the data that we develop for our drug or biologic candidates in our planned indications will be sufficient to obtain regulatory approval.

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None of our ETB drug or biologic candidates have advanced into a pivotal clinical trial for our proposed indications and it may be years before any such clinical trial is initiated and completed, if at all. We are not permitted to market or promote any of our drug or biologic candidates before we receive regulatory approval from the FDA or a comparable foreign regulatory authority, and we may never receive such regulatory approval for any of our drug or biologic candidates. We cannot be certain that any of our drug or biologic candidates will be successful in clinical trials or receive regulatory approval. Further, our drug or biologic candidates may not receive regulatory approval even if they are successful in clinical trials. If we do not receive regulatory approvals for our drug or biologic candidates, we may not be able to continue our operations.

Additionally, the FDA and comparable foreign regulatory authorities have relatively limited experience with ETB products. No regulatory authority has granted approval to any person or entity, including us, to market or commercialize ETB product candidates, which may increase the complexity, uncertainty and length of the regulatory approval process for our drug or biologic candidates. If our ETB product candidates fail to prove to be safe, effective or commercially viable, our drug or biologic candidate pipeline would have little, if any, value, which would have a material adverse effect on our business, financial condition or results of operations.

The clinical trial and manufacturing requirements of the FDA, the EMA, and other regulatory authorities, and the criteria these regulators use to determine the safety and efficacy of a drug or biologic candidate, vary substantially according to the type, complexity, novelty and intended use and market of the drug or biologic candidate. The regulatory approval process for novel drug or biologic candidates such as ETB product candidates could be more expensive and take longer than for others, better known or more extensively studied drug or biologic candidates. It is difficult to determine how long it will take or how much it will cost to obtain regulatory approvals for our drug or biologic candidates in either the United States or the European Union or elsewhere or how long it will take to commercialize our drug or biologic candidates, even if approved for marketing. Approvals by the EMA and other regulatory authorities may not be indicative of what the FDA may require for approval, and vice versa, and different or additional preclinical studies and clinical trials may be required to support regulatory approval in each respective jurisdiction. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to bring a drug or biologic candidate to market could decrease our ability to generate sufficient product revenue, and our business, financial condition, results of operations and prospects may be harmed.

During the global response to the COVID-19 pandemic, moreover, the responses of the federal, international, state and regional governments to the pandemic, including the shelter in place orders, the allocation of healthcare resources to treating those infected with the virus, and the redeployment of FDA and EMA resources to priority projects, could have an impact on the timeline for review and approval of new marketing applications. Although the FDA communicated to industry in mid-2020 that its new drug and biologic review programs were continuing to meet key performance goals related to communicating with applicants and approving new products, the agency also noted that the uncertainty of the COVID-19 situation may make it difficult to sustain its current level of performance indefinitely. The FDA has told industry that it intends to be as transparent as possible about its workload and performance metrics as the situation evolves.

We may have difficulty enrolling, or fail to enroll patients, in our clinical trials given the limited number of patients who have the diseases for which our drug or biologic candidates are being studied, which could delay or prevent clinical trials of our drug or biologic candidates.

Identifying and enrolling patients to participate in clinical trials of our ETB drug or biologic candidates is essential to our success. The timing of our clinical trials depends in part on the rate at which we can recruit patients to participate in clinical trials of our drug or biologic candidates, and we may experience delays in our clinical trials if we encounter difficulties in enrollment, particularly given the current COVID-19 pandemic.

The eligibility criteria of our planned clinical trials may further limit the available eligible trial participants as we require that patients have specific characteristics that we can measure or meet the criteria to assure their conditions are appropriate for inclusion in our clinical trials. We may not be able to identify, recruit and enroll a sufficient number of patients to complete our clinical trials in a timely manner because of the perceived risks and benefits of the drug or biologic candidate under study, the availability and efficacy of competing therapies and clinical trials, and the willingness of physicians to participate in our planned clinical trials. If patients are unwilling to participate in our clinical trials for any reason, the timeline for conducting trials and obtaining regulatory approval of our drug or biologic candidates may be delayed.

If we experience delays in the completion of, or termination of, any clinical trials of our drug or biologic candidates, the commercial prospects of our drug or biologic candidates could be harmed, and our ability to generate product revenue from any of these drug or biologic candidates could be delayed or prevented. In addition, any delays in completing our clinical trials would likely increase our overall costs, impair drug or biologic candidate development and jeopardize our ability to obtain regulatory approval relative to our current plans. Any of these occurrences may harm our business, financial condition, and prospects significantly.

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Our drug or biologic candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial viability of an approved label, or result in significant negative consequences following marketing approval, if any.

Undesirable side effects caused by our drug or biologic candidates could cause us or regulatory authorities to interrupt, delay, or terminate clinical trials or result in a restrictive label or delay regulatory approval. In addition, our ETB product candidates have been studied in only a limited number of subjects.  The identified adverse events considered to be important or potential risks of MT-3724 include, but are not limited to, infections, neutropenia, acute kidney injury, CLS, cytokine release syndrome (CRS), myalgias, infusion related reactions, tumor lysis syndrome and reproductive risks. The identified adverse events considered to be important or potential risks of MT-5111 include, but are not limited to, cardiovascular injury, hepatotoxicity, acute kidney injury, myalgias, hematologic toxicity, infections, infusion-related reactions, reproductive risks, CLS and CRS.  The important or potential risks of MT-6402 include, but are not limited to, cardiovascular toxicity, hepatotoxicity, acute kidney injury, hematologic toxicity, coagulation and clinical chemistry toxicity, CRS, CLS, infusion related reactions, reproductive risks, and immune-related adverse reactions.

In addition to the side effects that are known to be associated with MT-3724, MT-5111 and MT-6402, continued clinical trials could reveal higher incidence of side effects or adverse events, or AEs, previously unknown side effects, or side effects having greater severity, which could each or all lead to delays in our clinical programs or discontinuation of our trials. Regulatory authorities may suspend or terminate a clinical trial due to a number of factors, including, among other things, failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, study subject safety concerns, adverse effects or events, or severe adverse events including deaths, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions. For example, we have observed severe adverse events, including a single death, from and/or relating to CLS with MT-3724, which led to the FDA placing clinical trials involving this product candidate on partial clinical hold. The occurrence of these and other adverse side effects could jeopardize or preclude our ability to develop, obtain or maintain marketing approval for, or successfully commercialize, market and sell any or all of our product candidates for one or more indications. There is no guarantee that additional or more severe side effects will not be identified through ongoing clinical trials of our drug or biologic candidates for current and other indications. There can be no assurance that other patients treated with MT-3724, MT-5111 or MT-6402 will not experience CLS or other serious side effects and there can be no assurance that the FDA, EMA or comparable regulatory authorities in other jurisdictions will not place additional clinical holds on our current or future clinical trials, the result of which could delay or prevent us from obtaining regulatory approval for MT-3724 or other ETB product candidates. For additional information, see the risk factor titled “Our clinical trials of MT-3724 are currently subject to a partial clinical hold imposed by the FDA. A clinical hold on any of our clinical trials could result in delays of our clinical development timeline”.

Even if approved in the future, MT-3724, MT-5111 or MT-6402 may carry boxed warnings or other precautions regarding the risk of CLS. Undesirable side effects and negative results for any of our drug or biologic candidates may negatively impact the development and potential for approval of our drug or biologic candidates for their proposed indications.

Additionally, even if one or more of our drug or biologic candidates receives marketing approval, if we or others later identify undesirable side effects caused by such products, potentially significant negative consequences could result, including but not limited to:

• regulatory authorities may withdraw approvals of such products;

• regulatory authorities may require additional warnings on the label;

• we may be required to create a Risk Evaluation and Mitigation Strategies, or REMS, plan, which could include a medication guide outlining the risks of such side effects for distribution to study subjects, a communication plan for healthcare providers, and/or other elements to assure safe use;

• we may be required to change the way such drug or biologic candidates are distributed or administered, or change the labeling of the drug or biologic candidates;

• we may be subject to regulatory investigations and government enforcement actions;

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• the FDA or a comparable foreign regulatory authority may require us to conduct additional clinical trials or costly post-marketing testing and surveillance to monitor the safety and efficacy of the product;

• we may decide to recall such drug or biologic candidates from the marketplace after they are approved;

• we could be sued and held liable for harm caused to subjects; and

• our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of a drug or biologic candidate, even if approved, and could significantly harm our business, results of operations, and prospects.

Our ETB therapeutic approach is novel and negative public opinion and increased regulatory scrutiny of ETB-based therapies may damage public perception of the safety of our drug or biologic candidates and adversely affect our ability to conduct our business or obtain regulatory approvals for our drug or biologic candidates.

ETB therapy remains a novel technology, with no ETB therapy product approved to date in the United States or elsewhere worldwide. Public perception may be influenced by claims that ETB therapy is unsafe, and ETB therapy may not gain the acceptance of the public or the medical community. In particular, our success will depend upon physicians who specialize in the treatment of the diseases targeted by our drug or biologic candidates prescribing treatments that involve the use of one or more of our approved drug or biologic candidates in lieu of, or in addition to, existing treatments with which they may be familiar and for which more clinical data may be available. More restrictive government regulations or negative public opinion regarding ETB-based drug or biologic candidates could have an adverse effect on our business, financial condition or results of operations and may delay or impair the development and commercialization of our drug or biologic candidates or demand for any products we may develop. Serious adverse events in ETB clinical trials for our competitors’ products, even if not ultimately attributable to the relevant drug or biologic candidates, and the resulting publicity, could result in increased government regulation, unfavorable public perception, potential regulatory delays in the testing or approval of our drug or biologic candidates, stricter labeling requirements for those drug or biologic candidates that are approved and a decrease in demand for any such drug or biologic candidates.

Product development involves a lengthy and expensive process with an uncertain outcome, and results of earlier preclinical studies and clinical trials may not be predictive of future clinical trial results.

We currently have no products approved for sale and we cannot guarantee that we will ever have marketable products. Clinical testing is expensive and generally takes many years to complete, and the outcome is inherently uncertain. Failure can occur at any time during the clinical development process. Clinical trials may produce negative or inconclusive results, and we or any future collaboration partners may decide, or regulators may require us, to conduct additional clinical trials or preclinical studies. We will be required to demonstrate with substantial evidence through well-controlled clinical trials that our drug or biologic candidates are safe and effective for use in a diverse population before we can seek marketing approvals for their commercial sale. The results of preclinical studies and early clinical trials of our drug or biologic candidates may not be predictive of the results of larger, later-stage controlled clinical trials. Drug or biologic candidates that have shown promising results in early-stage clinical trials may still suffer significant setbacks or failure in subsequent clinical trials. Our clinical trials to date have been conducted on a small number of subjects in limited numbers of clinical trial sites for a limited number of indications. We will have to conduct larger, well-controlled trials in our proposed indications to verify the results obtained to date and to support any regulatory submissions for further clinical development. A number of companies in the biopharmaceutical industry have suffered significant setbacks or failure in advanced clinical trials due to lack of efficacy or adverse safety profiles despite promising results in earlier, smaller clinical trials. In particular, no ETB-based product candidates have been approved or commercialized in any jurisdiction, and the outcome of our preclinical studies and early-stage clinical trials may not be predictive of the success of later-stage clinical trials.

From time to time, we may publish or report interim or preliminary data from our clinical trials. Interim or preliminary data from clinical trials that we may conduct may not be indicative of the final results of the trial and are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Interim or preliminary data also remain subject to audit and verification procedures that may result in the final data being materially different from the interim or preliminary data. As a result, interim or preliminary data should be viewed with caution until the final data are available.

In some instances, there can be significant variability in safety and efficacy results between different clinical trials of the same drug or biologic candidate due to numerous factors, including changes in trial protocols, differences in size and type of the patient populations, differences in and adherence to the dosing regimen and other trial protocols and the rate of dropout

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among clinical trial participants. We therefore do not know whether any clinical trials we may conduct will demonstrate consistent or adequate efficacy and safety sufficient to obtain marketing approval to market our drug or biologic candidates.

We may use our financial and human resources to pursue a particular research program or drug or biologic candidate and fail to capitalize on programs or drug or biologic candidates that may be more profitable or for which there is a greater likelihood of success.

Because we have limited financial and human resources, we may forego or delay pursuit of opportunities with certain programs or drug or biologic candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or more profitable market opportunities. Our spending on current and future research and development programs and future drug or biologic candidates for specific indications may not yield any commercially viable products. We may also enter into additional strategic collaboration agreements to develop and commercialize some of our programs and potential drug or biologic candidates in indications with potentially large commercial markets. If we do not accurately evaluate the commercial potential or target market for a particular drug or biologic candidate, we may relinquish valuable rights to that drug or biologic candidate through strategic collaborations, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such drug or biologic candidate, or we may allocate internal resources to a drug or biologic candidate in a therapeutic area in which it would have been more advantageous to enter into a partnering arrangement.

We may face potential product liability, and, if successful claims are brought against us, we may incur substantial liability and costs. If the use or misuse of our drug or biologic candidates harms subjects or is perceived to harm subjects even when such harm is unrelated to our drug or biologic candidates, we could be subject to costly and damaging product liability claims. If we are unable to obtain adequate insurance or are required to pay for liabilities resulting from a claim excluded from, or beyond the limits of, our insurance coverage, a material liability claim could adversely affect our financial condition.

The use or misuse of our drug or biologic candidates in clinical trials and the sale of any products for which we may obtain marketing approval exposes us to the risk of potential product liability claims. Product liability claims might be brought against us by consumers, healthcare providers, pharmaceutical companies or others selling or otherwise coming into contact with our drug or biologic candidates and approved products, if any. There is a risk that our drug or biologic candidates may induce adverse events. If we cannot successfully defend against product liability claims, we could incur substantial liability and costs.

Some of our ETB product candidates have shown in clinical trials to induce adverse events. The identified adverse events considered to be important or potential risks of MT-3724 include, but are not limited to, infections, neutropenia, acute kidney injury, CLS, cytokine release syndrome (CRS), myalgias, infusion related reactions, tumor lysis syndrome and reproductive risks. The identified adverse events considered to be important or potential risks of MT-5111 include, but are not limited to, cardiovascular injury, hepatotoxicity, acute kidney injury, myalgias, hematologic toxicity, infections, infusion-related reactions, reproductive risks, CLS and CRS.   The important or potential risks of MT-6402 include, but are not limited to, cardiovascular toxicity, hepatotoxicity, acute kidney injury, hematologic toxicity, coagulation and clinical chemistry toxicity, CRS, CLS, infusion related reactions, reproductive risks, and immune-related adverse reactions.  

There is a risk that our future drug or biologic candidates may induce similar or more severe adverse events. For example, we have observed severe adverse events, including death, from and/or relating to CLS with MT-3724. Patients with the diseases targeted by our drug or biologic candidates may already be in severe or advanced stages of disease and have both known and unknown significant preexisting and potentially life-threatening health risks. During the course of treatment, subjects may suffer adverse events, including death, for reasons that may be related to our drug or biologic candidates. Such events could subject us to costly litigation, require us to pay substantial amounts of money to injured subjects, delay, negatively impact or end our opportunity to receive or maintain regulatory approval to market our products, or require us to suspend or abandon our commercialization efforts. Even in a circumstance in which an adverse event is unrelated to our drug or biologic candidates, the investigation into the circumstance may be time-consuming or inconclusive. These investigations may delay our regulatory approval process or impact and limit the type of regulatory approvals our drug or biologic candidates receive or maintain. As a result of these factors, a product liability claim, even if successfully defended, could have a material adverse effect on our business, financial condition or results of operations.

Although we have product liability insurance covering our clinical trials in the United States for up to $7.0 million per occurrence up to an aggregate limit of $7.0 million, our insurance may be insufficient to reimburse us for any expenses or losses we may suffer. We also will likely be required to increase our product liability insurance coverage for the advanced

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clinical trials that we plan to initiate. If we obtain marketing approval for any of our drug or biologic candidates, we will need to expand our insurance coverage to include the sale of commercial products. There is no way to know if we will be able to continue to obtain product liability coverage and obtain expanded coverage if we require it, in sufficient amounts to protect us against losses due to liability, on acceptable terms, or at all. We may not have sufficient resources to pay for any liabilities resulting from a claim excluded from, or beyond the limits of, our insurance coverage. Where we have provided indemnities in favor of third parties under our agreements with them, there is also a risk that these third parties could incur liability and bring a claim under such indemnities. An individual may bring a product liability claim against us alleging that one of our drug or biologic candidates causes, or is claimed to have caused, an injury or is found to be unsuitable for consumer use. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and breach of warranties. Claims also could be asserted under state consumer protection acts. Any product liability claim brought against us, with or without merit, could result in:

• withdrawal of clinical trial volunteers, investigators, subjects or trial sites or limitations on approved indications;

• the inability to commercialize, or if commercialized, decreased demand for, our drug or biologic candidates;

• if commercialized, product recalls, withdrawals of labeling, marketing or promotional restrictions or the need for product modification;

• initiation of investigations by regulators;

• loss of revenues;

• substantial costs of litigation, including monetary awards to subjects or other claimants;

• liabilities that substantially exceed our product liability insurance, which we would then be required to pay;

• an increase in our product liability insurance rates or the inability to maintain insurance coverage in the future on acceptable terms, if at all;

• the diversion of management’s attention from our business; and

• damage to our reputation and the reputation of our products and our technology.

Product liability claims may subject us to the foregoing and other risks, which could have a material adverse effect on our business, financial condition or results of operations.

Biologics carry unique risks and uncertainties, which could have a negative impact on future results of operations.

The successful discovery, development, manufacturing and sale of biologics is a long, expensive and uncertain process. There are unique risks and uncertainties with biologics. For example, access to and supply of necessary biological materials, such as cell lines, may be limited and governmental regulations restrict access to and regulate the transport and use of such materials. In addition, the development, manufacturing and sale of biologics is subject to regulations that are often more complex and extensive than the regulations applicable to other pharmaceutical products. Manufacturing biologics, especially in large quantities, is often complex and may require the use of innovative technologies. Such manufacturing also requires facilities specifically designed and validated for this purpose and sophisticated quality assurance and quality control procedures. Biologics are also frequently costly to manufacture because production inputs are derived from living animal or plant material, and some biologics cannot be made synthetically. Failure to successfully discover, develop, manufacture and sell our biological drug or biologic candidates would adversely impact our business and future results of operations.

Our international activities, including clinical trials abroad, expose us to various risks, any number of which could harm our business.

We are subject to the risks inherent in engaging in business across national boundaries, due in part to our clinical trials abroad, any one of which could adversely impact our business. In addition to currency fluctuations, these risks include, among other things: economic downturns, pandemics, changes in or interpretations of local law, varying data protection requirements, governmental policy or regulation; restrictions on the transfer of funds into or out of the country; varying tax systems; and government protectionism. One or more of the foregoing factors could impair our current or future operations and, as a result, harm our overall business.

Fluctuations in foreign currency exchange rates could result in changes in our reported financial results.

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We currently incur significant expenses denominated in foreign currencies, specifically in connection with our clinical trial sites, several of which are located in various countries outside of the United States. These clinical trial sites invoice us in the local currency of the site. As we expand internationally, our exposure to currency risks will increase. We do not manage our foreign currency exposure in a manner that would eliminate the effects of changes in foreign exchange rates. Therefore, changes in exchange rates between these foreign currencies and the U.S. dollar will affect our revenues and expenses and could result in exchange losses in any given reporting period. We incur currency transaction risks whenever we enter into either a purchase or a sale transaction using a currency other than the dollar, our functional currency, particularly in our arrangements for the purchase of supplies or licensing and collaboration agreements with partners outside of the United States. We do not engage in foreign currency hedging arrangements for our accounts payable, and, consequently, foreign currency fluctuations may adversely affect our earnings. We may decide to manage this risk by hedging our foreign currency exposure, principally through derivative contracts. Even if we decide to enter into such hedging transactions, we cannot be sure that such hedges will be effective or that the costs of such hedges will not exceed their benefits. Given the volatility of exchange rates, we can give no assurance that we will be able to effectively manage our currency transaction risks or that any volatility in currency exchange rates will not have an adverse effect on our results of operations.

Our business activities may be subject to the Foreign Corrupt Practices Act and similar anti-bribery and anti-corruption laws of other countries in which we operate.

We have conducted and have ongoing studies in international locations and may in the future initiate additional studies in countries other than the United States. Our business activities may be subject to the Foreign Corrupt Practices Act, or FCPA, and similar anti-bribery or anti-corruption laws, regulations or rules of other countries in which we operate. The FCPA generally prohibits offering, promising, giving or authorizing others to give anything of value, either directly or indirectly, to a non-U.S. government official in order to influence official action or otherwise obtain or retain business. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls. Our business is heavily regulated and therefore involves significant interaction with public officials, including officials of non-U.S. governments. Additionally, in many other countries, the health care providers who prescribe pharmaceuticals are employed by their governments, and the purchasers of pharmaceuticals are government entities; therefore, our dealings with these prescribers and purchasers are subject to regulation under the FCPA. Recently the SEC and Department of Justice have increased their FCPA enforcement activities with respect to biotechnology and pharmaceutical companies. There is no certainty that all of our employees, agents or contractors, or those of our affiliates, will comply with all applicable laws and regulations, particularly given the high level of complexity of these laws. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers or our employees, the closing down of our facilities, requirements to obtain export licenses, cessation of business activities in sanctioned countries, implementation of compliance programs and prohibitions on the conduct of our business. Any such violations could include prohibitions on our ability to offer our products, if approved, in one or more countries and could materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees and our business, prospects, operating results and financial condition.

Risks Related to Regulatory Approval of Our Drug or Biologic Candidates and Other Legal Compliance Matters

A potential breakthrough therapy designation by the FDA for our drug or biologic candidates may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that our drug or biologic candidates will receive marketing approval.

We may seek a breakthrough therapy designation from the FDA for one or more of our drug or biologic candidates. A breakthrough therapy is defined as a drug or biological product that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug or biological product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For drugs or biological products that have been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of a clinical trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Drugs or biologic products designated as breakthrough therapies by the FDA could also be eligible for accelerated approval.

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Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe one of our drug or biologic candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of a breakthrough therapy designation for a drug or biologic candidate may not result in a faster development process, review or approval, compared to drugs or biologics considered for approval under conventional or other accelerated FDA procedures and does not ensure ultimate approval by the FDA. In addition, even if one or more of our drug or biologic candidates qualify and are designated as a breakthrough therapy, the FDA may later decide that the drugs or biological products no longer meet the conditions for designation and the designation may be rescinded.

We may seek Fast Track designation for one or more of our drug or biologic candidates, but we might not receive such designation, and even if we do, such designation may not actually lead to a faster development or regulatory review or approval process.

If a drug or biologic candidate is intended for the treatment of a serious condition and nonclinical or clinical data demonstrate the potential to address an unmet medical need for this condition, a product sponsor may apply for FDA Fast Track designation. If we seek Fast Track designation for a drug or biologic candidate, we may not receive it from the FDA. However, even if we receive Fast Track designation, Fast Track designation does not ensure that we will receive marketing approval or that approval will be granted within any particular time frame. We may not experience a faster development or regulatory review or approval process with Fast Track designation compared to conventional FDA procedures. In addition, the FDA may withdraw Fast Track designation if the designation is no longer supported by data from our clinical development program. Fast Track designation alone does not guarantee qualification for the FDA’s priority review procedures.

Even if we obtain regulatory approval for a product, we will remain subject to ongoing regulatory requirements. Maintaining compliance with ongoing regulatory requirements may result in significant additional expense to us, and any failure to maintain such compliance could subject us to penalties and cause our business to suffer.

If any of our drug or biologic candidates are approved, we will be subject to ongoing regulatory requirements with respect to manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing clinical trials and submission of safety, efficacy and other post-approval information, including both federal and state requirements in the United States and requirements of comparable foreign regulatory authorities.

Manufacturers and manufacturers’ facilities are required to continuously comply with FDA and comparable foreign regulatory authority requirements, including ensuring that quality control and manufacturing procedures conform to cGMP regulations and corresponding foreign regulatory manufacturing requirements. As such, we and our CMOs will be subject to continual review and inspections to assess compliance with cGMP and adherence to commitments made in any BLA, NDA or other marketing authorization application.

Any regulatory approvals that we receive for our drug or biologic candidates may be subject to limitations on the approved indicated uses for which the drug or biologic candidate may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase IV clinical trials, and surveillance to monitor the safety and efficacy of the drug or biologic candidate. In addition, if the FDA, EMA or a comparable foreign regulatory authority approves any of our drug or biologic candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and record keeping for the products will be subject to extensive and ongoing regulatory requirements. Any new legislation addressing drug safety issues could result in delays in product development or commercialization, or increased costs to assure compliance. If our original marketing approval for a drug or biologic candidate was obtained through an accelerated approval pathway, we could be required to conduct a successful post-marketing clinical trial in order to confirm the clinical benefit for our products. An unsuccessful post-marketing clinical trial or failure to complete such a trial could result in the withdrawal of marketing approval.

We must also comply with requirements concerning advertising and promotion for any of our drug or biologic candidates for which we hope to obtain marketing approval. Promotional communications with respect to prescription drugs and biologics are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved labeling. If we are not able to comply with post-approval regulatory requirements, we could have marketing approval for any of our products withdrawn by regulatory authorities and our ability to market any future products could be limited, which could adversely affect our ability to achieve or sustain profitability. Thus, the cost of compliance with post-approval regulations may have a negative effect on our operating results and financial condition.

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In addition, later discovery of previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, or failure to comply with applicable regulatory requirements may result in a variety of risks. For example, a regulatory agency or enforcement authority may, among other things:

• impose restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;

• impose requirements to conduct post-marketing studies or clinical trials;

• issue warning or untitled letters if the regulator is the FDA, or comparable notice of violations from foreign regulatory authorities;

• issue consent decrees, injunctions or impose civil or criminal penalties;

• require the payment of fines, restitution or disgorgement of profits or revenues;

• suspend or withdraw regulatory approval;

• suspend any of our ongoing clinical trials;

• refuse to approve pending applications or supplements to approved applications submitted by us;

• impose restrictions on our operations, including closing our CMOs’ facilities; or

• require product seizure or detention, recalls or refuse to permit the import or export of products.

Any government investigation of alleged violations of law would be expected to require us to expend significant time and resources in response and could generate adverse publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to develop and commercialize our products and our value and our operating results would be adversely affected. In addition, regulatory authorities’ policies (such as those of the FDA or EMA) may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our drug or biologic candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are otherwise not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.

Our commercial success will depend upon attaining significant market acceptance of our drug or biologic candidates, if approved, among physicians, patients, third-party payors and other members of the medical community.

Even if we obtain regulatory approval for our drug or biologic candidates, the approved products may nonetheless fail to gain sufficient market acceptance among physicians, third-party payors, patients and other members of the medical community, which is critical to commercial success. If an approved product does not achieve an adequate level of acceptance, we may not generate significant product revenues or any profits from operations. The degree of market acceptance of any drug or biologic candidate for which we receive approval depends on a number of factors, including:

• the efficacy and potential advantages compared to alternative treatments or competitive products;

• perceptions by the medical community, physicians, and patients, regarding the safety and effectiveness of our products and the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;

• the size of the market for such drug or biologic candidate, based on the size of the patient subsets that we are targeting, in the territories for which we gain regulatory approval and have commercial rights;

• the safety of the drug or biologic candidate as demonstrated through broad commercial distribution;

• the ability to offer our drug or biologic candidates for sale at competitive prices;

• the availability of adequate reimbursement and pricing for our products from governmental health programs and other third-party payors;

• relative convenience and ease of administration compared to alternative treatments;

• cost-effectiveness of our product relative to competing products;

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• the prevalence and severity of any side effects;

• the adequacy of supply of our drug or biologic candidates;

• the timing of any such marketing approval in relation to other product approvals;

• any restrictions on concomitant use of other medications;

• support from patient advocacy groups; and

• the effectiveness of sales, marketing and distribution efforts by us and our licensees and distributors, if any.

If our drug or biologic candidates are approved but fail to achieve an adequate level of acceptance by key market participants, we will not be able to generate significant revenues, and we may not become or remain profitable, which may require us to seek additional financing.

Our ability to negotiate, secure and maintain third-party coverage and reimbursement for our drug or biologic candidates may be affected by political, economic and regulatory developments in the United States, the European Union and other jurisdictions. Governments continue to impose cost containment measures, and third-party payors are increasingly challenging prices charged for medicines and examining their cost effectiveness, in addition to their safety and efficacy. These and other similar developments could significantly limit the degree of market acceptance of any drug or biologic candidate of ours that receives marketing approval in the future.

Healthcare legislative reform measures may have a material adverse effect on our business, financial condition or results of operations.

In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in March 2010, the Patient Protection and Affordable Care Act, or the ACA, was passed. The ACA is a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of health care spending, enhance remedies against fraud and abuse, add new transparency requirements for health care and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. As another example, the 2021 Consolidated Appropriations Act, which was signed into law on December 27, 2020, incorporated extensive health care provisions and amendments to existing laws, including a requirement that all manufacturers of drugs and biological products covered under Medicare Part B report the product’s average sales price to HHS beginning on January 1, 2022, as well as several changes to the statutes governing FDA’s drug and biologic programs.

Since its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA, and as a result certain sections of the ACA have not been fully implemented or have been effectively repealed through Executive Orders and/or executive agency actions. In addition, in December 2019, the Fifth Circuit Court of Appeals upheld a federal district court decision finding the individual insurance mandate in the ACA to be unconstitutional. The Fifth Circuit also reversed and remanded the case to the district court to determine if other reforms enacted as part of the ACA, but not specifically related to the individual mandate or health insurance (including the Biologics Price Competition and Innovation Act, or the BPCIA, that created the abbreviated application and licensure pathway for biosimilar and interchangeable biological products), could be severed from the rest of the ACA so that the entire law would not be declared invalid. On March 2, 2020, the U.S. Supreme Court granted the petitions for writs of certiorari to review this case, and has allotted one hour for oral arguments, which occurred on November 10, 2020. A decision from the Supreme Court is expected in spring 2021. It is unclear how this litigation and other efforts to repeal and replace the ACA will affect the implementation of that law, the pharmaceutical industry generally, and our business. The uncertainty around the future of the ACA, and in particular the impact to reimbursement levels, may lead to uncertainty or delay in the purchasing decisions of our customers, which may in turn negatively impact our product sales. If there are not adequate reimbursement levels, our business and results of operations could be adversely affected.

In the United States and in some other jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the health care system that could prevent or delay marketing approval of our drug or biologic candidates, restrict or regulate post-approval activities, or affect our ability to profitably sell any drug or biologic candidates for which we obtain marketing approval, if any. Further, over the past several years there has been heightened governmental scrutiny over the manner in which biopharmaceutical manufacturers set prices for their marketed products, which has resulted in several U.S. Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. There also are a number of state

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and local legislative and regulatory efforts related to drug or biologic pricing, including drug or biologic price transparency laws that apply to pharmaceutical manufacturers, that may have an impact on our business. Individual states in the U.S. have become increasingly active in passing legislation and implementing regulations designed to control product pricing, including price or patient reimbursement constraints, discounts, and restrictions on certain product access. The probability of success of these newly announced policies, many of which have been subjected to legal challenge in the federal court system, and their potential impact on the U.S. prescription drug marketplace is unknown. There are likely to be continued political and legal challenges associated with implementing these reforms as they are currently envisioned, and the January 20, 2021 transition to a new Democrat-led presidential administration created further uncertainty. Following his inauguration, President Biden took immediate steps to order a regulatory freeze on all pending substantive executive actions in order to permit incoming department and agency heads to review whether questions of fact, policy, and law may be implicated and to determine how to proceed. In addition, certain regulatory actions taken by the Trump Administration on or after August 21, 2020 (i.e., in the last 60 days of legislative session of the 116th Congress) may also be vulnerable to being overturned by a joint resolution of disapproval from Congress under the procedures set forth in the Congressional Review Act.

There also are a number of state and local legislative and regulatory efforts related to drug or biologic pricing, including drug or biologic price transparency laws that apply to pharmaceutical manufacturers, that may have an impact on our business. Individual states in the U.S. have become increasingly active in passing legislation and implementing regulations designed to control product pricing, including price or patient reimbursement constraints, discounts, and restrictions on certain product access. In December 2020, the U.S. Supreme Court held unanimously that federal law does not preempt the states’ ability to regulate pharmaceutical benefit managers, or PBMs, and other members of the health care and pharmaceutical supply chain, an important decision that may lead to further and more aggressive efforts by states in this area.

In addition, the Drug Supply Chain Security Act enacted in 2013 imposes new obligations on manufacturers of pharmaceutical products related to product tracking and tracing, and that law is expected to be fully implemented over a ten-year period. In December 2019, President Trump signed the Further Consolidated Appropriations Act for 2020 into law (P.L. 116-94) that includes a piece of bipartisan legislation called the Creating and Restoring Equal Access to Equivalent Samples Act of 2019 or the “CREATES Act.” The CREATES Act aims to address the concern articulated by both the FDA and others in the industry that some brand manufacturers have improperly restricted the distribution of their products, including by invoking the existence of a REMS for certain products, to deny generic and biosimilar product developers access to samples of brand products. The CREATES Act establishes a private cause of action that permits a generic or biosimilar product developer to sue the brand manufacturer to compel it to furnish the necessary samples on “commercially reasonable, market-based terms.” Whether and how generic and biosimilar product developments will use this new pathway, as well as the likely outcome of any legal challenges to provisions of the CREATES Act, remain highly uncertain and its potential effects on our future commercial products are unknown. Other legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical or biological products. We cannot be sure whether additional legislative changes will be enacted, or whether FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals, if any, of our drug or biologic candidates, may be or whether such changes will have any other impacts on our business. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing conditions and other requirements.

In the European Union, similar political, economic and regulatory developments may affect our ability to profitably commercialize our products. In addition to continuing pressure on prices and cost containment measures, legislative developments at the European Union or EU member state level may result in significant additional requirements or obstacles that may increase our operating costs.

We expect that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria, lower reimbursement and additional downward pressure on the price that we will receive for any approved product. Any reduction in payments from Medicare or other government-funded programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our products.

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Our relationships with prescribers, purchasers, third-party payors and patients will be subject to applicable anti-kickback, fraud and abuse and other health care laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.

If we obtain FDA approval for any of our drug or biologic candidates and begin commercializing those products in the United States, our operations will be subject to additional health care statutory and regulatory requirements and oversight by federal and state governments in the United States as well as foreign governments in the jurisdictions in which we conduct our business. Physicians, other health care providers and third-party payors will play a primary role in the recommendation, prescription and use of any drug or biologic candidates for which we obtain marketing approval. In the U.S., our future arrangements with such third parties may expose us to broadly applicable fraud and abuse and other health care laws and regulations that may constrain our business or financial arrangements and relationships through which we market, sell and distribute any products for which we may obtain marketing approval. Violations of the fraud and abuse laws are punishable by criminal and civil sanctions, including, in some instances, exclusion from participation in federal and state health care programs, including Medicare and Medicaid. Restrictions under applicable domestic and foreign health care laws and regulations include but are not limited to the following:

• the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase order or recommendation of a good or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs; a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

• federal civil and criminal false claims laws and civil monetary penalty laws, including the U.S. False Claims Act, which impose criminal and civil penalties against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government; actions may be brought by the government or a whistleblower and may include an assertion that a claim for payment by federal health care programs for items and services which results from a violation of the federal Anti-Kickback Statue constitutes a false or fraudulent claim for purposes of the False Claims Act;

• the Health Insurance Portability and Accountability Act of 1996, or HIPAA, that imposes criminal and civil liability for executing a scheme to defraud any health care benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for health care benefits, items or services; similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

• analogous state and foreign laws and regulations relating to health care fraud and abuse, such as state anti-kickback and false claims laws, that may apply to sales or marketing arrangements and claims involving health care items or services reimbursed by non-governmental third-party payors, including private insurers;

• the federal physician payment transparency requirements, sometimes referred to as the “Sunshine Act,” enacted as part of the ACA, which requires manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to CMS information related to payments and other transfers of value to physicians, other healthcare providers and teaching hospitals (and, beginning in 2021, for transfers of value to other health care providers), as well as the ownership and investment interests held by physicians and other healthcare providers and their immediate family members and applicable group purchasing organizations;

• analogous state and foreign laws that require pharmaceutical companies to track, report and disclose to the government and/or the public information related to payments, gifts, and other transfers of value or remuneration to physicians and other health care providers, marketing activities or expenditures, or product pricing or transparency information, or that require pharmaceutical companies to implement compliance programs that meet certain standards or to restrict or limit interactions between pharmaceutical manufacturers and members of the health care industry;

• the U.S. federal laws that require pharmaceutical manufacturers to report certain calculated product prices to the government or provide certain discounts or rebates to government authorities or private entities, often as a condition of reimbursement under federal health care programs;

• HIPAA, which imposes obligations on certain covered entity health care providers, health plans, and health care clearinghouses as well as their business associates that perform certain services involving the use or disclosure of

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individually identifiable health information, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information; and

• state and foreign laws that govern the privacy and security of health information in certain circumstances, including state security breach notification laws, state health information privacy laws and federal and state consumer protection laws, many of which differ from each other in significant ways or conflict with each other and often are not preempted by HIPAA, thus complicating compliance efforts.

Notably, in November 2020, HHS finalized significant changes to the regulations implementing the Anti-Kickback Statute, as well as the Physician Self-Referral Law (Stark Law) and the civil monetary penalty rules regarding beneficiary inducements, with the goal of offering the health care industry more flexibility and reducing the regulatory burden associated with those fraud and abuse laws, particularly with respect to value-based arrangements among industry participants. As noted above under “Healthcare legislative reform measures may have a material adverse effect on our business, financial condition or results of operations,” those final rules may be at risk of potentially being overturned under the Congressional Review Act following the change in control of the legislative and executive branches in January 2021.

Efforts to ensure that our business arrangements with third parties will comply with applicable health care laws and regulations will involve substantial costs. If the FDA or a comparable foreign regulatory authority approves any of our drug or biologic candidates, we will be subject to an expanded number of these laws and regulations and will need to expend resources to develop and implement policies and processes to promote ongoing compliance. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other health care laws and regulations, resulting in government enforcement actions. If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil, criminal and administrative penalties, damages, fines, exclusion from participation in government health care programs, such as Medicare and Medicaid, imprisonment, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

We may be subject to, or may in the future become subject to, U.S. federal and state, and foreign laws and regulations imposing obligations on how we collect, use, disclose, store and process personal information. Our actual or perceived failure to comply with such obligations could result in liability or reputational harm and could harm our business. Ensuring compliance with such laws could also impair our efforts to maintain and expand our customer base, and thereby decrease our revenue.

In many activities, including the conduct of clinical trials, we may be subject to laws and regulations governing data privacy and the protection of health-related and other personal information. These laws and regulations govern our processing of personal data, including the collection, access, use, analysis, modification, storage, transfer, security breach notification, destruction and disposal of personal data.

The privacy and security of personally identifiable information stored, maintained, received or transmitted, including electronically, is subject to significant regulation in the United States and abroad. While we strive to comply with all applicable privacy and security laws and regulations, legal standards for privacy continue to evolve and any failure or perceived failure to comply may result in proceedings or actions against us by government entities, affected individuals or others, which could be extraordinarily expensive to defend and could cause reputational harm, which could have a material adverse effect on our business.

Numerous foreign, federal and state laws and regulations govern collection, dissemination, use and confidentiality of personally identifiable health information, including state privacy and confidentiality laws (including state laws requiring disclosure of breaches), federal and state consumer protection and employment laws, HIPAA and European and other foreign data protection laws. These laws and regulations are increasing in complexity and number and may change frequently and sometimes conflict. The European Union’s omnibus data protection law, the General Data Protection Regulation, or GDPR, took effect on May 25, 2018. The GDPR imposes numerous requirements on entities that process personal data in the context of an establishment in the European Economic Area, or EEA, or that process the personal data of data subjects who are located in the EEA. These requirements include, for example, establishing a basis for processing, providing notice to data subjects, developing procedures to vindicate expanded data subject rights, implementing appropriate technical and organizational measures to safeguard personal data, and complying with restrictions on the cross-border transfer of personal data from the EEA to countries that the European Union does not consider to have in place adequate data protection legislation, such as the United States. The GDPR additionally establishes heightened obligations for entities that process

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“special categories” of personal data, such as health data. Nearly all clinical trials involve the processing of these “special categories” of personal data, and thus processing of personal data collected during the course of clinical trials is subject to heightened protections under the GDPR. Violations of the GDPR can lead to penalties of up to €20 million or 4% of an entity’s annual turnover. The United Kingdom has incorporated the GDPR into its Data Protection Act 2018, and substantially equivalent requirements and penalties apply in the United Kingdom.

On July 16, 2020, the Court of Justice of the European Union, or the CJEU, issued a landmark opinion in the case Maximilian Schrems vs. Facebook (Case C-311/18), called Schrems II. This decision calls into question certain data transfer mechanisms as between the European Union member states and the United States. The CJEU is the highest court in Europe and the Schrems II decision heightens the burden on data importers to assess U.S. national security laws on their business, and future actions of European Union data protection authorities are difficult to predict at this early date. Consequently, there is some risk of any such data transfers from the European Union being halted by one or more European Union member states. Any contractual arrangements requiring the transfer of personal data from the European Union to us in the United States will require greater scrutiny and assessments as required under Schrems II and may have an adverse impact on cross-border transfers of personal data or increase costs of compliance.

HIPAA establishes a set of national privacy and security standards for the protection of protected health information, or PHI, by health plans, health care clearinghouses and health care providers that submit certain covered transactions electronically, or covered entities, and their “business associates,” which are persons or entities that perform certain services for, or on behalf of, a covered entity that involve creating, receiving, maintaining or transmitting PHI. While we are not currently a covered entity or business associate under HIPAA, we are indirectly impacted by HIPAA because HIPAA regulates the ability of clinical investigators and other health care providers to share PHI with us. Failure to receive this information properly could subject us or our health care provider collaborators to HIPAA’s criminal penalties, which may include fines up to $250,000 per violation and/or imprisonment. In addition, responding to government investigations regarding alleged violations of these and other laws and regulations, even if ultimately concluded with no findings of violations or no penalties imposed, can consume company resources and impact our business and, if public, harm our reputation.

In addition, various states, such as California and Massachusetts, have implemented their own privacy laws and regulations, such as the California Confidentiality of Medical Information Act, that impose restrictive requirements regulating the use and disclosure of health information and other personally identifiable information. In addition to fines and penalties imposed upon violators, some of these state laws also afford private rights of action to individuals who believe their personal information has been misused. California’s patient privacy laws, for example, provide for penalties of up to $250,000 and permit injured parties to sue for damages. In addition to the California Confidentiality of Medical Information Act, California also recently enacted the California Consumer Privacy Act of 2018, or CCPA, which became effective January 1, 2020 with the final regulations made effective in August 2020. The CCPA has been characterized as the first “GDPR-like” privacy statute to be enacted in the United States because it mirrors a number of the key provisions of the EU General Data Protection Regulation. The CCPA establishes a new privacy framework for covered businesses in the State of California, by creating an expanded definition of personal information, establishing new data privacy rights for consumers, imposing special rules on the collection of consumer data from minors, and creating a new and potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement reasonable security procedures and practices to prevent data breaches.

The interplay of federal and state laws may be subject to varying interpretations by courts and government agencies, creating complex compliance issues for us and potentially exposing us to additional expense, adverse publicity and liability. Further, as regulatory focus on privacy issues continues to increase and laws and regulations concerning the protection of personal information expand and become more complex, these potential risks to our business could intensify. The legislative and regulatory landscape for privacy and data security continues to evolve, and there has been an increasing focus on privacy and data security issues which may affect our business. Failure to comply with current and future laws and regulations could result in government enforcement actions (including the imposition of significant penalties), criminal and/or civil liability for us and our officers and directors, private litigation and/or adverse publicity that negatively affects our business.

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Reliance on government funding for our programs may add uncertainty to our research and commercialization efforts with respect to those programs that are tied to such funding and may impose requirements that limit our ability to take certain actions, increase the costs of commercialization and production of drug or biologic candidates developed under those programs and subject us to potential financial penalties, which could materially and adversely affect our business, financial condition and results of operations.

During the course of our development of our lead drug or biologic candidate, we have been funded in significant part through state grants, including but not limited to the substantial funding we have received from the Cancer Prevention & Research Institute of Texas, or CPRIT. We entered our first CPRIT award grant contract, or the 2011 CPRIT Agreement, on December 1, 2011. On September 18, 2018, we entered into a second CPRIT award grant contract for our CD38 targeted ETB program, or the CD38 CPRIT Agreement, which was extended in October 2020. In addition to the funding, we have received to date, we have applied and intend to continue to apply for federal and state grants to receive additional funding in the future, which may or may not be successful. Contracts and grants funded by the U.S. government, state governments and their related agencies, including our contracts with the State of Texas pertaining to funds we have already received, include provisions that reflect the government’s substantial rights and remedies, many of which are not typically found in commercial contracts, including powers of the government to:

• require repayment of all or a portion of the grant proceeds, in certain cases with interest, in the event we violate certain covenants pertaining to various matters that include any potential relocation outside of the State of Texas, failure to achieve certain milestones or to comply with terms relating to use of grant proceeds, or failure to comply with certain laws;

• terminate agreements, in whole or in part, for any reason or no reason;

• reduce or modify the government’s obligations under such agreements without the consent of the other party;

• claim rights, including march-in and other intellectual property rights, in products and data developed under such agreements;

• audit contract-related costs and fees, including allocated indirect costs;

• suspend the contractor or grantee from receiving new contracts pending resolution of alleged violations of procurement laws or regulations;

• impose the State of Texas or U.S. manufacturing requirements for products that embody inventions conceived or first reduced to practice under such agreements;

• impose the qualifications for the engagement of manufacturers, suppliers and other contractors as well as other criteria for reimbursements;

• suspend or debar the contractor or grantee from doing future business with the government;

• control and potentially prohibit the export of products;

• pursue criminal or civil remedies under the False Claims Act, False Statements Act and similar remedy provisions specific to government agreements; and

• limit the government’s financial liability to amounts appropriated by the State of Texas on a fiscal-year basis, thereby leaving some uncertainty about the future availability of funding for a program even after it has been funded for an initial period.

In addition to those powers set forth above, the government funding we may receive could also impose requirements to make payments based upon sales of our products in the future. For example, under the terms of our CD38 CPRIT Agreement, we are required to pay CPRIT a percentage of our revenues from sales of products directly funded by CPRIT, or received from our licensees or sub licensees, at a percentage in the low to mid-single digits until the aggregate amount of such payments equals 400% of the funds we receive from CPRIT, and thereafter at a rate of one-half percent.

We may not have the right to prohibit the State of Texas or, if relevant under possible future federal grants, the U.S. government, from using certain technologies developed by us, and we may not be able to prohibit third-party companies, including our competitors, from using those technologies in providing products and services to the U.S. government. The U.S. government generally takes the position that it has the right to royalty-free use of technologies that are developed under U.S. government contracts. These and other provisions of government grants may also apply to intellectual property we license now or in the future.

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In addition, government contracts and grants normally contain additional requirements that may increase our costs of doing business, reduce our profits and expose us to liability for failure to comply with these requirements. These requirements include, for example:

• specialized accounting systems unique to government contracts and grants;

• mandatory financial audits and potential liability for price adjustments or recoupment of government funds after such funds have been spent;

• public disclosures of certain contract and grant information, which may enable competitors to gain insights into our research program; and

• mandatory socioeconomic compliance requirements, including labor standards, non-discrimination and affirmative action programs and environmental compliance requirements.

If we fail to maintain compliance with any such requirements that may apply to us now or in the future, we may be subject to potential liability and to termination of our contracts.

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on our business, financial condition or results of operations.

Our research and development activities and our third-party manufacturers’ and suppliers’ activities involve the controlled storage, use, and disposal of hazardous materials, including the components of our drug or biologic candidates and other hazardous compounds. We and our manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling, and disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at our and our manufacturers’ facilities pending their use and disposal. We cannot eliminate the risk of contamination, which could cause an interruption of our commercialization efforts, research and development efforts and business operations; environmental damage resulting in costly clean-up; and liabilities under applicable laws and regulations governing the use, storage, handling, and disposal of these materials and specified waste products. Although we believe that the safety procedures utilized by us and our third-party manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources and state or federal or other applicable authorities may curtail our use of specified materials and/or interrupt our business operations. Furthermore, environmental laws and regulations are complex, change frequently, and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance. We do not currently carry biological or hazardous waste insurance coverage.

Inadequate funding for the FDA, the SEC and other government agencies could hinder their ability to hire and retain key leadership and other personnel, prevent our drug or biologic candidates from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business rely, which could negatively impact our business.

The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of the SEC and other government agencies on which our operations may rely, including those that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.

Disruptions at the FDA and other agencies may also slow the time necessary for new drugs and biologic products to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, the U.S. government has shut down several times, including from December 22, 2018 through January 25, 2019, and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical FDA, SEC and other government employees and stop critical activities. Moreover, recent shutdowns or slowdowns caused by the federal response to the COVID-19 pandemic can increase the time needed for the agency to complete its review or make final approval or other administrative decisions. If a prolonged government shutdown or slowdown occurs, it could significantly affect the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Further, in our operations as a public company, future government shutdowns could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.

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Risks Related to Our Intellectual Property

Our ability to compete effectively may decline if we are unable to establish intellectual property rights or if our intellectual property rights are inadequate to protect our ETB technology, present and future drug or biologic candidates and related processes for our developmental pipeline.

We rely or will rely upon a combination of patents, trade secret protection, and confidentiality agreements to protect our intellectual property related to our technologies and drug or biologic candidates. Our commercial success and viability depend in large part on our current and potential future licensors or collaboration partners’ ability to obtain, maintain and enforce patent and other intellectual property protections in the United States, Europe and other countries worldwide with respect to our current and future proprietary technologies and drug or biologic candidates. If we or our current or future licensors or collaboration partners do not adequately protect such intellectual property, competitors may be able to use our technologies and erode or negate any competitive advantage we may have, which could materially harm our business, negatively affect our position in the marketplace, limit our ability to commercialize drug or biologic candidates and delay or render impossible our achievement of profitability.

Our strategy and future prospects are based, in part, on our patent portfolio. We and our current and future licensors or collaboration partners or licensees will best be able to protect our proprietary ETB technologies, drug or biologic candidates and their uses from unauthorized use by third parties to the extent that valid and enforceable patents, other regulatory exclusivities or effectively protected trade secrets, cover them. We have sought to protect our proprietary position by filing in the United States and elsewhere patent applications related to our proprietary ETB technologies, drug or biologic candidates and methods of use that are important to our business. This process is expensive and time consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain meaningful patent protection.

Intellectual property rights have limitations and do not necessarily address all potential threats to our competitive advantage. Our ability to obtain patent protection for our proprietary technologies, drug or biologic candidates and their uses is uncertain, and the degree of future protection afforded by our intellectual property rights is uncertain due to a number of factors, including, but not limited to:

• we or our current or future collaboration partners may not have been the first to make the inventions disclosed in or covered by pending patent applications or issued patents;

• we or our current or future licensors or collaboration partners may not have been the first to file patent applications covering our ETB technology, drug or biologic candidates, compositions or their uses;

• others may independently develop identical, similar or alternative methods, products, drug or biologic candidates or compositions and uses thereof;

• we or our current or future licensors or collaboration partners’ disclosures in patent applications may not be sufficient to meet the statutory requirements for patentability;

• any or all of our current or future licensors or collaboration partners’ pending patent applications may not result in issued patents;

• we or our current or future licensors or collaboration partners may not seek or obtain patent protection in jurisdictions or countries that may provide us with a significant business opportunity;

• we or our current or future licensors or collaboration partners might seek or obtain patent protection in jurisdictions or countries that might not provide us with a significant business opportunity;

• any patents issued to us or to our current or future licensors or collaboration partners, or to us and to our current or future licensors or collaboration partners, may not provide a basis for commercially viable products, may not provide any competitive advantages or may be successfully challenged by one or more third parties;

• we or our current or future licensors’ or collaboration partners’ products, drug or biologic candidates, compositions, methods or uses thereof may not be patentable;

• we or our current or future licensors or collaboration partners might fail to maintain our or their patents, resulting in their abandonment;

• we or our current or future licensors or collaboration partners might fail to obtain patent term extensions available in the United States or in foreign jurisdictions or countries;

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• others may design around our or our current or future licensors’ or collaboration partners’ patent claims to produce competitive technologies, products or uses which fall outside of the scope of our patents or other intellectual property rights;

• others may identify prior art or other bases which could render unpatentable our or our current or future licensors’ or collaboration partners’ patent applications, or invalidate our or our current or future licensors or collaboration partners’ patents;

• our competitors might conduct research and development activities in the United States and other countries that provide a safe harbor from patent infringement claims for certain research and development activities, as well as in countries where we or our current or future licensors or collaboration partners do not have patent rights, and then use the information learned from such activities to develop competitive products for sale in major commercial markets; or

• we or our current or future licensors or collaboration partners may not develop additional proprietary technologies or products that are patentable.

Further, the patent position of biotechnology and pharmaceutical companies generally is highly uncertain and involves complex legal and factual questions for which legal principles remain unsettled. The patent applications that we own or in-license may fail to result in issued patents with claims that cover our or our competitors’ drug or biologic candidates or their uses in the United States or in other countries. There is no assurance that all potentially relevant prior art relating to our patents and patent applications has been found, which can invalidate a patent or prevent a patent from issuing from a pending patent application. Even if patents do successfully issue, and even if such patents cover our technologies, drug or biologic candidates, compositions or their uses, third parties may challenge their validity, enforceability or scope, which may result in such patents being narrowed, found unenforceable or invalidated. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property, provide exclusivity for our drug or biologic candidates or prevent others from designing around our claims. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.

We, independently or together with our collaboration partners, have filed patent applications covering various aspects of our ETB technology, drug or biologic candidates and associated assays and uses. We cannot offer any assurances about which, if any, patents will issue, the breadth of any such patent or whether any issued patents will be found invalid and unenforceable or will be threatened by one or more third parties. Any successful opposition or challenge to these patents or to any other patents owned by or licensed to us after patent issuance could deprive us of rights necessary for the successful commercialization of any drug or biologic candidates that we may develop. Further, if we encounter delays in regulatory approvals, the period of time during which we could market a drug or biologic candidate under patent protection could be reduced.

If we cannot obtain and maintain effective protection of exclusivity from our regulatory efforts and intellectual property rights, including patent protection or data or market exclusivity for our technologies, drug or biologic candidates, compositions or their uses, we may not be able to compete effectively, and our business and results of operations would be harmed.

We may not be able to protect our intellectual property rights throughout the world.

Filing, prosecuting and defending patents on drug or biologic candidates in all countries throughout the world would be prohibitively expensive. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal or state laws in the United States. Competitors may use our technologies to develop our own products in jurisdictions where we have not obtained patent protection and may also export infringing products to territories where we do not have patent protection, or to territories where we have patent protection, but where enforcement is not as strong as that in the United States. These products may compete with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

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Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of some countries, particularly some developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to healthcare, medicine, or biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our resources, efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

We may not have sufficient patent term or regulatory exclusivity protections for our drug or biologic candidates to effectively protect our competitive position.

Patents have a limited term. In the United States and most jurisdictions worldwide, the statutory expiration of a non-provisional patent is generally 20 years after it is first filed. Although various extensions may be available, the life of a patent, and the protection it affords, is limited. Even if patents covering our technologies, drug or biologic candidates and associated uses are obtained, once the patent’s life has expired, including for failure to pay maintenance fees or annuities, we may be open to competition from generic, biosimilar or biobetter medications.

Patent term extensions under the Hatch-Waxman Act in the United States, and regulatory extensions in Japan and certain other countries, and under Supplementary Protection Certificates in Europe, may be available to extend the patent or market or data exclusivity terms of our drug or biologic candidates depending on the timing and duration of the regulatory review process relative to patent term. In addition, upon issuance of a United States patent, any patent term may be adjusted based on specified delays during patent prosecution caused by the applicant(s) or the United States Patent and Trademark Office, or the USPTO. Although we will likely seek patent term extensions in the U.S. and in one or more foreign jurisdictions where available, we cannot provide any assurances that any such patent term extensions will be granted and, if so, for how long. As a result, we may not be able to maintain exclusivity for our drug or biologic candidates for an extended period after regulatory approval, if any, which would negatively impact our business, financial condition, results of operations and prospects. If we do not have sufficient patent term or regulatory exclusivity to protect our drug or biologic candidates, our business and results of operations will be adversely affected.

Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our technologies and products, and recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.

As is the case with other biotechnology companies, our success is heavily dependent on patents. Obtaining and enforcing patents in the biotechnology industry involve both technological and legal complexity, and is therefore costly, time-consuming and inherently uncertain. In addition, the United States has recently enacted and is currently implementing wide-ranging patent reform legislation. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in specified circumstances and weakened the rights of patent owners in specified situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.

On September 16, 2011, the Leahy-Smith America Invents Act, or AIA was signed into law. The AIA includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted, the scope of prior art and may also affect patent litigation. The USPTO has promulgated regulations and developed procedures to govern administration of the AIA, and many of the substantive changes to patent law associated with the AIA, and in particular, the first inventor to file a provisional patent application, did not come into effect until March 16, 2013. The AIA and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, financial condition or results of operations.

An important change introduced by the AIA is that, as of March 16, 2013, the United States transitioned to a “first-inventor-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention. A third party that filed or files a patent application in the USPTO after March 16, 2013 but before we file an application could therefore be granted a patent covering an invention of ours even if we had made the invention before it was made by the third party. This will require us to be cognizant going forward of the time from invention to filing of a patent application. Furthermore, our ability to obtain and maintain valid and enforceable patents

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depends on whether the differences between our technology and the prior art allow our technology to be patentable over the prior art. Since patent applications in the United States and most other countries are confidential at least 18 months after filing, we cannot be certain that we were the first to either (i) file any patent application related to our drug or biologic candidates or (ii) invent any of the inventions claimed in our patents or patent applications.

Among some of the other changes introduced by the AIA are procedures providing opportunities for third parties to challenge any issued patent in the USPTO. Included in these new procedures is a process known as inter partes review, or IPR, which has been used by many third parties to challenge and invalidate patents. The IPR process is not limited to patents filed after the AIA was enacted and would therefore be available to a third party seeking to invalidate any of our U.S. patents, even those issued or filed before March 16, 2013. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in U.S. federal court necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures, e.g., an IPR, to invalidate our patent claims that would not have been invalidated if first challenged by the third party in a district court action.

We could be required to incur significant expenses to obtain our intellectual property rights, and we cannot ensure that we will obtain meaningful patent protection for our drug or biologic candidates.

The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. In addition, it is also possible that we will fail to identify patentable aspects of further inventions made in the course of our research, development or commercialization activities before they are publicly disclosed, making it in many cases too late to obtain patent protection on them. Further, given the amount of time required for the development, testing and regulatory review of new drug or biologic candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. We expect to seek extensions of patent terms where these are available in any countries where we are prosecuting patents. This includes in the United States under the Drug Price Competition and Patent Term Restoration Act of 1984, which permits a patent term extension of up to five years beyond the expiration of a patent that covers an approved product where the permission for the commercial marketing or use of the product is the first permitted commercial marketing or use, and as long as the remaining term of the patent does not exceed 14 years. However, the applicable authorities, including the FDA in the United States, and any comparable regulatory authority in other countries, may not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to our patents, or may grant more limited extensions than we request. If this occurs, our competitors may be able to take advantage of our investment in development and clinical trials by referencing our clinical and preclinical data and launch their product earlier than might otherwise be the case. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. The laws of foreign countries may not protect our rights to the same extent as the laws of the United States, and these foreign laws may also be subject to change. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing or in some cases not at all. Therefore, we cannot be certain that we, our collaboration partners or our licensors were the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or that we, our collaboration partners or our licensors were the first to file for patent protection of such inventions.

Issued patents covering our ETB technologies, drug or biologic candidates, compositions or uses could be found invalid or unenforceable if challenged in a patent office or court.

Even if our current or future collaboration partners’ or licensors’ patents do successfully issue and even if such patents cover our technologies, drug or biologic candidates, compositions or methods of use, third parties may initiate interference, re-examination, post-grant review, IPR or derivation actions in the USPTO; may initiate third party oppositions in the European Patent Office, or EPO; or may initiate similar actions challenging the validity, enforceability, scope or term of such patents in other patent administrative or court proceedings worldwide, which may result in patent claims being narrowed or invalidated. Such proceedings could result in revocation or amendment of our patents in such a way that they no longer cover competitive technologies, drug or biologic candidates, compositions or methods of use. Further, if we initiate legal proceedings against a third party to enforce a patent covering our technologies, drug or biologic candidates, compositions or uses, the defendant could counterclaim that our relevant patent is invalid or unenforceable. In patent litigation in the United States, certain European and other countries worldwide, it is commonplace for defendants to make counterclaims alleging invalidity and unenforceability in the same proceeding, or to commence parallel defensive proceedings such as patent nullity actions to challenge validity and enforceability of asserted patent claims. Further, in the United States, a third party, including

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a licensee of one of our current or future collaboration partners’ patents, may initiate legal proceedings against us in which the third party challenges the validity, enforceability, or scope of our patent(s).

In administrative and court actions, grounds for a patent validity challenge may include alleged failures to meet any of several statutory requirements, including novelty, nonobviousness (or inventive step), clarity, adequate written description and enablement of the claimed invention. Grounds for unenforceability assertions include allegations that someone associated with the filing or prosecution of the patent withheld material information from the Examiner during prosecution in the USPTO or made a misleading statement during prosecution in the USPTO, the EPO or elsewhere. Third parties also may raise similar claims before administrative bodies in the USPTO or the EPO, even outside the context of litigation. The outcome following legal assertions of invalidity or unenforceability are unpredictable. With respect to patent claim validity, for example, we cannot be certain that there is no invalidating prior art, of which we or the patent examiner was unaware during prosecution. Further, we cannot be certain that all of the potentially relevant art relating to our patents and patent applications has been brought to the attention of every patent office. If a defendant or other patent challenger were to prevail on a legal assertion of invalidity or unenforceability, we could lose at least part, and perhaps all, of the patent protection on our ETB technology, drug or biologic candidates, compositions and associated uses.

We may become involved in lawsuits to protect or enforce our patents or other intellectual property rights, which could be expensive, time consuming and unsuccessful and have a material adverse effect on the success of our business.

Competitors may infringe our patents or the patents of any of our future licensors. If we or one of our collaboration partners were to initiate legal proceedings against a third party to enforce a patent covering one of our drug or biologic candidates, the defendant could counterclaim that the patent covering our drug or biologic candidate is invalid and/or unenforceable. In addition, a third party might initiate legal proceedings against us alleging that our patent covering one or more of our drug or biologic candidates is invalid and/or unenforceable. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including novelty, nonobviousness, adequate written description, clarity or enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. The outcome following legal assertions of invalidity and unenforceability is unpredictable.

There is also a risk that, even if the validity of such patents is upheld, the court will construe the patent’s claims narrowly, for example, such that they do not cover our drug or biologic candidates or decide that we do not have the right to stop the other party from using the claimed invention at issue on the grounds that our or our current or future collaboration partners’ patent claims do not cover the claimed invention. Third parties may in the future make claims challenging the inventorship or ownership of our intellectual property. An adverse outcome in a litigation or proceeding involving one or more of our patents could limit our ability to assert those patents against those parties or other competitors and may curtail or preclude our ability to exclude third parties from making and selling similar or competitive products.

Even if we were to establish infringement of our patent rights by a third party, the court may decide not to grant an injunction against further infringing activity and instead award only monetary damages, which may or may not be an adequate remedy. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could adversely affect the market price of our common stock. Moreover, there can be no assurance that we will have sufficient financial or other resources to file, pursue or maintain such infringement claims, which typically last for years before they are concluded and can involve substantial expenses. Even if we ultimately prevail in such claims, the monetary cost of such litigation and the diversion of the attention of our management and scientific personnel could outweigh any benefit we receive as a result of the proceedings.

Interference or derivation proceedings provoked by third parties or brought by us or declared by the USPTO may be necessary to determine the priority or inventorship of inventions with respect to our patents or patent applications or those of any of our future licensors. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our defense of litigation, interference proceedings, or derivation proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. In addition, the uncertainties associated with litigation and administrative proceedings could have a material adverse effect on our ability to raise the funds necessary to continue our clinical trials, continue our research programs, license necessary technology from third parties or enter into development partnerships that would help us bring our drug or biologic candidates to market.

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If we are unable to protect the confidentiality of our trade secrets and know-how for our drug or biologic candidates or any future drug or biologic candidates, we may not be able to compete effectively in our proposed markets.

In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that we elect not to patent, processes for which patents are difficult to enforce and any other elements of our drug or biologic candidate discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. However, trade secrets can be difficult to protect. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors, contractors and other third parties. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors.

Although our current employment contracts require assignment of inventor’s rights of intellectual property to us,  and we expect all of our employees and consultants to assign their inventions to us, and although all of our employees, consultants, advisors, and any third parties who have access to our proprietary know-how, information or technology are expected to enter into confidentiality agreements, we cannot provide any assurances that all such agreements have been duly executed or that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Misappropriation or unauthorized disclosure of our trade secrets could impair our competitive position and may have a material adverse effect on our business, financial condition or results of operations. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating trade secrets.

Third-party claims of intellectual property infringement could result in costly litigation or other proceedings and may prevent or delay our development and commercialization efforts.

Our research and development activities and commercial success depends in part on our ability to develop, manufacture, market and sell our drug or biologic candidates and use our proprietary technology without infringing the patent rights of third parties. Third parties may assert that we are employing their proprietary technology without authorization. We are currently not aware of U.S. or foreign patents or pending patent applications that are owned by one or more third parties and that cover our ETB drug or biologic candidates or therapeutic uses of those ETB drug or biologic candidates. In the future, we may identify such third-party U.S. and non-U.S. issued patents and pending applications. If we identify any such patents or pending applications, we may in the future pursue available proceedings in the U.S. and foreign patent offices to challenge the validity of these patents and patent applications. In addition, or alternatively, we may consider whether to seek to negotiate a license of rights to technology covered by one or more of such patents and patent applications. If any patents or patent applications cover our drug or biologic candidates or technologies or a requisite manufacturing process, we may not be free to manufacture or market our drug or biologic candidates, including MT-3724, as planned, absent such a license, which may not be available to us on commercially reasonable terms, or at all.

It is also possible that we have failed to identify relevant third-party patents or applications. For example, patent applications filed before November 29, 2000 and patent applications filed after that date, but that will not be filed outside the United States, remain confidential until the patent applications issue as patents. Moreover, it is difficult for industry participants, including us, to identify all third-party patent rights that may be relevant to drug or biologic candidates and technologies with certainty. We may fail to identify relevant patents or patent applications or may identify pending patent applications of potential interest but incorrectly predict the likelihood that such patent applications may issue with claims of relevance to our technology. In addition, we may be unaware of one or more issued patents that would be infringed by the manufacture, sale or use of a current or future drug or biologic candidate, or we may incorrectly conclude that a patent office or court would determine that a third-party patent is invalid, unenforceable or not infringed by our activities. Additionally, pending patent applications that have been published can, subject to specified limitations, be later amended in a manner that could cover our technologies, our drug or biologic candidates or the use of our drug or biologic candidates.

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There have been many lawsuits and other proceedings involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions and reexamination proceedings before the USPTO and corresponding foreign patent offices. Third parties own numerous U.S. and foreign issued patents and pending patent applications in the fields in which we are developing drug or biologic candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our drug or biologic candidates may be subject to claims of infringement of the patent rights of third parties. Parties making patent infringement claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of our drug or biologic candidates. Defense of these claims, regardless of their merit, may involve substantial litigation expense and may require a substantial diversion of resources from our business. In the event of a successful claim of patent infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure. Further, if we were to seek a license from the third-party holder of any applicable intellectual property rights, we may not be able to obtain the applicable license rights when needed or on reasonable terms, or at all. Some of our competitors may be able to sustain the costs of complex patent litigation or proceeding more effectively than us due to their substantially greater resources. The occurrence of any of the above events could prevent us from continuing to develop and commercialize one or more of our drug or biologic candidates and our business could materially suffer.

We may be unsuccessful in obtaining or maintaining third-party intellectual property rights necessary to develop our ETB technologies or to commercialize our drug or biologic candidates and associated methods of use through acquisitions and in-licenses.

Presently, we have intellectual property rights to our ETB technologies under patent applications that we own and to certain CD38 targeting antibody domains through our license agreements. Because our programs may involve a range of ETB targets and antibody domains, which in the future may include targets and antibody domains that require the use of proprietary rights held by third parties, the growth of our business may likely depend in part on our ability to acquire, in-license or use these proprietary rights. In addition, our drug or biologic candidates may require specific formulations or manufacturing technologies to be safe, work effectively or be manufactured efficiently, and these rights may be held by others. We may be unable to acquire or in-license on reasonable terms any compositions, methods of use, processes or other third-party intellectual property rights from third parties that we identify. The licensing and acquisition of third-party intellectual property rights is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire third-party intellectual property rights that we may consider attractive. These established companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities.

For example, we have previously collaborated, and may continue to collaborate, with federal, state or international academic institutions to accelerate our preclinical research or development under written agreements with these institutions. Typically, these institutions grant the rights to the collaborator and retain a non-commercial license to all rights as well as retain march-in rights in the situation that the collaborator fails to exercise or commercialize certain covered technologies. Regardless of such initial rights, we may be unable to exercise or commercialize certain funded technologies thereby triggering march-in rights of the funding institution. If we are unable to do so, the institution may offer the intellectual property rights to other parties, potentially blocking our ability to pursue our program.

In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us, and vice versa. We also may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment. If we are unable to successfully obtain rights to third-party intellectual property rights, our business, financial condition and prospects for growth could suffer.

If we are unable to successfully obtain and maintain rights to required third-party intellectual property, we may have to abandon development of that drug or biologic candidate or pay additional amounts to the third-party, and our business and financial condition could suffer.

The patent protection and patent prosecution for some of our drug or biologic candidates may in the future be dependent on third parties.

While we normally seek to gain the right to fully prosecute the patent applications relating to our drug or biologic candidates, there may be times when certain patents or patent applications relating to our drug or biologic candidates, their compositions, uses or their manufacture may be controlled by our collaboration partners or licensors. If any of our

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collaboration partners fail to appropriately or broadly prosecute patent applications or maintain patent protection of claims covering any of our drug or biologic candidates, their compositions, uses or their manufacture, our ability to develop and commercialize those drug or biologic candidates may be adversely affected and we may not be able to prevent competitors from making, using, importing, offering to sell or selling competing products. In addition, even where we now have the right to control patent prosecution of patent applications or the maintenance of patents, we have licensed from third parties, presently or in the future, we may still be adversely affected or prejudiced by actions or inactions of our licensors in effect from actions prior to us assuming control over patent prosecution.

If we fail to comply with obligations in the agreements under which we license intellectual property and other rights from third parties or otherwise experience disruptions to our business relationships with our licensors, we could lose license rights that are important to our business.

We are and will continue to be a party to a number of intellectual property license collaboration and supply agreements that may be important to our business and expect to enter into additional license agreements in the future. Our existing agreements impose, and we expect that future agreements will impose, various diligence, milestone payment, royalty, purchasing and other obligations on us. If we fail to comply with our obligations under these agreements, or if we are subject to a bankruptcy, our agreements may be subject to termination by the licensor or other contract party, in which event we would not be able to develop, manufacture or market products covered by the license or subject to supply commitments.

We may be subject to claims that our employees, consultants or independent contractors wrongfully used or disclosed alleged confidential information of third parties or that our employees wrongfully used or disclosed alleged trade secrets of their former employers.

We employ individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including potential competitors. Although we have written agreements with these individuals, and although we make every effort to ensure that our employees, consultants and independent contractors do not use the proprietary information or intellectual property rights of others in their work for us, we may in the future be subject to claims that our employees, consultants or independent contractors wrongfully used or disclosed confidential information of third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, which could adversely impact our business. Even if we are successful at defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

Obtaining and maintaining our patent protection depends on compliance with various procedural, documentary, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees on any issued patent are due to be paid to the USPTO or to foreign patent agencies in several stages over the lifetime of the patent, and periodic annuities are due to be paid for foreign patent applications in some foreign patent offices. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other requirements during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we or our licensors fail to maintain the patents and patent applications covering our drug or biologic candidates, our competitors might be able to enter the market, which would have a material adverse effect on our business.

Our failure to comply with data protection laws and regulations could lead to government enforcement actions, private litigation and/or adverse publicity and could negatively affect our operating results and business.

We are subject to data protection laws and regulations that address privacy and data security. The legislative and regulatory landscape for data protection continues to evolve, and in recent years there has been an increasing focus on privacy and data security issues. In the United States, numerous federal and state laws and regulations, including state data breach notification laws, state health information privacy laws and federal and state consumer protection laws govern the collection, use, disclosure and protection of health-related and other personal information.

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Failure to comply with data protection laws and regulations could result in government enforcement actions, which could include civil or criminal penalties, private litigation and/or adverse publicity and could negatively affect our operating results and business. In addition, in May 2016, the EU Parliament adopted the comprehensive General Data Privacy Regulation, or the GDPR, to, among other things, impose more stringent data protection requirements for processors and controllers of personal data and provide for greater penalties and fines for non-compliance, including fines in amounts up to €20 million or 4% of total worldwide annual turnover, whichever is higher. The GDPR became fully effective in May 2018. In addition, in 2018, California adopted a new privacy law, which went into effect on January 1, 2020, that borrows heavily from the GDPR. Complying with the enhanced obligations imposed by the GDPR and other applicable international and U.S. privacy laws and regulations may result in significant costs to our business and require us to amend certain of our business practices. Further, enforcement actions and investigations by regulatory authorities related to data security incidents and privacy violations continue to increase. The future enactment of more restrictive laws, rules or regulations and/or future enforcement actions or investigations could have a materially adverse impact on us through increased costs or restrictions on our businesses, and non-compliance could result in regulatory penalties and significant legal liability.

Risks Related to Our Reliance on Third Parties

We rely on third parties to conduct our clinical trials, manufacture our drug or biologic candidates and perform other services. If these third parties do not successfully carry out their contractual duties, meet expected timelines, including as a result of the COVID-19 pandemic, or otherwise conduct the trials as required or perform and comply with regulatory requirements, we may not be able to successfully complete clinical development, obtain regulatory approval or commercialize our drug or biologic candidates when expected or at all, and our business could be substantially harmed.

We have relied upon and plan to continue to rely upon third-party CROs to conduct, monitor and manage our ongoing clinical programs. We rely on these parties for execution of clinical trials and we manage and control only some aspects of their activities. We remain responsible for ensuring that each of our trials is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on the CROs does not relieve us of our regulatory responsibilities. We and our CROs and other vendors are required to comply with all applicable laws, regulations and guidelines, including those required by the FDA and comparable foreign regulatory authorities for all of our drug or biologic candidates in clinical development. If we, or any of our CROs or vendors, fail to comply with applicable laws, regulations or guidelines, the results generated in our clinical trials may be deemed unreliable, and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot be assured that our CROs or other vendors will meet these requirements, or that upon inspection by any regulatory authority, such regulatory authority will determine that efforts, including any of our clinical trials, comply with applicable requirements. Our failure to comply with these laws, regulations or guidelines may require us to repeat clinical trials, which would be costly and delay the regulatory approval process.

If any of our relationships with these third-party CROs terminates, or they otherwise are subject to quarantines, shelter-in-place orders, shutdowns or other restrictions and must scale back their operations unexpectedly, including as a result of the COVID-19 pandemic, we may not be able to enter into arrangements with alternative CROs in a timely manner or do so on commercially reasonable terms. In addition, our CROs may not prioritize our clinical trials relative to those of other customers, and any turnover in personnel or delays in the allocation of CRO employees by the CRO may negatively affect our clinical trials. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, including as a result of the COVID-19 pandemic, our clinical trials may be delayed or terminated, and we may not be able to meet our current plans with respect to our drug or biologic candidates. CROs also may involve higher costs than anticipated, which could negatively affect our financial condition and operations.

We currently have a cGMP manufacturing facility and we have developed the capability to manufacture drug or biologic candidates for use in the conduct of our clinical trials. We may not be able to manufacture drug or biologic candidates or there may be substantial technical or logistical challenges to supporting manufacturing demand for drug or biologic candidates. We may also fail to comply with cGMP requirements and standards which would require us to not utilize the manufacturing facility to make clinical trial supply. We plan to rely at least in part on third-party manufacturers, and their responsibilities often include purchasing from third-party suppliers the materials necessary to produce our drug or biologic candidates for our clinical trials and regulatory approval. We expect there to be a limited number of suppliers for some of the raw materials that we expect to use to manufacture our drug or biologic candidates, and we may not be able to identify alternative suppliers to prevent a possible disruption of the manufacture of our drug or biologic candidates for our clinical trials, and, if approved, ultimately for commercial sale.

Although we generally do not expect to begin a clinical trial unless we believe we have a sufficient supply of a drug or biologic candidate to complete the trial, any significant delay or discontinuity in the supply of a drug or biologic candidate, or the raw materials or other material components in the manufacture of the drug or biologic candidate, could delay completion

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of our clinical trials and potential timing for regulatory approval of our drug or biologic candidates, which would harm our business and results of operations. We do not yet have sufficient information to reliably estimate the cost of the commercial manufacturing of our drug or biologic candidates and our current costs to manufacture our drug or biologic candidates may not be commercially feasible, and the actual cost to manufacture our drug or biologic candidates could materially and adversely affect the commercial viability of our drug or biologic candidates. As a result, we may never be able to develop a commercially viable product.

In addition, our reliance on third-party manufacturers exposes us to the following additional risks:

• we may be unable to identify manufacturers to manufacture our drug or biologic candidates on acceptable terms or at all, because the number of qualified potential manufacturers is limited. Following NDA or BLA approval, a change in the manufacturing site could require additional approval from the FDA. This approval would require new testing and compliance inspections;

• our third-party manufacturers might be unable to timely formulate and manufacture our product or produce the quantity and quality required to meet our clinical and commercial needs, if any;

• our third-party manufacturers might be forced to scale back or terminate operations as a result of quarantines, shelter-in-place or similar government orders, or the expectation that such orders, shutdowns or other restrictions could occur, whether related to COVID-19 or other infectious diseases, which could harm our ability to conduct ongoing and future clinical trials of our drug or biologic candidates;

• our future third-party manufacturers may not perform as agreed or may not remain in the contract manufacturing business for the time required to supply our clinical trials or to successfully produce, store and distribute our drug or biologic candidates;

• drug or biologic manufacturers are subject to ongoing periodic unannounced inspection by the FDA and corresponding state agencies to ensure strict compliance with cGMPs and other government regulations and corresponding foreign standards, and we do not have control over third-party manufacturers’ compliance with these regulations and standards;

• if any third-party manufacturer makes improvements in the manufacturing process for our products, we may not own or be able to license, or we may have to share, the intellectual property rights to any improvements made by our third-party manufacturers in the manufacturing process for our drug or biologic candidates; and

• our third-party manufacturers could breach or terminate their agreements with us.

Each of these risks could delay our clinical trials, the approval, if any, of our drug or biologic candidates, or the commercialization of our drug or biologic candidates or result in higher costs or deprive us of potential product revenue. In addition, we rely on third parties to perform release testing on our drug or biologic candidates prior to delivery to subjects in our clinical trials. If these tests are not appropriately conducted and test data are not reliable, subjects in our clinical trials, or patients treated with our drug or biologic candidates, if any are approved in the future, could be put at risk of serious harm, which could result in product liability suits.

We depend on Takeda for the conduct and funding of the development and commercialization of CD38 SLT-A Fusion Proteins.

In September 2018, we expanded our collaboration with Takeda, focused on the development collaboration of the parties regarding CD38 SLT-A fusion proteins, including TAK-169, by entering into the Takeda Development and License Agreement. The primary objective of the strategic alliance is to advance novel therapies for indications associated with oncology, particularly multiple myeloma patients.

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Under the Takeda Development and License Agreement, we granted Takeda an exclusive license to co-develop one or more Licensed Products, meaning any product that incorporates or is comprised of one or more of the CD38 SLT-A fusion proteins, up to and including Phase Ia clinical trials, and thereafter we would have an option to continue to co-develop the licensed products. We exercised our co-development option in July 2019 and can elect to end our co-development by providing Takeda with written notice of termination of the co-development. In the event we elect to end the co-development, we will be subject to reduced payments and royalty rates as set forth more specifically in the Takeda Development and License Agreement.

Pursuant to the terms of the Takeda Development and License Agreement, Takeda has the sole discretion to assume or to designate a third party to assume our manufacturing activities under this agreement. Takeda may conduct these activities more slowly or in a manner different than we would. Takeda is also responsible for filing future applications with the FDA or other regulatory authorities for approval of the CD38 SLT-A fusion proteins. We cannot control whether Takeda will devote sufficient attention and resources to the development of the SLT-A fusion proteins or will proceed in an expeditious manner. Even if the FDA or other regulatory agencies approve any of the SLT-A fusion proteins, Takeda may elect not to proceed with the commercialization of the resulting product in one or more countries.

Under the terms of the Takeda Development and License Agreement, we will receive payments and royalties upon reaching certain defined milestones. We may not reach any of the milestones that trigger a payment or royalties under the Takeda Development and License Agreement, and we are subject to reduced payments and royalty rates if we elect to end our co-development. We are also subject to royalty reductions if there exists a biosimilar product or generic product being sold by a third party. Following the exercise of our option to co-develop the Licensed Products, we have become responsible for sharing co-development costs with Takeda. We cannot predict these costs and it is possible that if we cannot afford these costs in the future, we may have to terminate the License Agreement and could be subject to lower milestone and royalty payments, which could harm our business.

Takeda may elect to terminate the Takeda Development and License Agreement for convenience upon 90 days prior written notice. Takeda also maintains the right to terminate the Takeda Development and License Agreement in connection with our material breach and our insolvency. Takeda reserves certain rights, such as to undertake any not yet completed early-stage program activities to be conducted by us, solely and exclusively, upon any change in control of us. If Takeda terminates the Takeda Development and License Agreement, it will result in a delay in or could prevent us from further developing or commercializing the CD38 SLT-A fusion proteins and will delay and could prevent us from obtaining revenues for this drug or biologic candidate.

Disputes may arise between us and Takeda, which may delay or cause the termination of any CD38 SLT-A fusion protein clinical trials, result in significant litigation or cause Takeda to act in a manner that is not in our best interest. If development of the CD38 SLT-A fusion proteins does not progress for these or any other reasons, we would not receive further milestone payments or royalties on product sales from Takeda with respect to the CD38 SLT-A fusion proteins and may owe Takeda certain development milestones and royalties as well as amounts owed by Takeda pursuant to any of its third-party license agreements.

If Takeda terminates the Takeda Development and License Agreement prior to regulatory approval of any drug or biologic candidates under the Takeda Development and License Agreement, we may have to seek a new partner for development or commercialization or undertake and fund the development of the CD38 SLT-A fusion proteins or commercialization of the resulting drug ourselves. If we seek a new partner but are unable to do so on acceptable terms, or at all, or do not have sufficient funds to conduct the development or commercialization of the CD38 SLT-A fusion proteins ourselves, we may have to curtail or abandon that development or commercialization, which could harm our business.

We have entered into a Master Collaboration Agreement (“Vertex Collaboration Agreement”) with Vertex Pharmaceuticals Incorporated (“Vertex”) and, pursuant to the terms of that agreement, could become dependent on Vertex for development, manufacturing, regulatory and commercialization activities with respect to certain of our ETB products for novel targeted biologic therapies.

In November 2019, we entered into the Vertex Collaboration Agreement, pursuant to which we agreed to leverage our ETB technology platform to discover and develop novel targeted biologic therapies for applications outside of oncology. Pursuant to the terms of the Vertex Collaboration Agreement, we granted Vertex an exclusive option to obtain an exclusive license to exploit one or more ETB drug or biologic candidates that are discovered by us against up to two designated targets. Vertex has selected an initial target and has the option to designate one additional target within specified time limits.

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Under the Vertex Collaboration Agreement, Vertex paid us an upfront payment of $38 million, consisting of $23 million in cash and a $15 million equity investment pursuant to a Share Purchase Agreement. In addition to the upfront payments, we may also receive an additional $22 million through the exercise of the options to license ETB drug or biologic candidates or to add an additional target. We are required to provide, and Vertex will reimburse us for, certain mutually agreed manufacturing technology transfer activities. Vertex may never choose to exercise its option and we cannot predict whether Vertex will, if ever, exercise its option.

We may, for each target under the Vertex Collaboration Agreement, receive up to an additional $180 million in milestone payments upon the achievement of certain development and regulatory milestone events and up to an additional $70 million in milestone payments upon the achievement of certain sales milestone events. We will also be entitled to receive, subject to certain reductions, tiered mid-single digit royalties as percentages of calendar year net sales, if any, on any licensed ETB product. The milestones that trigger a payment or royalties under the Vertex Collaboration Agreement may never be reached and failure to do so could harm our business and financial condition.

We will be responsible for conducting the research activities through the designation, if any, of one or more development candidates. Upon the exercise by Vertex of its option for a development candidate, Vertex will be responsible for all development, manufacturing, regulatory and commercialization activities with respect to that development candidate. We cannot control whether Vertex will devote sufficient attention or resources to this collaboration or will proceed in an expeditious manner. Even if the FDA or other regulatory agencies approve any of the licensed ETB drug or biologic candidates, Vertex may elect not to proceed with the commercialization of the resulting product in one or more countries.

Unless earlier terminated, the Vertex Collaboration Agreement will expire (i) on a country-by-country basis and licensed product-by-licensed product basis on the date of expiration of all payment obligations under the Vertex Collaboration Agreement with respect to such licensed product in such country and (ii) in its entirety upon the expiration of all payment obligations thereunder with respect to all licensed products in all countries or upon Vertex’s decision not to exercise any option on or prior to the applicable deadlines. Vertex has the right to terminate the Vertex Collaboration Agreement for convenience upon prior written notice to Company. Either party has the right to terminate the Vertex Collaboration Agreement (a) for the insolvency of the other party or (b) subject to specified cure periods, in the event of the other party’s uncured material breach. If Vertex terminates the Vertex Collaboration Agreement, it will result in a delay in or could prevent us from further developing or commercializing products directed to these targets and will delay and could prevent us from obtaining revenues for such product. Further, disputes may arise between us and Vertex, which may delay or cause the termination of this collaboration, result in significant litigation, cause Vertex to act in a manner that is not in our best interest or cause us to seek another collaborator or proceed with development, commercialization and funding on our own. If we seek a new collaborator but are unable to do so on acceptable terms, or at all, or do not have sufficient funds to conduct the development or commercialization of product directed to these new targets ourselves, we may have to curtail or abandon that development or commercialization, which could harm our business.

We have entered into a Collaboration Agreement (“BMS Collaboration Agreement”) with Bristol Myers Squibb Company (“Bristol Myers Squibb”) and, pursuant to the terms of that agreement, could become dependent on Bristol Myers Squibb for development, manufacturing, regulatory and commercialization activities with respect to certain of our ETB products directed to multiple targets.

In February 2021, we entered into the BMS Collaboration Agreement, pursuant to which we agreed to leverage our ETB technology platform to discover and develop novel products directed to multiple targets. Pursuant to the terms of the BMS Collaboration Agreement, we granted Bristol Myers Squibb a series of exclusive options to obtain exclusive licenses under our intellectual property to exploit products containing ETBs directed against certain targets designated by Bristol Myers Squibb. Bristol Myers Squibb may never choose to exercise its option and we cannot predict whether Bristol Myers Squibb will, if ever, exercise its option.

Under the BMS Collaboration Agreement, Bristol Myers Squibb paid us an upfront payment of $70 million. In addition to the upfront payment, we may receive near term and development and regulatory milestone payments of up to an additional $874.5 million. We will also be eligible to receive up to an additional $450 million in payments upon the achievement of certain sales milestones. We will also be entitled to receive, subject to certain reductions, tiered royalties ranging from mid-single digits up to mid-teens as percentages of calendar year net sales, if any, on any licensed product. The milestones that trigger a payment or royalties under the BMS Collaboration Agreement may never be reached and failure to do so could harm our business and financial condition.

We will be responsible for conducting the research activities through the designation, if any, of one or more development candidates. Upon the exercise by Bristol Myers Squibb of its option for a development candidate, Bristol Myers

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Squibb will be responsible for all development, manufacturing, regulatory and commercialization activities with respect to that development candidate, subject to the terms of the BMS Collaboration Agreement. We cannot control whether Bristol Myers Squibb will devote sufficient attention or resources to this collaboration or will proceed in an expeditious manner. Even if the FDA or other regulatory agencies approve any of the licensed ETB drug or biologic candidates, Bristol Myers Squibb may elect not to proceed with the commercialization of the resulting product in one or more countries.

Unless earlier terminated, the BMS Collaboration Agreement will expire (i) on a country-by-country basis and licensed product-by-licensed product basis on the date of expiration of the royalty payment obligations under the BMS Collaboration Agreement with respect to such licensed product in such country and (ii) in its entirety upon the earlier of (a) the expiration of the royalty payment obligations under the BMS Collaboration Agreement with respect to all licensed products in all countries or (b) upon Bristol Myers Squibb’s decision not to exercise any option on or prior to the applicable option deadlines. Bristol Myers Squibb has the right to terminate the BMS Collaboration Agreement for convenience upon prior written notice to Company. Either party has the right to terminate the BMS Collaboration Agreement (a) for the insolvency of the other party or (b) subject to specified cure periods, in the event of the other party’s uncured material breach. We have the right upon prior written notice to terminate the BMS Collaboration Agreement in the event that Bristol Myers Squibb or any of its affiliates asserts a challenge against our patents. If Bristol Myers Squibb terminates the BMS Collaboration Agreement, it will result in a delay in or could prevent us from further developing or commercializing products directed to these targets and will delay and could prevent us from obtaining revenues for such product. Further, disputes may arise between us and Bristol Myers Squibb, which may delay or cause the termination of this collaboration, result in significant litigation, cause Bristol Myers Squibb to act in a manner that is not in our best interest or cause us to seek another collaborator or proceed with development, commercialization and funding on our own. If we seek a new collaborator but are unable to do so on acceptable terms, or at all, or do not have sufficient funds to conduct the development or commercialization of product directed to these new targets ourselves, we may have to curtail or abandon that development or commercialization, which could harm our business.

We depend on third parties and intend to continue to license or collaborate with third parties and may be unable to realize the potential benefits of any collaboration.

Our business strategy, along with our short- and long-term operating results depend in part on our ability to execute on existing strategic collaborations and to license or partner with new strategic partners. In addition to the Takeda Development and License Agreement, the Vertex Collaboration Agreement and the BMS Collaboration Agreement, we have multi-target research and development collaborations ongoing with Takeda and expect to seek to collaborate with other partners in the future. Even if we are successful at entering into one or more additional collaborations with respect to the development and/or commercialization of one or more drug or biologic candidates, there is no guarantee that any of these collaborations will be successful. We believe collaborations allow us to leverage our resources and technologies and we anticipate deriving some revenues from research and development fees, license fees, milestone payments, and royalties from our collaborative partner. Collaborations may pose a number of risks, including the following:

• collaboration partners often have significant discretion in determining the efforts and resources that they will apply to the collaboration, and may not commit sufficient resources to the development, marketing or commercialization of the product or products that are subject to the collaboration;

• collaboration partners may not perform their obligations as expected or may breach or terminate their agreements with us or otherwise fail to conduct their collaborative activities successfully and in a timely manner;

• any such collaboration may significantly limit our share of potential future profits from the associated program, and may require us to relinquish potentially valuable rights to our current drug or biologic candidates, potential products or proprietary technologies or grant licenses on terms that are not favorable to us;

• collaboration partners may cease to devote resources to the development or commercialization of our drug or biologic candidates if the collaboration partners view our drug or biologic candidates as competitive with their own products or drug or biologic candidates;

• disagreements with collaboration partners, including disagreements over proprietary rights, contract interpretation or the course of development, might cause delays or termination of the development or commercialization of drug or biologic candidates, and might result in legal proceedings, which would be time consuming, distracting and expensive;

• collaboration partners may be impacted by changes in their strategic focus or available funding, or business combinations involving them, which could cause them to divert resources away from the collaboration;

• collaboration partners may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability;

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• the collaborations may not result in us achieving revenues sufficient to justify such transactions;

• by entering into certain collaborations, we may forego opportunities to collaborate with other third parties who do not wish to be associated with our existing third-party strategic partners; and

• collaborations may be terminated and, if terminated, may result in a need for us to raise additional capital to pursue further development or commercialization of the applicable drug or biologic candidate.

There can be no assurance that we will be successful at establishing collaborative arrangements on acceptable terms or at all, that collaborative partners will not terminate funding before the completion of projects, that our collaborative arrangements will result in successful product commercialization, or that we will derive any revenues from such arrangements. Potential collaborators may reject collaborations based upon their assessment of our financial, regulatory or intellectual property position and our internal capabilities. Additionally, the negotiation, documentation and implementation of collaborative arrangements are complex and time-consuming. Our discussions with potential collaborators may not lead to new collaborations on favorable terms and may have the potential to provide collaborators with access to our key intellectual property rights.

We enter into various contracts in the normal course of our business in which we indemnify the other party to the contract. In the event we have to perform under these indemnification provisions, it could have a material adverse effect on our business, financial condition and results of operations.

In the normal course of business, we have and expect to continue periodically to enter into academic, commercial, service, collaboration, licensing, consulting and other agreements that contain indemnification provisions. With respect to our academic and other research agreements, we typically indemnify the institution and related parties from losses arising from claims relating to our drug or biologic candidates, processes or services made, used, or performed pursuant to the agreements, and from claims arising from our or our sublicensees’ exercise of rights under the agreement. With respect to our collaboration agreements, we indemnify our collaboration partners from any third-party product liability claims that could result from the production or use of the drug or biologic candidate, as well as for alleged infringements of any patent or other intellectual property right owned by a third party. With respect to consultants, we often indemnify them from claims arising from the good faith performance of their services.

If our obligations under an indemnification provision exceed applicable insurance coverage or if we were denied insurance coverage, our business, financial condition and results of operations could be adversely affected. Similarly, if we are relying on a collaborator to indemnify us and the collaborator is denied insurance coverage or the indemnification obligation exceeds the applicable insurance coverage, and if the collaborator does not have other assets available to indemnify us, our business, financial condition and results of operations could be adversely affected.

Risks Related to Commercialization of Our Drug Candidates

We currently have limited marketing and sales experience. If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our drug or biologic candidates, we may be unable to generate any revenue.

Although some of our employees may have marketed, launched and sold other pharmaceutical products in the past while employed at other companies, we have no experience selling and marketing our drug or biologic candidates, and we currently have no marketing or sales organization. To successfully commercialize any products that may result from our development programs, we will need to find one or more collaboration partners to commercialize our products or invest in and develop these capabilities, either on our own or with others, which would be expensive, difficult and time consuming. Any failure or delay in the timely development of our internal commercialization capabilities could adversely impact the potential for success of our products.

If commercialization collaboration partners do not commit sufficient resources to commercialize our future drugs or biologics, and if we are unable to develop the necessary marketing and sales capabilities on our own, we will be unable to generate sufficient product revenue to sustain or grow our business. We may be competing with companies that currently have extensive and well-funded marketing and sales operations, particularly in the markets our drug or biologic candidates are intended to address. Without appropriate capabilities, whether directly or through third-party collaboration partners, we may be unable to compete successfully against these more established companies.

We may attempt to form additional collaborations in the future with respect to our drug or biologic candidates, but we may not be able to do so, which may cause us to alter our development and commercialization plans.

We may attempt to form strategic collaborations, create joint ventures or enter into licensing arrangements with third parties with respect to our programs in addition to those that we currently have that we believe will complement or augment our existing business. We may face significant competition in seeking appropriate strategic collaboration partners, and the

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negotiation process to secure appropriate terms is time consuming and complex. We may not be successful in our efforts to establish such a strategic collaboration for any drug or biologic candidates and programs on terms that are acceptable, or at all. This may be because our drug or biologic candidates and programs may be deemed to be at too early of a stage of development for collaborative effort, our research and development pipeline may be viewed as insufficient, the competitive or intellectual property landscape may be viewed as too intense or risky, and/or third parties may not view our drug or biologic candidates and programs as having sufficient potential for commercialization, including the likelihood of an adequate safety and efficacy profile.

Any delays in identifying suitable collaboration partners and entering into agreements to develop and/or commercialize our drug or biologic candidates could delay the development or commercialization of our drug or biologic candidates, which may reduce their competitiveness even if they reach the market. Absent a strategic collaborator, we would need to undertake development and/or commercialization activities at our own expense. If we elect to fund and undertake development and/or commercialization activities on our own, we may need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms or at all. If we are unable to do so, we may not be able to develop our drug or biologic candidates or bring them to market and our business may be materially and adversely affected.

If the market opportunities for our drug or biologic candidates are smaller than we believe they are, we may not meet our revenue expectations and, even if a drug or biologic candidate receives marketing approval, our business may suffer. Because the patient populations in the market for our drug or biologic candidates may be small, we must be able to successfully identify patients and acquire a significant market share to achieve profitability and growth.

Our estimates for the addressable patient population and our estimates for the prices we can charge for our drug or biologic candidates may differ significantly from the actual market addressable by our drug or biologic candidates and are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including the scientific literature, patient foundations or market research, and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these diseases. The number of patients may turn out to be lower than expected. Additionally, the potentially addressable patient population for each of our drug or biologic candidates may be limited or may not be amenable to treatment with our drug or biologic candidates, and new patients may become increasingly difficult to identify or gain access to, which would adversely affect our business, financial condition, results of operations and prospects.

We face substantial competition, and our competitors may discover, develop or commercialize drugs faster or more successfully than we do.

The development and commercialization of new drug products is highly competitive. We face competition from large pharmaceutical companies, specialty pharmaceutical companies, biotechnology companies, universities and other research institutions worldwide with respect to MT-3724, MT-5111, TAK-169, MT-6402 and the other drug or biologic candidates that we may seek to develop or commercialize in the future. We are aware that companies including the following have products marketed or in development that could compete directly or indirectly with ETBs: Roche/Genentech, Merck, Bayer, Takeda, AbbVie,  Seattle Genetics, Immunogen, Morphosys, Genmab, Bristol Myers Squibb, Novartis, Regeneron, Janssen, Xencor, Amgen, Macrogenics, Astra Zeneca, Lilly, Merck KGaA, Pfizer, Merus, Sanofi, Mentrik Biotech, Merrimack Pharmaceuticals, Spectrum Pharmaceuticals, Unum Therapeutics, Daiichi Sankyo, Karyopharm, ADC Therapeutics, Bluebird Bio, Gilead, ZymeWorks, Forty Seven, Epizyme, GlaxoSmithKline, Incyte, TG Therapeutics, Versatem and F-Star. Our competitors may succeed in developing, acquiring or licensing technologies or drug or biological products that are more effective or less costly than MT-3724, MT-5111, TAK-169, MT-6402 or any other drug or biologic candidates that we are currently developing or that we may develop, which could render our drug or biologic candidates obsolete and noncompetitive.

Many of our competitors have materially greater name recognition and financial, manufacturing, marketing, research and drug development resources than we do. Additional mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. Large pharmaceutical companies in particular have extensive expertise in preclinical and clinical testing and in obtaining regulatory approvals for drugs, including biologics. In addition, academic institutions, government agencies, and other public and private organizations conducting research may seek patent protection with respect to potentially competitive products or technologies. These organizations may also establish exclusive collaborative or licensing relationships with our competitors.

If our competitors obtain marketing approval from the FDA or comparable foreign regulatory authorities for their drug or biologic candidates more rapidly than we do, it could result in our competitors establishing a strong market position before we are able to enter the market. In addition, third-party payors, including governmental and private insurers, also may encourage the use of generic products. For example, if MT-3724, MT-5111, TAK-169 or MT-6402 is ultimately approved, it may be priced at a significant premium over other competitive products. This may make it difficult for MT-3724, MT-5111,

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TAK-169, MT-6402 or any other future drugs or biologics to compete with these products. Failure of MT-3724, MT-5111, TAK-169, MT-6402 or other drug or biologic candidates to effectively compete against established treatment options or in the future with new products currently in development would harm our business, financial condition, results of operations and prospects.

The commercial success of any of our current or future drug or biologic candidates will depend upon the degree of market acceptance by physicians, patients, third-party payors, and others in the medical community.

Even with the approvals from the FDA and comparable foreign regulatory authorities, the commercial success of our drugs will depend in part on the health care providers, patients and third-party payors accepting our drug or biologic candidates as medically useful, cost-effective and safe. Any product that we bring to the market may not gain market acceptance by physicians, patients or third-party payors. The degree of market acceptance of any of our drug candidates will depend on a number of factors, including but not limited to:

• the efficacy of the product as demonstrated in clinical trials and potential advantages over competing treatments;

• the prevalence and severity of the disease and any side effects of the product;

• the clinical indications for which approval is granted, including any limitations or warnings contained in a product’s approved labeling;

• the convenience and ease of administration of the product;

• the cost of treatment;

• the perceptions by the medical community, physicians, and patients, regarding the safety and effectiveness of our products and the willingness of the patients and physicians to accept these therapies;

• the perceived ratio of risk and benefit of these therapies by physicians and the willingness of physicians to recommend these therapies to patients based on such risks and benefits;

• the marketing, sales, supply and distribution support for the product;

• the publicity concerning our drugs or biologics or competing products and treatments; and

• the pricing and availability of third-party insurance coverage and reimbursement.

Even if a product displays a favorable efficacy and safety profile upon approval, market acceptance of the product remains uncertain. Efforts to educate the medical community and third-party payors on the benefits of the drugs may require significant investment and resources and may never be successful. If our drugs or biologics fail to achieve an adequate level of acceptance by physicians, patients, third-party payors and other health care providers, we will not be able to generate sufficient revenue to become or remain profitable.

Our ability to negotiate, secure and maintain third-party coverage and reimbursement for our drug or biologic candidates may be affected by political, economic and regulatory developments in the United States, the European Union and other jurisdictions. Governments continue to impose cost containment measures, and third-party payors are increasingly challenging prices charged for medicines and examining their cost effectiveness, in addition to their safety and efficacy. These and other similar developments could significantly limit the degree of market acceptance of any drug or biologic candidate of ours that receives marketing approval in the future.

We may not be successful in any efforts to identify, license, discover, develop or commercialize additional drug or biologic candidates.

Although a substantial amount of our effort has focused on the continued clinical testing, potential approval and commercialization of our existing drug or biologic candidates, the success of our business is also expected to depend in part upon our ability to identify, license, discover, develop or commercialize additional drug or biologic candidates. Research programs to identify new drug or biologic candidates require substantial technical, financial and human resources. We may focus our efforts and resources on potential programs or drug or biologic candidates that ultimately prove to be unsuccessful. Our research programs or licensing efforts may fail to yield additional drug or biologic candidates for clinical development and commercialization for a number of reasons, including but not limited to the following:

• our research or business development methodology or search criteria and process may be unsuccessful in identifying potential drug or biologic candidates;

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• we may not be able or willing to assemble sufficient resources to acquire or discover additional drug or biologic candidates;

• our drug or biologic candidates may not succeed in preclinical or clinical testing;

• our drug or biologic candidates may be shown to have harmful side effects or may have other characteristics that may make them unmarketable or unlikely to receive marketing approval;

• competitors may develop alternatives that render our drug or biologic candidates obsolete or less attractive;

• drug or biologic candidates we develop may be covered by third parties’ patents or other exclusive rights;

• the market for a drug or biologic candidate may change during our program so that such a drug or biologic candidate may become unreasonable or infeasible to continue to develop;

• a drug or biologic candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and

• a drug or biologic candidate may not be accepted as safe and effective by patients, the medical community or third-party payors.

If any of these events occur, we may be forced to abandon our development efforts for a program or programs, or we may not be able to identify, license, discover, develop or commercialize additional drug or biologic candidates, which would have a material adverse effect on our business, financial condition or results of operations and could potentially cause us to cease operations.

Failure to obtain or maintain adequate reimbursement or insurance coverage for drugs, if any, could limit our ability to market those drugs and decrease our ability to generate revenue.

The pricing, coverage, and reimbursement of our approved drugs, if any, must be sufficient to support our commercial efforts and other development programs, and the availability and adequacy of coverage and reimbursement by third-party payors, including governmental and private insurers, are essential for most patients to be able to afford medical treatments. Sales of our approved drugs, if any, will depend substantially, both domestically and abroad, on the extent to which the costs of our approved drugs, if any, will be paid for or reimbursed by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or government payors and private payors. If coverage and reimbursement are not available, or are available only in limited amounts, we may have to subsidize or provide drugs for free or we may not be able to successfully commercialize our drugs.

In addition, there is significant uncertainty related to the insurance coverage and reimbursement for newly approved drugs. In the United States, the principal decisions about coverage and reimbursement for new drugs are typically made by the Centers for Medicare and Medicaid Services, or CMS, an agency within the United States Department of Health and Human Services, as CMS decides whether and to what extent a new drug will be covered and reimbursed under Medicare. Private payors tend to follow the coverage reimbursement policies established by CMS to a substantial degree. It is difficult to predict what CMS will decide with respect to reimbursement for novel drug or biologic candidates such as ours and what reimbursement codes our drug or biologic candidates may receive if approved.

Outside the United States, international operations are generally subject to extensive governmental price controls and other price-restrictive regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe, Canada and other countries has and will continue to put pressure on the pricing and usage of drugs. In many countries, the prices of drugs are subject to varying price control mechanisms as part of national health systems. Price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our drugs, if any. Accordingly, in markets outside the United States, the potential revenue may be insufficient to generate commercially reasonable revenue and profits.

Moreover, increasing efforts by governmental and private payors in the United States and abroad to limit or reduce healthcare costs may result in restrictions on coverage and the level of reimbursement for new drugs and, as a result, they may not cover or provide adequate payment for our drugs, if any. We expect to experience pricing pressures in connection with drugs due to the increasing trend toward managed healthcare, including the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, and prescription drugs or biologics in particular, has and is expected to continue to increase in the future. As a result, profitability of our drugs, if any, may be more difficult to achieve even if any of them receive regulatory approval.

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Risks Related to Ownership of Our Common Stock

The market price of our common stock is expected to be volatile, and the market price of the common stock may drop.

The market price of our common stock could be subject to significant fluctuations. Market prices for securities of early-stage pharmaceutical, biotechnology and other life sciences companies have historically been particularly volatile, and disruptions in the financial markets in general and more recently due to the COVID-19 pandemic have further increased such volatility. Some of the factors that may cause the market price of our common stock to fluctuate include:

• our ability to obtain regulatory approvals for MT-3724 or other drug or biologic candidates, and delays or failures to obtain such approvals;

• adverse results, clinical holds, or delays in the clinical trials of our drug or biologic candidates or any future clinical trials we may conduct, or changes in the development status of our drug or biologic candidates;

• failure of any of our drug or biologic candidates, if approved, to achieve commercial success;

• failure to maintain our existing third-party license and supply agreements;

• failure by us or our licensors to prosecute, maintain, or enforce our intellectual property rights;

• changes in laws or regulations applicable to our drug or biologic candidates;

• any inability to obtain adequate supply of our drug or biologic candidates or the inability to do so at acceptable prices;

• adverse regulatory authority decisions;

• introduction of new products, services or technologies by our competitors;

• failure to meet or exceed financial and development projections we may provide to the public;

• failure to meet or exceed the financial and development projections of the investment community;

• the perception of the pharmaceutical industry by the public, legislatures, regulators and the investment community;

• announcements of significant acquisitions, strategic collaborations, joint ventures or capital commitments by us or our competitors;

• disputes or other developments relating to proprietary rights, including patents, litigation matters, and our ability to obtain patent protection for our technologies;

• additions or departures of key personnel;

• significant lawsuits, including patent or stockholder litigation;

• failure by securities or industry analysts to publish research or reports about our business, or issuance of any adverse or misleading opinions by such analysts regarding our business or stock;

• changes in the market valuations of similar companies;

• general market or macroeconomic conditions;

• sales of our common stock by us or our stockholders in the future;

• the trading volume of our common stock;

• the issuance of additional shares of our preferred stock or common stock, or the perception that such issuances may occur, including through our “at-the-market” offering program or any sales of our preferred stock or common stock by our stockholders in the future;

• announcements by commercial partners or competitors of new commercial products, clinical progress or the lack thereof, significant contracts, commercial relationships or capital commitments;

• adverse publicity relating to ETB drugs generally, including with respect to other drugs and potential drugs in such markets;

• the introduction of technological innovations or new therapies that compete with our potential drugs;

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• changes in the structure of health care payment systems;

• disruptions in the financial markets in general and more recently due to the COVID-19 pandemic; and

• period-to-period fluctuations in our financial results.

Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may also adversely affect the trading price of our common stock.

Additionally, a decrease in our stock price may cause our common stock to no longer satisfy the continued listing standards of The Nasdaq Capital Market. If we are not able to maintain the requirements for listing on The Nasdaq Capital Market, we could be delisted, which could have a materially adverse effect on our ability to raise additional funds as well as the price and liquidity of our common stock.

Future sales of a substantial number of shares of our common stock in the public market, or the perception that such sales could occur, could cause our stock price to fall.

If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the trading price of our common stock could decline. As of December 31, 2020, a total of 49,984,333 shares of our common stock were outstanding. Any sales of those shares or any perception in the market that such sales may occur could cause the trading price of our common stock to decline.

In addition, shares of our common stock that are either subject to outstanding options or reserved for future issuance under our equity incentive plan will be eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.

Future sales and issuances of our common stock, securities convertible into common stock, or rights to purchase common stock, including pursuant to our equity incentive plans, the Sales Agreement, or otherwise, could result in dilution of the percentage ownership of our stockholders and could cause our stock price to fall.

Even after giving effect to the funds raised in the past, we expect that significant additional capital will be needed in the future to continue our planned operations. To raise capital, we may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner in which we may determine from time to time. If we sell common stock, convertible securities or other equity securities in more than one transaction, investors in a prior transaction may be materially diluted. Additionally, new investors could gain rights, preferences and privileges senior to those of existing holders of our common stock. Further, any future sales of our common stock by us or resales of our common stock by our existing stockholders could cause the market price of our common stock to decline.

Pursuant to our 2018 Equity Incentive Plan, or the 2018 Plan, we are authorized and have available to grant equity awards to our employees, directors and consultants shares of our common stock reserved for issuance pursuant to the 2018 Plan which includes potential forfeitures and cancellations of outstanding stock options from the 2004 Equity Incentive Plan, the 2009 Stock Plan, and 2014 Equity Incentive Plan.

In July 2020, we raised gross proceeds of approximately $50.0 million through at-the-market sales of our common stock pursuant to our ATM facility. We sold approximately 3.6 million shares of our common stock at a purchase price of $12.00 per share and 0.5 million shares at a purchase price of $12.70, in each case the market price at the time of sale. These sales constituted the full available dollar amount under our current ATM facility, and, with such completion, our current ATM facility has been terminated.

On August 7, 2020, we filed with the SEC a registration statement on Form S-3 for $300.0 million of securities (the “Shelf Registration Statement”), inclusive of a $100.0 million ATM program. This Shelf Registration Statement is in replacement of our existing registration statement on Form S-3 and incorporates the unsold balance remaining thereto. The SEC declared effective the Shelf Registration Statement effective on August 17, 2020 and we may make sales of securities from time to time, depending on market conditions, pursuant to the Shelf Registration Statement.

Pursuant to the Sales Agreement with Cowen, we may offer and sell up to $100,000,000 of our common stock from time to time through Cowen as our sales agent. Sales of the shares of our common stock, if any, may be made by any means permitted by law and deemed to be an “at-the-market” offering as defined in Rule 415 of the Securities Act and will generally be made by means of brokers' transactions on the NASDAQ Global Market or otherwise at market prices prevailing at the time of sale, or as otherwise agreed with Cowen. To date, we have not sold any shares of our common stock under the Sales

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Agreement. Whether we choose to affect future sales under the Sales Agreement will depend upon a variety of factors, including, among others, market conditions and the trading price of our common stock relative to other sources of capital. The issuance from time to time of these new shares of common stock under the Sales Agreement or in any other equity offering, or the perception that such sales may occur, could have the effect of depressing the market price of our common stock.

Any future grants of options, warrants or other securities exercisable or convertible into our common stock, or the exercise or conversion of such shares, and any sales of such shares in the market, could have an adverse effect on the market price of our common stock.

We have broad discretion in the use of our cash reserves and may not use these reserves effectively or as anticipated by stockholders.

We have broad discretion over the use of our cash reserves, including the proceeds from our previous financings, including from the sale of shares of common stock under the Sales Agreement and from our public offerings in November 2019 and February 2021. Our stockholders may not agree with our decisions, and our use of these funds may not improve our results of operations or enhance the value of our common stock. Our failure to apply these funds effectively could compromise our ability to pursue our growth strategy, result in financial losses that could have a material adverse effect on our business, cause the price of our common stock to decline and delay the development of our drug or biologic candidates. Pending their use, we may invest our cash reserves in a manner that does not produce income or that loses value. It is possible that the proceeds will be invested in a way that does not yield a favorable, or any, return for us. The failure by our management to apply these funds effectively could have an adverse effect on our financial condition, results of operations or the trading price of our common stock.

We may incur significant costs from class action litigation due to our expected stock volatility.

Our stock price may fluctuate for many reasons, including as a result of public announcements regarding the progress of our development efforts or the development efforts of future collaboration partners or competitors, the addition or departure of our key personnel, variations in our quarterly operating results and changes in market valuations of biopharmaceutical and biotechnology companies.

This risk is especially relevant to us because biopharmaceutical and biotechnology companies have experienced significant stock price volatility in recent years. When the market price of a stock has been volatile, as our stock price may be, holders of that stock have occasionally brought securities class action litigation against the company that issued the stock. If any of our stockholders were to bring a lawsuit of this type against us, even if the lawsuit is without merit, it could result in substantial costs for defending the lawsuit and diversion of the time, attention and resources of our board of directors and management, which could significantly harm our profitability and reputation.

Our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law contain provisions that could discourage another company from acquiring us and may prevent attempts by our stockholders to replace or remove our current management.

Provisions of Delaware law, where we are incorporated, our amended and restated certificate of incorporation and our amended and restated bylaws may discourage, delay or prevent a merger or acquisition that our stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace or remove our board of directors. These provisions include:

• authorizing our board of directors to issue “blank check” preferred stock without any need for approval by stockholders;

• providing for a classified board of directors with staggered three-year terms;

• requiring supermajority stockholder votes to effect certain amendments to our amended and restated certificate of incorporation and amended and restated bylaws;

• eliminating the ability of stockholders to call special meetings of stockholders;

• prohibiting stockholder action by written consent; and

• establishing advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings.

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We can issue and have issued shares of preferred stock, which may adversely affect the rights of holders of our common stock.

Our amended and restated Certificate of Incorporation authorizes us to issue up to 2,000,000 shares of preferred stock with designations, rights, and preferences determined from time-to-time by our Board of Directors. Accordingly, our Board of Directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights superior to those of holders of our common stock. For example, an issuance of shares of preferred stock could:

• adversely affect the voting power of the holders of our common stock;

• make it more difficult for a third party to gain control of us;

• discourage bids for our common stock at a premium;

• limit or eliminate any payments that the holders of our common stock could expect to receive upon our liquidation; or

• otherwise adversely affect the market price or our common stock.

Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.

Our amended and restated certificate of incorporation and amended and restated bylaws provide that we will indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law.

In addition, as permitted by Section 145 of the Delaware General Corporation Law, or the DGCL, our amended and restated bylaws and our indemnification agreements that we have entered into with our directors and executive officers provide that:

• We will indemnify our directors and executive officers for serving us in those capacities or for serving other related business enterprises at our request, to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful.

• We may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law.

• We are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification.

• The rights conferred in our amended and restated bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such persons.

• We may not retroactively amend our amended and restated bylaw provisions to reduce our indemnification obligations to directors, officers, employees and agents.

We have never paid dividends on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future.

We have never declared or paid cash dividends on our common stock. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business. As a result, capital appreciation, if any, of our common stock will be our stockholders’ sole source of gain for the foreseeable future.

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We incur, and will continue to incur, costs and expect significantly increased costs as a result of operating as a public company, and our management is now required to devote substantial time to new compliance initiatives.

As a public company listed on The Nasdaq Capital Market, and particularly after we cease to be a “smaller reporting company”, we are incurring and will continue to incur significant legal, accounting and other expenses that we did not incur as a private company or as a public company prior to the loss of such specified statuses. We are subject to the reporting requirements of the Exchange Act, as well as various requirements imposed by the Sarbanes-Oxley Act, rules subsequently adopted by the SEC and Nasdaq to implement provisions of the Sarbanes-Oxley Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate. The listing requirements of The Nasdaq Capital Market require that we satisfy certain corporate governance requirements relating to director independence, distributing annual and interim reports, stockholder meetings, approvals and voting, soliciting proxies, conflicts of interest and a code of conduct, each of which requires additional attention and effort of management and our board of directors and additional costs.

We expect the rules and regulations applicable to public companies to substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain the same or similar coverage. We also expect that we will need to hire additional accounting, finance and other personnel in connection with our efforts to comply with the requirements of being a public company, and our management and other personnel will need to devote a substantial amount of time towards maintaining compliance with these requirements. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors and committees thereof or as executive officers.

Our executive officers, directors and principal stockholders have the ability to significantly influence all matters submitted to our stockholders for approval.

As of December 31, 2020, our directors, executive officers, and stockholders beneficially owning 5% or more of our shares or that may be affiliated with our board members, beneficially owned, in the aggregate, approximately 51% of our outstanding shares of common stock. As a result, if these stockholders were to choose to act together, they would be able to significantly influence almost all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, would significantly influence the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets.

Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum for specified disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.

Our amended and restated bylaws provide, to the fullest extent permitted by law, that the Court of Chancery of the State of Delaware will be the exclusive forum for: (1) any derivative action or proceeding brought on our behalf; (2) any action asserting a breach of fiduciary duty; (3) any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, or the DGCL, our amended and restated certificate of incorporation, or our amended and restated bylaws; or (4) any action asserting a claim against us that is governed by the internal affairs doctrine. This exclusive forum provision does not apply to suits brought to enforce a duty or liability created by the Exchange Act. It could apply, however, to a suit that falls within one or more of the categories enumerated in the exclusive forum provision and asserts claims under the Securities Act, in as much as Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rule and regulations thereunder. There is uncertainty as to whether a court would enforce such provision with respect to claims under the Securities Act, and our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, or other employees, which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provisions contained in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations and financial condition.

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If securities or industry analysts do not publish, or cease publishing, research or reports, or publish unfavorable research or reports, about us, our business or our market, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.

The trading market for our common stock will be influenced, in part, by the research and reports that industry or financial research analysts publish about us and our business. We do not have any control over these analysts. If only a few securities or industry analysts commence coverage of our company, the trading price for our stock would likely be negatively affected and there can be no assurance that analysts will provide favorable coverage. If securities or industry analysts who initiate coverage downgrade our stock or publish inaccurate or unfavorable research about our business or our market, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and any trading volume to decline.

Having availed ourselves of scaled disclosure available to smaller reporting companies, we cannot be certain if such reduced disclosure will make our common stock less attractive to investors.

Under Section 12b-2 of the Exchange Act, a "smaller reporting company" is a company that is not an investment company, an asset backed issuer, or a majority-owned subsidiary of a parent company. Effective September 10, 2018, the definition of a “smaller reporting company” was amended to include companies with a public float of less than $250 million as of the last business day of its most recently completed second fiscal quarter or, if such public float is less than $700 million, had annual revenues of less than $100 million during the most recently completed fiscal year. Smaller reporting companies are permitted to provide simplified executive compensation disclosure in their filings; they are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal controls over financial reporting; and they have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports. At December 31, 2020, we qualified as a smaller reporting company. For as long as we continue to be a smaller reporting company, we expect that we will take advantage of the reduced disclosure obligations available to us as a result of those respective classifications. Decreased disclosure in our SEC filings as a result of our having availed ourselves of scaled disclosure may make it harder for investors to analyze our results of operations and financial prospects.

Risks Related to Our Business Operations

Our future success depends in part on our ability to retain our Chief Executive Officer and Chief Scientific Officer and to attract, retain, and motivate other qualified personnel.

We are highly dependent on Eric E. Poma, Ph.D., our Chief Executive Officer and Chief Scientific Officer, the loss of whose services may adversely impact the achievement of our objectives. Dr. Poma could leave our employment at any time, as he is an “at will” employee. Recruiting and retaining other qualified employees, consultants and advisors for our business, including scientific and technical personnel, will also be crucial to our success. There is currently a shortage of highly qualified personnel in our industry, which is likely to continue. Additionally, this shortage of highly qualified personnel is particularly acute in the area where we are located. As a result, competition for personnel is intense and the turnover rate can be high. We may not be able to attract and retain personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for individuals with similar skill sets. In addition, failure to succeed in development and commercialization of our drug or biologic candidates may make it more challenging to recruit and retain qualified personnel. The inability to recruit and retain qualified personnel, or the loss of the services of Dr. Poma may impede the progress of our research, development and commercialization objectives and would negatively impact our ability to succeed in our product development strategy.

We will need to continue to expand our organization, and we may experience difficulties in managing this growth, which could disrupt our operations.

At December 31, 2020, we had 236 full-time employees and 5 part-time and temporary employees. As our development and commercialization plans and strategies develop, we expect to need additional managerial, operational, sales, marketing, financial, legal and other resources. Our management may need to divert its attention away from its day-to-day activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of additional drug or biologic candidates. If our management is unable to effectively manage our growth, our expenses may increase more than expected or budgeted, our ability to generate and/or grow revenue could be reduced and we may not be able to implement our currently anticipated business strategy. Our future financial performance and our ability to commercialize drug or biologic candidates and compete effectively will depend, in part, on our ability to effectively manage any future growth. Failure to manage this growth could disrupt our business operations and negatively impact our ability to achieve success.

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Our financial condition, clinical development efforts, and results of operations could be adversely affected by the ongoing coronavirus pandemic.

Any outbreak of contagious diseases or other adverse public health developments, could have a material and adverse effect on our business operations. Such adverse effects could include disruptions or restrictions on the ability of our, our collaborators’, or our suppliers’ personnel to travel, and could result in temporary closures of our facilities or the facilities of our collaborators or suppliers. In December 2019, a novel strain of a virus named SARS-CoV-2 (severe acute respiratory syndrome coronavirus 2) (“coronavirus”), which causes coronavirus disease 2019 (“COVID-19”), surfaced in Wuhan, China and has reached the rest of the world including the states of Texas, New York and New Jersey where our primary offices are located. In March 2020, the World Health Organization declared COVID-19 to be a pandemic disease. The COVID-19 pandemic is evolving, and to date has led to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public health safety measures, as well as reported adverse impacts on healthcare resources, facilities and providers, in Texas, New York and New Jersey, across the United States and in other countries. The extent to which COVID-19 will impact our operations or those of our third-party partners will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the pandemic, additional or modified government actions, new information that will emerge concerning the severity and impact of COVID-19 and the actions to contain COVID-19 or address its impact in the short and long-term, among others.

In response to the pandemic and in accordance with direction from state and local government authorities, we have taken temporary precautionary measures intended to help minimize the risk of the virus to our employees, including temporarily requiring most employees to work remotely (which in turn increases the threat to our cyber security and data accessibility, and communication matters) and suspending all non-essential travel worldwide for our employees. In addition, industry events and in-person work-related meetings have been cancelled, the continuation of which could negatively affect our business.

As COVID-19 continues to affect individuals and businesses around the globe, we will likely experience disruptions that could severely impact our business and clinical trials, including:

• delays or difficulties in enrolling patients in our clinical trials, or drop-outs from our clinical trials, including those resulting from an inability to travel to our clinical trial sites as a result of quarantines or other restrictions resulting from COVID-19;

• delays or difficulties in obtaining the financing necessary to undertake our clinical trials;

• interruptions or delays in the operations of the FDA and comparable foreign regulatory agencies, which may impact review, inspection, clearance and approval timelines with respect to our drug and biologic candidates;

• limitations on travel that could interrupt key clinical activities and trial activities, such as clinical trial site initiations and monitoring, domestic and international travel by employees, contractors or patients to clinical trial sites, including any government-imposed travel restrictions or quarantines that will impact the ability or willingness of patients, employees or contractors to travel to our research, manufacturing and clinical trial sites or secure visas or entry permissions, any of which could delay or adversely impact the conduct or progress of our prospective clinical trials;

• diversion or prioritization of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;

• business disruptions caused by potential workplace, laboratory and office closures and an increased reliance on employees working from home, disruptions to or delays in ongoing laboratory experiments and operations, staffing shortages, travel limitations, cyber security and data accessibility, or communication or mass transit disruptions;

• limitations on employee resources that would otherwise be focused on the conduct of our clinical trials, including because of sickness of employees or their families or requirements imposed on employees to avoid contact with large groups of people;

• delays in receiving approval from local regulatory authorities to initiate our planned clinical trials;

• delays in clinical sites receiving the supplies and materials needed to conduct our clinical trials;

• interruption in global shipping that may affect the transport of clinical trial materials, such as investigational drug product used in our clinical trials;

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• continued volatility in our and other biotechnology companies’ shares of equity which may result in difficulties raising capital through sales of our common stock or equity linked to our common stock, to the extent needed, and the terms of sales may be on unfavorable terms or unavailable, which may impact our short-term and long-term liquidity;

• changes in local regulations as part of a response to the COVID-19 pandemic which may require us to change the ways in which our clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether; and

• delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees.

In addition, the continued spread of COVID-19 globally could adversely affect our manufacturing and supply chain. Parts of our direct and indirect supply chain could be subject to disruption or product contamination. Additionally, our results of operations could be adversely affected to the extent that COVID-19 or any other epidemic harms our business or the economy in general either domestically or in any other region in which we do business. A prolonged disruption or any further unforeseen delay in our operations could continue to result in increased costs and reduced revenue. If the COVID-19 pandemic is not effectively and timely controlled, our business operations and financial condition may be materially and adversely affected as a result of the deteriorating market outlook, the slowdown in regional and national economic growth, and other factors that we cannot foresee. The extent to which COVID-19 affects our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the pandemic, new information that may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others, which could have an adverse effect on our business and financial condition.

We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology or loss of data, including any cyber security incidents, could compromise sensitive information related to our business, prevent us from accessing critical information or expose us to liability which could harm our ability to operate our business effectively and adversely affect our business and reputation.

Our ability to execute our business plan and maintain operations depends on the continued and uninterrupted performance of our information technology (“IT”) systems, some of which are in our control and some of which are in the control of third parties. In the ordinary course of our business, we collect and store sensitive data, including personally identifiable information about our employees, intellectual property, and proprietary business information (“Confidential Information”). We manage and maintain our applications and data utilizing on-site systems and we also have outsourced elements of our operations to third parties, and as a result we manage a number of third-party vendors who may or could have access to our confidential information. These applications and data encompass a wide variety of business-critical information including research and development information and business and financial information.

The secure processing, storage, maintenance and transmission of this critical information is vital to our operations and business strategy. Despite the implementation of security measures, our IT systems are vulnerable to risks and damages from a variety of sources, including telecommunications or network failures, cyber-attacks, computer viruses, ransomware attacks, phishing schemes, breaches, unauthorized access, interruptions due to employee error or malfeasance or other disruptions, or damage from natural disasters, terrorism, war and telecommunication and electrical failures, or other attempts to harm or access our systems. Moreover, despite network security and back-up measures, some of our servers and those of our business partners are potentially vulnerable to physical or electronic break-ins, including cyber-attacks, computer viruses and similar disruptive problems. These events could lead to the unauthorized access, disclosure and use of Confidential Information.  Breaches resulting in the compromise, disruption, degradation, manipulation, loss, theft, destruction, or unauthorized disclosure or use of Confidential Information, or the unauthorized access to, disruption of, or interference with our products and services, can occur in a variety of ways, including but not limited to, negligent or wrongful conduct by employees or others with permitted access to our IT systems and information, or wrongful conduct by hackers, competitors, or certain governments. Our third party vendors and business partners face similar risks.

Cyber-attacks come in many forms, including the deployment of harmful malware or ransomware, exploitation of vulnerabilities, phishing and other use of social engineering, and other means to compromise the confidentiality, integrity, and availability of our IT systems and confidential information. The techniques used by criminal elements to attack computer systems are sophisticated, change frequently and may originate from less regulated or remote areas of the world. As a result, we may not be able to address these techniques proactively or implement adequate preventative measures. There can be no assurance that we will promptly detect or intercept any such disruption or security breach, if at all. If our computer systems are compromised, we could be subject to fines, damages, reputational harm, litigation and enforcement actions, and we could lose trade secrets, the occurrence of which could harm our business, in addition to possibly requiring substantial expenditures

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of resources to remedy. For example, any such event that leads to unauthorized access, use or disclosure of personal information, including personal information regarding our patients or employees, could harm our reputation, require us to comply with federal and/or state breach notification laws and foreign law equivalents, and otherwise subject us to liability under laws and regulations that protect the privacy and security of personal information. In addition, the loss of data from clinical trials for our drug or biologic candidates could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce data and a cybersecurity breach could adversely affect our reputation and could result in other negative consequences, including disruption of our internal operations, increased cyber security protection costs, lost revenues or litigation. Despite precautionary measures to prevent unanticipated problems that could affect our IT systems, sustained or repeated system failures that interrupt our ability to generate and maintain data could adversely affect our ability to operate our business.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

In October 2016, Molecular entered into a facility lease agreement for approximately 18,000 square feet of office and laboratory space in Austin, Texas, which serves as our corporate headquarters. The lease was initially set to expire in May 2022. In January 2017, Molecular entered into a first amendment to the lease to add an additional approximately 4,000 square feet, consisting mostly of laboratory space. In March 2017, Molecular entered into a second amendment to the lease to add an additional approximately 11,000 square feet of office and laboratory space. In June 2017, Molecular entered into a third amendment to the lease to set the Lease Commencement Date as such term is defined therein and provided that the term of Molecular’s lease for the Austin, TX space expires August 2023. The lease has an option to renew for one additional five-year period at our discretion.

In January 2019, the Company entered into a sublease agreement for an additional 57,000 square feet of administrative office and R&D space in Austin, Texas. The sublease commenced March 2019, expires August 2028 and does not contain an option to renew.

We lease one property for use as office space of approximately 10,000 square feet in Jersey City, New Jersey under a lease, as amended, expiring in January 2023. The lease has an option to renew for one additional five-year period at our discretion.

In June 2020, the Company entered into a lease agreement for office space in New York, New York. The space consists of an initial 9,289 square feet and an additional 3,000 square feet upon expansion. The lease for the initial space commenced on August 1, 2020 and the possession of the expansion space commenced on December 4, 2020. The term for both spaces will expire on October 30, 2025 and does not contain an option to renew.

We believe substantially all of our property and equipment is in good condition and that Molecular has sufficient capacity to meet its current operational needs.

ITEM 3. LEGAL PROCEEDINGS

From time to time, we are subject to various legal proceedings, claims and administrative proceedings that arise in the ordinary course of our business activities. Although the results of the litigation and claims cannot be predicted with certainty, as of the date of this report, we do not believe we are party to any claim, proceeding or litigation the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Shares of Threshold Pharmaceuticals, Inc. common stock were historically listed on the Nasdaq Capital Market under the symbol “THLD.” After completion of the Merger on August 1, 2017, Threshold Pharmaceuticals, Inc. was renamed “Molecular Templates, Inc.” and commenced trading on the Nasdaq Capital Market under the symbol “MTEM” on August 2, 2017.

There were approximately 56,052,306 holders of record of our common stock as of March 17, 2021.  On March 17, 2021, the last reported sales price per share of our common stock was $11.91 per share.

Unregistered Sales of Equity Securities

None.

Repurchases of Equity Securities

None.

ITEM 6. SELECTED FINANCIAL DATA

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and have therefore omitted the information required by this Item 6.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties, including those set forth under the heading “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Our actual results and the timing of selected events discussed below could differ materially from those expressed in, or implied by, these forward-looking statements.

Overview

• Molecular Templates is a clinical-stage biopharmaceutical company focused on the discovery and development of targeted biologic therapeutics. Our proprietary drug platform technology, known as engineered toxin bodies, or ETBs, leverages the resident biology of a genetically engineered form of Shiga-like Toxin A subunit, or “SLTA” to create novel therapies with potent and differentiated mechanisms of action for cancer and other serious diseases. 

Business

ETBs use a genetically engineered version of the SLTA. In its wild-type form, Shiga-like Toxin” or “SLT” is thought to induce its own entry into a cell when proximal to the cell surface membrane, self-route to the cytosol, and enzymatically and irreversibly shut down protein synthesis via ribosome inactivation. SLTA is normally coupled to its cognate Shiga-like Toxin B subunit, or SLTB, to target the CD77 cell surface marker, a non-internalizing glycosphingolipid. In our scaffold, a genetically engineered SLTA with no cognate SLTB component is genetically fused to antibody domains or fragments specific to a target, resulting in a biologic therapeutic that can identify the particular target and specifically kill the cell. The antibody domains may be substituted with other antibody domains having different specificities to allow for the rapid development of new drugs to selected targets in cancer and other serious diseases.

ETBs combine the specificity of an antibody with SLTA’s potent mechanism of cell destruction. Based on the disease setting, we have created ETBs that have reduced immunogenicity and are capable of delivering additional payloads into a target cell. Immunogenicity is the ability of a foreign substance to provoke an immune response in a host. ETBs have relatively predictable pharmacokinetic, or PK, and absorption, distribution, metabolism and excretion, or ADME, profiles and can be rapidly screened for desired activity in robust cell-based and animal-model assays. Because SLTA can induce internalization against non- and poorly-internalizing receptors, the universe of targets for ETBs should be substantially larger than that seen with antibody drug conjugates, or ADCs, which are not likely to be effective if the target does not readily internalize the ADC payload.

ETBs have a differentiated mechanism of cell kill in cancer therapeutics (the inhibition of protein synthesis via ribosome destruction), and we have preclinical and clinical data demonstrating the utility of these molecules in chemotherapy-refractory cancers. ETBs have shown good tolerability in multiple animal models as well as a generally favorable tolerability profile in our clinical studies to date. We believe the target specificity of ETBs, their ability to self-internalize, their potent and differentiated mechanism of cell kill and their tolerability profile provide opportunities for the clinical development of these agents to address multiple cancer types.

Our initial approach to drug development in oncology involves the selection of lead compounds to validated targets in cancer. We have developed ETBs for various targets, including CD20, CD38, HER2, and PD-L1. CD20 is central to B cell malignancies and is clinically validated as a target for the treatment of lymphomas and autoimmune disease. CD38 has been validated as a meaningful clinical target in the treatment of multiple myeloma. PD-L1 is central to immune checkpoint pathways and is a target expressed in a variety of solid tumor cancers.

Our lead compound, MT-3724, is an ETB that recognizes CD20, a B cell marker and is currently in multiple Phase II studies. The dose escalation portion of the Phase I monotherapy clinical trial for MT-3724 was followed by the initiation of a Phase Ib expansion cohort. Results of the Phase I/Ib study were presented at the American Society of Hematology (ASH) Annual Meeting, December 7-10, 2019 in Orlando, FL. Of the 13 serum rituximab negative (“RTX-neg”) diffuse large B cell lymphoma, or DLBCL or mixed DLBCL/FL subjects, 5 responded (38% objective response rate) across the range of 5 to 100 μg/kg doses. Of the 5 responses, 2 were complete responses (“CR”s) and 3 were partial responses (PRs) of which one was a complete metabolic response (CMR). Three subjects had stable disease (including 2 subjects with 49% and 47% tumor reductions) and 5 subjects had progressive disease. Of the 5 serum RTX-neg subjects with DLBCL who received MT-3724 at 50 μg/kg, the maximum tolerated dose (MTD), 3 responded (2 CRs, 1 PR).

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In 2019, we initiated a Phase II cohort for the monotherapy trial with MT-3724. We also initiated a Phase II combination study with MT-3724 and chemotherapy (gemcitabine and oxaliplatin, or GemOx) in an earlier line of treatment for DLBCL and a second Phase II combination study with MT-3724 and Revlimid® (lenalidomide), also in an earlier line of DLBCL treatment. Interim results were presented at the virtual 25th Congress of the European Hematology Association (EHA) in June 2020. This data demonstrated preliminary evidence of tolerability and efficacy with lenalidomide at standard doses and MT-3724. Among 7 evaluable subjects, 2 were CRs and 3 were PRs. While there were no permanent discontinuations due to adverse events, grade 2 capillary leak syndrome (CLS) occurred at 25 mcg/kg, leading to the opening of a new cohort at 20 mcg/kg. The study had a revised schedule of therapy with MT-3724 being dosed twice rather than three times weekly for the first two cycles and then on a weekly schedule thereafter. The combination study with GemOx has demonstrated preliminary evidence of efficacy but grade 2 innate immune adverse effects were seen with standard doses of gemcitabine and oxaliplatin and 10 μg/kg doses of MT-3724. The study protocol has been amended to include a revised schedule where MT-3724 dosing is initially sequenced with GemOx dosing. 

On November 4, 2020, the U.S. Food and Drug Administration, or FDA, notified us that MT-3724 clinical studies have been placed on partial clinical hold following a fatality in one subject in the Phase II monotherapy study due to treatment-related CLS on October 20, 2020. The fatality occurred in a diffuse large B-cell lymphoma (DLBCL) subject who had been treated with six prior lines of therapy including rapid progression through three lines of therapy in the six months prior to MT-3724 dosing (including most recently a first generation anti-CD19 CAR T-cell). The subject had transformed DLBCL from Waldenstrom’s Macroglobulinemia and came onto the MT-3724 study with a CD4/CD8 T-cell ratio of 0.47. The subject did not have a radiographic assessment of response but an elevated LDH was thought by the principal investigator to represent disease progression. The subject initially had Grade 2 CLS following treatment with MT-3724, recovered after a dosing interruption, resumed dosing and then had CLS that was ultimately fatal. While Grade 1 and 2 CLS is an expected potential adverse reaction of MT-3724, this was the only subject in any MT-3724 study to date with CLS that was more severe than Grade 2.

At such time, subjects already enrolled in MT-3724 clinical studies who were receiving clinical benefit were permitted to continue dosing but no new patients have been, or will be, enrolled in any MT-3724 study pending resolution of this matter. As part of our overall investigation into the partial clinical hold on MT-3724, we investigated MT-3724 product quality attributes. Based on our findings, we submitted a partial clinical hold response to the FDA in February 2021 in which we proposed to implement new drug product manufacturing and release criteria. We have determined that the MT-3724 product that has been manufactured to date for use in the MT-3724 studies we plan to continue will not be consistent with the new criteria once it is implemented. Based upon our findings to date and after a thorough risk/benefit assessment, we have decided to discontinue dosing of subjects remaining on our Phase II combination study with MT-3724 and Revlimid^® (lenalidomide). Additionally, following our decision to temporarily discontinue dosing for the remaining subject on our Phase II combination study with MT-3724 and chemotherapy (gemcitabine and oxaliplatin, or GemOx), the subject decided in collaboration with their physician to discontinue treatment. Although there have been no signs of capillary leak syndrome toxicity worse than grade 2 in either of these MT-3724 studies, our decision to discontinue dosing in these studies was taken out of an abundance of caution with the study subjects’ health and safety in mind. Further, after a review of the current competitive landscape and following the last subject discontinuing treatment, we decided to discontinue our Phase II combination study with MT-3724 and chemotherapy (gemcitabine and oxaliplatin, or GemOx). We made this decision based upon our belief in the potential for more promising future combinations with our product candidates. Accordingly, there are currently no subjects being treated under any MT-3724 protocol. In connection with our other MT-3724 studies, we continue to work towards addressing the partial clinical hold and MT-3724 product lot information requests from the FDA and will then seek agreement from the FDA to remove the partial clinical hold. We submitted our partial clinical hold response to the FDA in February 2021. There can be no assurance with respect to our ability to remove the partial clinical hold, or the timing thereof. As we undertake these efforts, we are also actively evaluating whether to resume development of MT-3724 or discontinue the MT-3724 program. This decision will be made in the context of opportunities to advance the development of a next-generation CD20-targeted ETB or other program in addition to funding the development of our clinical stage next-generation ETB programs, including MT-5111, TAK-169, and MT-6402.

Our trials and plans for our other ETB product candidates, including MT-5111, TAK-169, and MT-6402, which utilize next-generation ETB technology, are not affected by the partial clinical hold. Next-generation ETB scaffolds have been designed to reduce or eliminate the propensity for innate immunity, including CLS. To date, we have observed no cases of CLS (any grade) in human subjects who have been dosed with MT-5111. We cannot comment on clinical data from the TAK-169 Phase I study due to confidentiality obligations. We do not yet have clinical data with MT-6402 as the Phase I study of MT-6402 is expected to be initiated in the first half of 2021.

We filed an IND for MT-5111, our ETB targeting HER2, in March 2019 and the IND was accepted in April 2019. We began dosing study subjects in a Phase I study of MT-5111 for the treatment of HER2-positive cancers in the fourth quarter of 2019. The ongoing Phase I study has two parts: Part 1 is dose escalation and Part 2 is dose expansion, which will begin when a maximum tolerated dose (MTD) or Recommended Phase II Dose (RP2D) is established in Part 1. We provided an update on this study in December 2020. All of the following information on the Phase I study for MT-5111 was as of that update. 16 subjects, with a median of 4 prior lines of therapy and a median of 2 prior HER2-targeting regimens, have been treated with MT-5111; subjects with breast cancer received a median of 6 prior lines of therapy, 4 of which contained HER2-

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targeting agents (metastatic breast cancer n=6, metastatic biliary tract carcinoma n=6, metastatic pancreatic cancer n=2, and one each of metastatic colon adenocarcinoma and metastatic gastroesophageal junction adenocarcinoma). Five cohorts (0.5, 1.0, 2.0, 3.0, and 4.5 μg/kg/week) have been successfully completed and the sixth cohort (6.75 μg/kg) has been initiated. Pharmacokinetic (PK) data confirm the predicted human PK based on non-human primate studies. PK modeling has suggested that doses equal to or greater than 5.0 μg/kg are likely needed for efficacy. Thus far, no dose limiting toxicities (DLTs) have been observed in any cohort and MT-5111 appears to be well tolerated, with no cardiotoxicity observed to date (cardiotoxicity is a known potential toxicity for HER2 targeted therapies). To date, we have observed no cases of CLS (any grade) in human subjects who have been dosed with MT-5111.

As of our December 2020 update, no cardiac AEs or abnormalities in cardiac biomarkers have been noted thus far. The most commonly reported AEs that may be causally related among the 4 dosing cohorts to date and for which source-verified data were available include the following: fatigue (n=3), AST increased (n=2) at 0.5 μg/kg and 1 μg/kg, and chills (n=2). These most commonly reported AEs were all of grade 1 or 2 severity. No cases of capillary leak syndrome (any grade) were observed. One subject with metastatic breast cancer in cohort 2 (1 µg/kg) remained on treatment for 10 cycles with stable disease; although she had unmeasurable disease by RECIST criteria, she had three sub-centimeter hepatic lesions that disappeared at the end of cycle 8 before she discontinued at cycle 10. This subject had received three prior HER-2 targeting regimens which initially included pertuzumab plus trastuzumab followed by trastuzumab and T‑DM1 as monotherapies. To date, 17 subjects have discontinued for disease progression and one subject is too early to evaluate. Cohort 6 (6.75 μg/kg/dose) is open for enrollment with cohort 7 (10 μg/kg) expected to open in the first half of 2021. The HER2- positive breast cancer expansion cohort is planned to begin in the first half of 2021 at a dose of 10 μg/kg (anticipated to be a therapeutic dose level), pending adequate safety data. Dose escalation will continue to determine the recommended Phase II dose while the breast cancer expansion cohort collects efficacy and safety data.

We are encouraged by the safety profile to date in these heavily pretreated subjects and believe the study has reached clinically active dose levels. We expect to present interim clinical results from the dose escalation portion of the Phase I study as of December 2020 in the second quarter of 2021. MTEM expects to provide an update on additional data from both the dose escalation portion of the study and the HER2-positive breast cancer expansion cohort in the fourth quarter of 2021.

Millennium Pharmaceuticals, Inc., a wholly owned subsidiary of Takeda Pharmaceutical Company Ltd. (“Takeda”) filed an IND for TAK-169, our jointly discovered ETB targeting CD38, in May 2019 and the IND was accepted in June 2019. Phase I dosing for TAK-169 began in the first quarter of 2020, had been paused in March 2020 due to the COVID-19 pandemic and was re-initiated in the fourth quarter of 2020.

We filed an IND for MT-6402, our ETB targeting PD-L1, in December 2020 and the IND was accepted in January 2021. A Phase 1 study of MT-6402 in PD-1/PD-L1 antibody relapsed/refractory patients is expected to be initiated in the first half of 2021. We anticipate filing an IND for our ETB targeting CTLA-4 in 2021. We are also conducting preclinical research on ETBs targeting SLAMF-7 and CD45.

We have built up multiple core competencies around the creation and development of ETBs. We developed the ETB technology in-house and continue to make iterative improvements in the scaffold and identify new uses of the technology. We also developed the proprietary process for manufacturing ETBs under Current Good Manufacturing Process, or cGMP regulatory standards and continue to make improvements to its manufacturing processes.

We have conducted multiple cGMP manufacturing runs with our lead compound and believe this process is robust and could support commercial production with gross margins that are similar to those seen with antibodies.

Impact of COVID-19

In March 2020, the outbreak of COVID-19 caused by a novel strain of the coronavirus was recognized as a pandemic by the World Health Organization. It has impacted, and is continuing to impact, all aspects of society, including the operation of the healthcare system and other business and economic activity worldwide. The COVID-19 pandemic, and other similar outbreaks of contagious diseases, may adversely impact our business, financial condition, and results of operations. For example, we and the third-party clinical trial sites or investigators involved in our current and future clinical trials may experience significant interruptions or delays as a result of this pandemic, and these could impact the conduct of our clinical trials and our ability to complete them in a timely manner or at all, which in turn could delay and/or negatively impact the regulatory review and approval of our drug or biologic candidates.

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We are carefully and continually evaluating the potential individual patient risk associated with continuing to enroll in our existing clinical studies during the ongoing COVID-19 pandemic, in accordance with FDA and foreign regulatory authorities’ recommendations for clinical trials. Our MT-5111 Phase 1 study remains open and able to treat enrolled subjects and screen new subjects. For our MT-3724 studies, which are currently on partial clinical hold as ordered by the FDA, we decided following the partial clinical hold going into effect, in collaboration with treating investigators and as permitted by the FDA, to allow existing subjects who were receiving clinical benefit to continue dosing, but no new patients were, or will be, enrolled in any MT- 3724 study pending resolution of the partial clinical hold.

These decisions were predicated on the treating investigator determining that the potential benefit to the patient of investigational therapy outweighs the potential risk of contracting COVID-19 as the subjects enrolled in our trials had relapsed or refractory incurable malignancies with few or no standard-of-care therapeutic options and limited life expectancy. However, more recently and following the results of an investigation into MT-3724 product quality attributes as well as a thorough risk/benefit assessment, we decided to discontinue dosing of subjects remaining on our Phase II combination study with MT-3724 and Revlimid® (lenalidomide). Additionally, following our decision to temporarily discontinue dosing for the remaining subject on our Phase II combination study with MT-3724 and chemotherapy (gemcitabine and oxaliplatin, or GemOx), the subject decided in collaboration with their physician to discontinue treatment. Subsequently, after a review of the current competitive landscape and following the last subject discontinuing treatment, we decided to discontinue our Phase II combination study with MT-3724 and chemotherapy GemOx. We made this decision based upon our belief in the potential for more promising future combinations with our product candidates. Accordingly, there are currently no subjects being treated under any MT-3724 protocol. COVID-19 led to a significant slowdown in the pace of site initiations and patient enrollment into our clinical trials. The degree of disruption was, and continues to be, variable by geography and individual clinical site, with some sites closed to new enrollment, some screening and enrolling only subjects with an urgent need for treatment, and some attempting to operate as usual. The COVID-19 pandemic resulted in a significant slowdown in the pace of site initiations and patient enrollment across our MT-3724 Phase II programs prior to the partial clinical hold going into effect. As a CD20-targeting agent for the treatment of hematological malignancy, MT-3724 may impair the ability to generate humoral immunity to coronavirus infection. To date, screening and enrollment for the MT-5111 Phase I study has been less adversely affected than the MT-3724 studies were prior to the partial clinical hold. To date, we have been able to continue to work at our cGMP manufacturing facility and laboratories without significant interruption from COVID-19. As a result, manufacturing of product supply for clinical trials and research activities to support advancement of our preclinical pipeline (including partnered programs) have not been adversely affected by COVID-19 to date.

The extent to which the COVID-19 pandemic may impact our business, financial condition and results of operations will depend on the manner in which this pandemic continues to evolve and future developments in response thereto, which are highly uncertain and cannot be predicted with confidence and which may include, among other things, the ultimate severity and duration of this pandemic; governmental, business or other actions that have been, or will be, taken in response to this pandemic, including restrictions on travel and mobility, business closures and imposition of social distancing measures; impacts of the pandemic on the vendors or distribution channels in our or our partners’ supply chain and ability to continue to manufacture our investigational products; impacts of the pandemic on the conduct of our clinical trials, including with respect to enrollment rates, availability of investigators and clinical trial sites or monitoring of data; and impacts of the pandemic on the regulatory agencies with which we interact in the development, review, approval and commercialization of our therapeutic products.

Collaboration Agreements

Takeda Pharmaceuticals

Takeda Collaboration and Individual Project Agreements

In October 2016, we entered into a collaboration and option agreement (the “Takeda Collaboration Agreement”) with Millennium Pharmaceuticals, Inc., a wholly owned subsidiary of Takeda Pharmaceutical Company Ltd. (“Takeda”) to discover and develop CD38-targeting ETBs, which includes MT-4019, for evaluation by Takeda. Under the terms of the Takeda Collaboration Agreement, we are responsible for providing to Takeda (i) new ETBs generated using Takeda’s proprietary antibodies targeting CD38 and (ii) MT-4019 for in vitro and in vivo pharmacological and anti-tumor efficacy evaluations. We granted Takeda an exclusive option to negotiate and obtain an exclusive worldwide license to develop and commercialize any ETB that might result from this collaboration, including MT-4019. We were entitled to receive up to $2.0 million in technology access fees and cost reimbursement associated with our performance and completion of our obligations under the Takeda Collaboration Agreement. To date, we have received $2.0 million under this Takeda Collaboration Agreement.

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In connection with the Takeda Collaboration Agreement, we entered into an Individual Project Agreement (the “Takeda Individual Project Agreement”) with Takeda in June 2018 that was amended and restated in July 2018. Under the Takeda Individual Project Agreement, we are responsible to perform certain research and development services relating to Chemistry, Manufacturing, and Controls (“CMC”) work for three potential lead ETBs targeting CD38. In consideration of these services, we were entitled to receive up to $2.2 million in compensation. To date, we have received $2.2 million under the Takeda Individual Project Agreement.

Takeda Development and License Agreement

On September 18, 2018, we entered into a development collaboration and exclusive license agreement (the “Takeda Development and License Agreement”) with Takeda for the development and commercialization of products incorporating or comprised of one or more CD38 SLT-A fusion proteins (“Licensed Products”) for the treatment of patients with diseases such as multiple myeloma.

Pursuant to the Takeda Development and License Agreement, we will initially co-develop with Takeda one or more of the Licensed Products up to and including Phase Ia clinical trials, with us having an option to continue to co-develop the Licensed Products following Phase Ia clinical trials. Pursuant to the terms of the Takeda Development and License Agreement, Takeda will be responsible for all regulatory activities and commercialization of the Licensed Products. We have granted Takeda specified intellectual property licenses to enable Takeda to perform its obligations and exercise its rights under the Takeda Development and License Agreement, including exclusive license grants to enable Takeda to conduct development, manufacturing, and commercialization activities pursuant to the terms of the Takeda Development and License Agreement.

The Takeda Development and License Agreement has a total transaction price of $29.8 million, consisting of (1) the $30.0 million upfront payment, (2) a $10.0 million development milestone payment which was received in the first quarter of 2020, (3) minus $10.2 million in expected co-share payments payable to Takeda during Early-Stage Development. In July 2019, we exercised our co-development option and the agreed upon collaboration budget was increased to cover additional research and development activities whereby both parties will continue to cost share. If we continue our option to co-develop, we will be eligible to receive up to an additional $307.5 million in milestone payments upon the achievement of certain development and regulatory milestone events and up to an additional $325.0 million in milestone payments upon the achievement of certain sales milestone events. If we do not continue to exercise our co-development option, we may receive up to an additional $162.5 million in milestone payments upon the achievement of certain development and regulatory milestone events and up to an additional $175.0 million in milestone payments upon the achievement of certain sales milestone events. We will also be entitled to receive tiered royalties, subject to certain reductions, as percentages of annual aggregate net sales, if any, of Licensed Products. The royalty percentages would range from low double-digits to low twenties if we continue to exercise our option to co-develop, and from high-single digits to low teens if we do not continue to exercise our option to co-develop.

In July 2019, we exercised our co-development option and the agreed upon collaboration budget was increased to cover additional research and development activities whereby both parties will continue to cost share. The parties will share in co-development costs in accordance with the terms of the Takeda Development and License Agreement, and Takeda will be responsible for all costs incurred commercializing the Licensed Products.

Unless earlier terminated, the Takeda Development and License Agreement will expire upon the expiration of the last-to-expire co-development royalty term (or royalty term, if applicable) for a Licensed Product. Takeda has the right to terminate the License Agreement at any time upon prior written notice to us. We, or Takeda may, subject to specified cure periods, terminate the Takeda Development and License Agreement in the event of the other party’s uncured material breach, and either party may terminate the Takeda Development and License Agreement under specified circumstances relating to the other party’s insolvency.

Takeda Multi-Target Agreement

In June 2017, we entered into a Multi-Target Collaboration and License Agreement with Takeda (“Takeda Multi-Target Agreement”) in which we agreed to collaborate with Takeda to identify and generate ETBs, against two targets designated by Takeda. Takeda designated certain targets of interest as the focus of the research. Each party granted to the other nonexclusive rights in its intellectual property for purposes of the conduct of the research, and we agreed to work exclusively with Takeda with respect to the designated targets.

Under the Takeda Multi-Target Agreement, Takeda has an option during an option period to obtain an exclusive license under our intellectual property to develop, manufacture, commercialize and otherwise exploit ETBs against the designated targets. The option period for each target ends three months after the completion of the evaluation of such designated target.

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We received an upfront fee of $1.0 million and an additional $2.0 million following the designation of each of the two targets in December 2017. As of December 31, 2020, we have received $5.0 million from Takeda pursuant to the Takeda Multi-Target Agreement.

We may receive up to $30.0 million in aggregate through the exercise of the option to license ETBs. Additionally, we might also be entitled to receive clinical development milestone payments of up to approximately $397.0 million, for achievement of development milestones and regulatory approval of collaboration products under the Takeda Multi-Target Agreement. We might also be entitled to receive commercial milestone payments of up to $150.0 million, for achievement of pre-specified sales milestones related to net sales of all collaboration products under the Takeda Multi-Target Agreement. We are also entitled to tiered royalty payments of a mid-single to low-double digit percentage of net sales of any licensed ETBs, subject to certain reductions. Finally, we are entitled to receive up to $10.0 million in certain contingency fees.

The Takeda Multi-Target Agreement will expire on the expiration of the option period (within three months after the completion of the evaluation of each designated target) for the designated targets if Takeda does not exercise its options, or, following exercise of the option, on the later of the expiration of patent rights claiming the licensed ETB or ten years from first commercial sale of a licensed ETB. The Takeda Multi-Target Agreement might be sooner terminated by Takeda for convenience or upon a change of control in our ownership, or by either party for an uncured material breach of the agreement.

Vertex Pharmaceuticals

On November 18, 2019, we entered into a Master Collaboration Agreement (“Vertex Collaboration Agreement”) with Vertex Pharmaceuticals Incorporated (“Vertex”), in which we and Vertex agreed to enter into a strategic research collaboration to leverage our ETB technology platform to discover and develop novel targeted biologic therapies for applications outside of oncology.

Pursuant to the Vertex Collaboration Agreement, Vertex paid us an upfront payment of $38.0 million, consisting of $23.0 million in cash and a $15.0 million equity investment pursuant to a Share Purchase Agreement (the “SPA”), described further below. In addition to the upfront payments, we might also receive an additional $22.0 million through the exercise of the options to license ETB products or to add an additional target. We shall provide, and Vertex will reimburse us for, certain mutually agreed manufacturing technology transfer activities.

We might, for each target under the Vertex Collaboration Agreement, receive up to an additional $180.0 million in milestone payments upon the achievement of certain development and regulatory milestone events and up to an additional $70.0 million in milestone payments upon the achievement of certain sales milestone events. We will also be entitled to receive, subject to certain reductions, tiered mid-single digit royalties as percentages of calendar year net sales, if any, on any licensed product.

We will be responsible for conducting the research activities through the designation, if any, of one or more development candidates. Upon the exercise by Vertex of its option for a development candidate, Vertex will be responsible for all development, manufacturing, regulatory and commercialization activities with respect to that development candidate. In connection with the Vertex Collaboration Agreement, we and Vertex entered into the SPA pursuant to which Vertex purchased 1,666,666 shares of our common stock, par value $0.001 per share, at a price per share of $9.00. The issuance of these shares was pursuant to a private placement exemption from registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D thereunder.

For more information concerning our collaboration agreements, refer to Note 3, “Research and Development Agreements” to our audited consolidated financial statements for the year ended December 31, 2020, included in this Annual Report on Form 10-K.

Bristol Myers Squibb Company

On February 10, 2021, we entered into a Collaboration Agreement (“BMS Collaboration Agreement”) with Bristol Myers Squibb Company (“Bristol Myers Squibb”), in which we and Bristol Myers Squibb agreed to enter into a strategic research collaboration to leverage our ETB technology platform to discover and develop novel products containing ETBs directed to multiple targets.

Pursuant to the BMS Collaboration Agreement, Bristol Myers Squibb paid us an upfront payment of $70.0 million. We might receive near term and development and regulatory milestone payments of up to an additional $874.5 million and will be eligible to receive up to an additional $450.0 million in milestone payments upon the achievement of certain sales milestone events. We will also be entitled to receive, subject to certain reductions, tiered royalties ranging from mid-single digits up to mid-teens as percentages of calendar year net sales, if any, on any licensed product.

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We will be responsible for conducting the research activities through the designation, if any, of one or more development candidates. Upon the exercise of its option for a development candidate, Bristol Myers Squibb will be responsible for all development, manufacturing, regulatory and commercialization activities with respect to that development candidate, subject to the terms and conditions of the BMS Collaboration Agreement.

For more information concerning this collaboration agreement, refer to Note 16, “Subsequent Events”, and for more information on our collaboration agreements generally, refer to Note 3, “Research and Development Agreements” to our audited consolidated financial statements for the year ended December 31, 2020, included in this Annual Report on Form 10-K.

Grant Agreements

CPRIT Grant Contract

In September 2018, we entered into a Cancer Research Grant Contract (the “CD38 CPRIT Agreement”) with the Cancer Prevention and Research Institute of Texas (“CPRIT”), which was extended in October 2020, in connection with a grant of approximately $15.2 million awarded by CPRIT to us in November 2016 to fund research of a cancer therapy involving an ETB that is targeting CD38 (the “Award”). Pursuant to the CD38 CPRIT Agreement, we might also use such funds to develop a replacement CD38 targeting ETB, with or without a partner. The Award is contingent upon funds being available during the term of the CD38 CPRIT Agreement and subject to CPRIT’s ability to perform its obligations under the CD38 CPRIT Agreement as well as our progress towards achievement of specified milestones, among other contractual requirements.

In 2011, Private Molecular was awarded a $10.6 million product development grant from CPRIT for our CD20 targeting ETB MT-3724. 

Subject to the terms of the CD38 CPRIT Agreement, full ownership of any CPRIT funded technology and CPRIT funded intellectual property rights developed pursuant to the CD38 CPRIT Agreement will be retained by us, our Collaborators (as defined in the CD38 CPRIT Agreement) and, to the extent applicable, any participating third party (the “Project Results”). With respect to any Project Results, we agreed to grant to CPRIT a nonexclusive, irrevocable, royalty-free, perpetual, worldwide license, solely for academic, research and other non-commercial purposes, under the Project Results and to exploit any necessary additional intellectual property rights, subject to certain exclusions.

We will pay to CPRIT, during the term of the CD38 CPRIT Agreement, certain payments equal to a percentage of revenue ranging from the low- to mid-single digits. These payments will continue up to and until CPRIT receives an aggregate amount of 400% of the sum of all monies paid to us by CPRIT under the CD38 CPRIT Agreement. If we are required to obtain a license from a third party to sell any such product, the revenue sharing percentages might be reduced. In addition, once we pay CPRIT 400% of the monies we have received under the CD38 CPRIT Agreement, we will continue to pay CPRIT a revenue-sharing percentage of 0.5%.

The CD38 CPRIT Agreement will terminate, with certain obligations extending beyond termination, on the earlier of (a) May 30, 2021 or (b) the occurrence of any of the following events: (i) by mutual written consent of the parties, (ii) by CPRIT for an Event of Default (as defined in the CD38 CPRIT Agreement) by us, (iii) by CPRIT if allocated funds should become legally unavailable during the term of the CD38 CPRIT Agreement and CPRIT is unable to obtain additional funds or (iv) by us for convenience. CPRIT might approve a no cost extension for the CD38 CPRIT Agreement for a period not to exceed six months after the termination date if additional time is required to ensure adequate completion of the approved project, subject to the terms and conditions of the CD38 CPRIT Agreement.

For more information about our grant agreements, please see Note 3, “Research and Development Agreements” to our audited consolidated financial statements for the year ended December 31, 2020, included in this Annual Report on Form 10-K.

Financial Operations Overview

Revenue

To date, we have not generated any revenue from product sales to customers. We do not expect to receive any revenue from any ETB candidates that we develop, including MT-3724, MT-5111, TAK-169, MT-6402 and other pre-clinical ETB candidates, until we obtain regulatory approval and commercialize such drugs. Our revenue consists principally of collaboration revenue and grant revenue.

Research and Development revenue primarily relates to our collaboration agreements with Takeda and Vertex which are accounted for using the percentage-of-completion cost-to-cost method.

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Grant revenue relates to our CPRIT grants for a CD20 ETB (MT-3724) and a CD38 ETB (TAK-169). CPRIT grant funds for MT-3724 are provided to us in advance as conditional cost reimbursement where revenue is recognized as allowable costs are incurred. Amounts collected in excess of revenue recognized are recorded as deferred revenue. CPRIT grant funds for TAK-169 are provided to us in arrears as cost reimbursement where revenue is recognized as allowable costs are incurred. Revenue recognized in excess of amounts collected are recorded as unbilled revenue.

For more information about our revenue recognition policy, please see Note 1, “Organization and Summary of Significant Accounting Policies” to our audited consolidated financial statements for the year ended December 31, 2020, included in this Annual Report on Form 10-K.

Research and Development Expenses

Research and development expenses consist principally of:

• salaries for research and development staff and related expenses, including stock-based compensation expenses;

• costs for current good manufacturing practices, or cGMP, manufacturing of drug substances and drug products by contract manufacturers;

• fees and other costs paid to clinical trials sites and clinical research organizations, (“CROs”), in connection with the performance of clinical trials and preclinical testing;

• costs for consultants and contract research;

• costs of laboratory supplies and small equipment, including maintenance; and

• depreciation of long-lived assets.

Our research and development expenses may vary substantially from period to period based on the timing of our research and development activities, including the initiation and enrollment of subjects in clinical trials and manufacture of drug or biologic materials for clinical trials. We expect research and development expenses to increase as we advance the clinical development of MT-3724, MT-5111, TAK-169 and/or MT-6402 and further advance the research and development of our pre-clinical ETB candidates, and other earlier stage drugs or biologics. The successful development of our ETB candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing and estimated costs of the efforts that will be necessary to complete the development of, or the period, if any, in which material net cash inflows may commence from any of our ETB candidates. This is due to numerous risks and uncertainties associated with developing drugs, including the uncertainty of:

• the scope, rate of progress and expense of our research and development activities;

• clinical trials and early-stage results;

• the terms and timing of regulatory approvals; and

• the ability to market, commercialize and achieve market acceptance for MT-3724, MT-5111, TAK-169, MT-6402 or any other ETB candidate that we or our collaboration partners may develop in the future.

Any of these variables with respect to the development of MT-3724, co-development of TAK-169, or any other ETB candidate that we may develop could result in a significant change in the costs and timing associated with the development of MT-3724, co-development of TAK-169, or such other ETB candidates. For example, if the FDA the European Medicines Agency (“EMA”) or other regulatory authority were to require us to conduct pre-clinical and clinical studies beyond those which we currently anticipate will be required for the completion of clinical development or if we experience significant delays in enrollment in any clinical trials, we could be required to expend significant additional financial resources and time on the completion of our clinical development programs.

General and Administrative Expenses

Our general and administrative expenses consist principally of:

• salaries for employees other than research and development staff, including stock-based compensation expenses;

• professional fees for auditors and other consulting expenses related to general and administrative activities;

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• professional fees for legal services related to the protection and maintenance of our intellectual property and regulatory compliance;

• cost of facilities, communication and office expenses;

• information technology services; and

• depreciation of long-lived assets.

We expect that our general and administrative costs will increase in the future as our business expands and we increase our headcount to support the expected growth in our operating activities. Additionally, we expect these expenses will also increase in the future as we incur additional costs associated with operating as a public company. These increases will likely include additional legal fees, accounting and audit fees, management board and supervisory board liability insurance premiums and costs related to investor relations. In addition, we expect to grant stock-based compensation awards to key management personnel and other employees.

Other Income (Expense)

Other income (expense) mainly includes interest income earned on our cash and marketable securities balances held, and interest expense on our outstanding borrowings.

Change in fair value of warrant liability

Change in fair value of warrant liability relates to the change in fair value of our warrants categorized as liabilities.

Results of Operations

Revenues

The table below summarizes our revenues as follows (in thousands):

	Years ended December 31,
	2020		2019		Change ($)			Change (%)
Research and development revenue, related party	$	6,567	$	19,499	$	(12,932	)		-66	%
Research and development revenue, other		9,068		—		9,068			100	%
Grant revenue		3,210		2,771		439			16	%
Total revenue	$	18,845	$	22,270	$	(3,425	)		-15	%

Research and Development Revenue – from related party

The decrease in research and development revenue – from related parties for the year ended December 31, 2020 was primarily due to research and development revenues that were recognized from the services provided under the Takeda Development and License Agreement (TAK-169) which was entered into in September 2018.

For more information about our collaboration agreements, please see Note 3, “Research and Development Agreements” to our audited consolidated financial statements for the year ended December 31, 2020, included in this Annual Report on Form 10-K.

Research and Development Revenue – other

The increase in research and development revenue – other is a result of recognizing revenue associated with the Vertex Collaboration Agreement. For more information about our collaboration agreements, please see Note 3, “Research and Development Agreements” to our audited consolidated financial statements for the year ended December 31, 2020, included in this Annual Report on Form 10-K.

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Grant Revenue

The increase in grant revenue for the year ended December 31, 2020 was primarily due to the Company incurring additional expenses for the CD38 CPRIT Agreement grant during the year.

Operating Expenses

The table below summarizes our operating expenses as follows (in thousands):

	Years ended December 31,
	2020		2019		Change ($)			Change (%)
Research and development expenses	$	92,965	$	50,519	$	42,446			84	%
General and administrative expenses		26,722		20,077		6,645			33	%
Loss on impairment of in-process research and    development		—		22,123		(22,123	)		-100	%
Total operating expenses	$	119,687	$	92,719	$	26,968			29	%

Research and Development Expenses

The table below summarizes our research and development expenses as follows (in thousands):

	Years ended December 31,
	2020		2019		Change ($)		Change (%)
Program costs	$	45,367	$	25,026	$	20,341		81	%
Employee compensation		33,640		15,998		17,642		110	%
Laboratory costs		4,397		3,486		911		26	%
Other research and development costs		9,561		6,009		3,552		59	%
Total research and development expenses	$	92,965	$	50,519	$	42,446		84	%

Research and development (“R&D”) expenses increased $42.4 million during the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to increase in program costs and headcount related to the discovery and development of our ETBs. Additionally, we are party to multiple collaboration agreements with a related party, which can also contribute to increased research and development expense.

Program costs increased $20.3 million during the year ended December 31, 2020 compared to the year ended December 31, 2019. The programs driving the increase were $5.5 million for TAK-169, $5.5 million for Other Projects, $5.3 million for MT-3724, $2.5 million for PD-L1, $1.3 million for HER2 and $0.3 million for Evofosfamide.

Headcount increased in R&D by 55% from December 31, 2019 to December 31, 2020 in support of increased clinical trials and ramp up of cGMP manufacturing facilities and support staff. This staffing increase resulted in an increase in employee compensation costs of $17.6 million for the year ended December 31, 2020 compared to the year ended December 31, 2019, respectively.

Laboratory costs increased by $0.9 million during the year ended December 31, 2020 compared to the year ended December 31, 2019, which is due to the expansion of lab facilities. The increase in expense reflects the costs of outfitting, supplying and maintaining these facilities.

Other R&D costs increased by $3.6 million during the year ended December 31, 2020 compared to the year ended December 31, 2019. The increase was driven by third party consulting and recruiting fees.

General and Administrative Expenses

General and administrative expenses increased $6.6 million during the year ended December 31, 2020 compared to the year ended December 31, 2019. The main driver of this increase being payroll and related costs due to increased headcount.

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Loss on impairment of In-process research and development related to legacy program, Evofosfamide

The loss on impairment of long-lived assets relates to the impairment of in-process research and development relating to the Company’s legacy program, Evofosfamide, which was acquired from Threshold Pharmaceuticals in 2017. The loss on impairment of long-lived assets is primarily due to the decrease in future projected cashflows of the in-process research and development relating to this program. The Company obtained a fair value estimate, from a third-party specialist as of August 1, 2019, and determined the asset was impaired and the value was not recoverable. The Company recognized impairment of $22.1 million during the year ended December 31, 2019 and it was sold during the year ended December 31, 2020. See Note 15, “In-Process Research and Development” for further details on the asset.

Nonoperating activities

The table below summarizes our nonoperating activities as follows (in thousands):

	Years ended December 31,
	2020			2019			Change ($)			Change (%)
Interest and other income, net	$	1,028		$	2,323		$	(1,295	)		-56	%
Interest expense		(1,705	)		(1,298	)		(407	)		31	%
Loss on extinguishment of debt		(1,237	)		—			(1,237	)		100	%
Loss on disposal of assets		(2,155	)		—			(2,155	)		100	%
Change in fair value of warrant liabilities		—			3			(3	)		-100	%
Total nonoperating activities	$	(4,069	)	$	1,028		$	(5,097	)		-496	%

Interest and Other Income and Interest Expense

The decrease in interest and other income for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily due to lower interest related to our marketable securities.

The increase in interest expense for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily due to interest paid for our debt holdings, which mature in June 2024.

Debt Extinguishment

In connection with the repayment of the Perceptive Credit Facility, the Company recognized a total loss on extinguishment of debt in the amount of $1.2 million for the year ended December 31, 2020.

Asset Loss

In connection with the December 2020 sale of Evofosfamide, the Company recorded a loss on assets held for sale of $2.0 million which is the difference between the carrying value and the consideration received. Additionally, we disposed of fixed assets of $0.2 million.

Liquidity and Capital Resources

Sources of Funds

We have devoted substantially all of our resources to developing our ETB candidates and platform technology, building our intellectual property portfolio, developing our supply chain, conducting business planning, raising capital and providing for general and administrative support for these operations. We plan to increase our research and development expenses for the foreseeable future as we or our collaboration partners continue to advance MT-3724, MT-5111, TAK-169, MT-6402 and our earlier-stage pre-clinical programs. At this time, due to the inherently unpredictable nature of preclinical and clinical development and given the early stage of our programs and drug or biologic candidates, we cannot reasonably estimate the costs we will incur and the timelines that will be required to complete development, obtain marketing approval and commercialize our drugs or biologics, if and when approved. For the same reasons, we are also unable to predict when, if ever, we will generate revenue from product sales or whether, or when, if ever, we may achieve profitability. Clinical and preclinical development timelines, the probability of success, and development costs can differ materially from expectations.

In addition, we cannot forecast which drugs or biologics, if and when approved, may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.

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We expect to incur substantial additional losses in the future as we expand our research and development cost-sharing activities with our collaboration partners. We believe such investment is strategically aligned with increasing the value of our technology. For the years ended December 31, 2020 and December 31, 2019, we incurred net losses of $104.9 million and $69.4 million, respectively. At December 31, 2020, we had an accumulated deficit of $269.0 million.

To date, we have financed our operations through public offerings of common and preferred stock, private placements of equity securities, a reverse merger, and upfront and milestone payments received from our collaboration agreements, as well as funding from governmental bodies and bank and bridge loans.

In May 2020, we entered into a debt financing facility for up to $45.0 million with K2 HealthVentures, a healthcare-focused specialty finance company (the “K2 Loan and Security Agreement”). The K2 Loan and Security Agreement consists of three tranches, and we received the first tranche of $15.0 million upon closing, a portion of which was used to repay the remaining Perceptive Credit Facility. Two subsequent tranches totaling up to $30.0 million will become available at our option between March 1, 2021 and June 30, 2021, upon the achievement of certain clinical milestones with respect to the second tranche and, subject to lender consent and certain additional conditions prior to December 31, 2021 with respect to the third tranche. The principal accrues interest at an annual rate of equal to the greater of 8.45% or the sum of the Prime Rate plus 5.2% and commenced on July 1, 2020. Payments are interest only until July 1, 2022, provided, however, that if no event of default has occurred and the second tranche has been fully funded payments will be interest only until July 1, 2023.

In July 2020, we raised gross proceeds of approximately $50.0 million through at-the-market sales (“ATM”) of our common stock pursuant to our ATM facility. We sold approximately 3.6 million shares of our common stock at a purchase price of $12.00 per share and 0.5 million shares at a purchase price of $12.70, in each case the market price at the time of sale. These sales constituted the full available dollar amount under our current ATM facility and, with such completion, our current ATM facility has been terminated.

On August 7, 2020, we filed a universal shelf registration statement on Form S-3 (Registration No. 333-242078) with the SEC, which was declared effective on August 17, 2020. In August 2020, we entered into a sales agreement (the “Sales Agreement’) with Cowen and Company, LLC (“Cowen”), pursuant to which we may offer and sell to or through Cowen acting as agent and/or principal shares of our common stock having an aggregate offering price of up to $100,000,000. Under the Sales Agreement, Cowen may sell the shares by any method permitted by law and deemed to be an “at the market” offering as defined in Rule 415 of the Securities Act. To date, we have not sold any shares under the Sales Agreement.

In February 2021, we completed a public offering of 6,000,000 shares of common stock at an offering price of $12.65 per share. We received net proceeds of approximately $71.0 million, after deducting underwriting discounts, commissions and estimated offering expenses payable by us.

We expect to incur significant expenses and operating losses for the foreseeable future as we advance our lead ETB candidates through clinical trials, progress our pipeline ETB candidates from discovery through pre-clinical development, and seek regulatory approval and pursue commercialization of our ETB candidates. In addition, if we obtain regulatory approval for any of our ETB candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. In addition, we may incur expenses in connection with the in-license or acquisition of additional technology to augment or enable development of future ETB candidates. Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company.

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 and debt financings or other sources, which may include collaborations with third parties. Adequate additional financing may not be available to us on acceptable terms, or at all. Our inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We will need to generate significant revenue to achieve profitability, and we may never do so.

At December 31, 2020 and December 31, 2019, we had cash, cash equivalents and marketable securities of $93.9 million and $126.6 million, respectively. Based on such cash and cash equivalents as of December 31, 2020, and with the addition of the $70.0 million upfront payment in connection with the Bristol Myers Squibb collaboration received in the first quarter of 2021 and the proceeds of the public offering completed in February 2021, we expect to able to fund our operating expenses and capital expenditure requirements into the second half of 2023. We have based this estimate on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect.

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Cash Flows

Comparison of Years Ended December 31, 2020 and 2019

The table below summarizes our cash flows for the years ended December 31, 2020 and 2019:

	Years ended December 31,
	2020			2019			Change ($)			Change (%)
Net cash used in operating activities	$	(83,797	)	$	(25,244	)	$	(58,553	)		232	%
Net cash used in investing activities		(34,663	)		(39,724	)		5,061			-13	%
Net cash provided by financing activities		58,895			65,698			(6,803	)		-10	%
Net increase (decrease) in cash, cash equivalents and restricted cash	$	(59,565	)	$	730		$	(60,295	)		-8260	%

The increase in net cash used in operating activities for the year ended December 31, 2020 was primarily due to an increase in operating cash disbursements as result of operating activities.

The decrease in net cash used in investing activities for the year ended December 31, 2020 was primarily due to decreased investment activity in marketable securities and purchases of equipment.

The decrease in net cash provided by financing activities was primarily due to the repayment of the Perceptive Credit Facility which was partially offset by proceeds from the K2 Loan and Security Agreement and proceeds from the at-the-market sales (“ATM”) of our common stock during the year ended December 31, 2020.

Operating and Capital Expenditure Requirements

We have not achieved profitability since our inception and had an accumulated deficit of $269.0 million at December 31, 2020. We expect to continue to incur significant operating losses for the foreseeable future as we continue our research and development efforts and seek to obtain regulatory approval and commercialization of our ETB candidates.

We expect our expenses to increase substantially in connection with our ongoing development activities related to MT-3724, MT-5111 and MT-6402, co-development activities related to TAK-169, collaborations with Vertex and Bristol Myers Squibb, our pre-clinical programs, and expanding our operating capabilities. In addition, we expect to incur additional costs associated with operating as a public company. We anticipate that our expenses will increase substantially if and as we:

• support the Phase II clinical trials of MT-3724, our lead ETB candidate and/or the development of other CD20-targeted molecules;

• co-develop TAK-169 with Takeda;

• support the ongoing Phase I study of MT-5111;

• support the PD-L1 program including the upcoming Phase I study for MT-6402;

• continue the research and development of our other ETB candidates, such as other CD20 targeted molecules, including completing pre-clinical studies and commencing clinical trials;

• research activities through the designation of the development candidate(s) with Vertex;

• research activities through the designation of the development candidate(s) with Bristol Myers Squibb;

• seek to enhance our technology platform using our antigen-seeding technology approach to immuno-oncology;

• seek regulatory approvals for any ETB candidates that successfully complete clinical trials;

• potentially establish a sales, marketing and distribution infrastructure and scale up manufacturing capabilities to commercialize any drugs for which we may obtain regulatory approval;

• add clinical, scientific, operational, financial and management information systems and personnel, including personnel to support our product development and potential future commercialization efforts and to support our increased operations;

• experience any delays or encounter any issues resulting from any of the above, including but not limited to failed studies, complex results, safety issues or other regulatory challenges;

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• service long-term debt; and

• complete the expansion of the Company’s research and development spaces.

Payments on the Perceptive Credit Facility commenced April 2018 and were interest only, paid quarterly for the first 24 months. Upon the second anniversary of the closing date of the Perceptive Credit Facility, principal payments of $0.2 million were due each calendar quarter. The Perceptive Credit Facility was paid off in May 2020, using proceeds from the K2 Loan and Security Agreement. See Note 8, “Borrowing Arrangements” to our audited consolidated financial statements for the year ended December 31, 2020, included in this Annual Report on Form 10-K for additional information regarding the Perceptive Credit Facility and the K2 Loan and Security Agreement.

Because of the numerous risks and uncertainties associated with the development of MT-3724, co-development of TAK-169, collaborations with Vertex and Bristol Myers Squibb and our other pre-clinical programs, and because the extent to which we may enter into collaborations with third parties for development of these ETB candidates is unknown, we are unable to estimate the amount of increased capital outlays and operating expenses associated with completing the research and development of our ETB candidates. Our future capital requirements for MT-3724, MT-5111, TAK-169, MT-6402 or our other pre-clinical programs will depend on many factors, including:

• the progress, timing and completion of pre-clinical testing and clinical trials for our current or any future ETB candidates;

• the number of potential new ETB candidates we identify and decide to develop;

• the costs involved in growing our organization to the size needed to allow for the research, development and potential commercialization of our current or any future ETB candidates;

• the costs involved in filing patent applications and maintaining and enforcing patents or defending against claims or infringements raised by third parties;

• the time and costs involved in obtaining regulatory approval for our ETB candidates and any delays we may encounter as a result of evolving regulatory requirements or adverse results with respect to any of these ETB candidates;

• any licensing or milestone fees we might have to pay during future development of our current or any future ETB candidates;

• selling and marketing activities undertaken in connection with the anticipated commercialization of our current or any future ETB candidates and costs involved in the creation of an effective sales and marketing organization; and

• the amount of revenues, if any, we may derive either directly or in the form of royalty payments from future sales of our ETB candidates, if approved.

Identifying potential ETB candidates and conducting pre-clinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our ETB candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of drugs or biologics that we do not expect to be commercially available for many years, if ever. Accordingly, we will need to obtain substantial additional funds to achieve our business objectives.

Adequate additional funds may not be available to us on acceptable terms, or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, stockholders’ ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect their rights as stockholders. Additional debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends and may require the issuance of warrants, which could potentially dilute stockholders’ ownership interest.

If we raise additional funds through collaborations, governmental grants, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or ETB candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development programs or any future commercialization efforts or grant rights to develop and market ETB candidates that we would otherwise prefer to develop and market ourselves.

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Critical Accounting Policies and Use of Estimates

The discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses for the periods presented. Management makes estimates and exercises judgment in income taxes, revenue recognition, research and development expenses, stock-based compensation and preferred stock. Judgments must also be made about the disclosure of contingent liabilities. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We periodically evaluate our estimates and judgments, including those described in greater detail below, in light of changes in circumstances, facts and experience.

We have identified the following accounting policies that we believe require application of management’s most subjective judgments, often requiring the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Our actual results could differ from these estimates and such differences could be material.

Revenue Recognition

Our revenue has consisted principally of research and development revenue from collaboration partners and grant revenue.

Grant revenue relates to the grants we have received from governmental bodies that are conditional cost reimbursement grants, and we recognize revenue as allowable costs are incurred. Amounts collected in excess of revenue recognized are recorded as deferred revenue.

The Company analyzes its collaboration arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements (“ASC 808”) to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards. This assessment is performed throughout the life of the arrangement based on changes to the arrangements. For collaboration arrangements within the scope of ASC 808 the Company may analogize to ASC 606 for certain elements.

We identify the goods or services promised within each collaboration agreement and assesses whether each promised good or service is distinct for the purpose of identifying the performance obligations in the contract. This assessment involves subjective determinations and requires management to make judgments about the individual promised goods or services and whether such are separable from the other aspects of the contractual relationship. Promised goods and services are considered distinct provided that: (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and (ii) the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. In assessing whether a promised good or service is distinct, we consider factors such as the research, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. If a promised good or service is not distinct, an entity is required to combine that promised good or service with other promised goods or services until it identifies a bundle of goods or services that is distinct.

The allocation of the transaction price to the performance obligations in proportion to their standalone selling prices is determined at contract inception. If the consideration promised in a contract includes a variable amount, we estimate the amount of consideration to which we will be entitled in exchange for transferring the promised goods or services to a customer. We determine the amount of variable consideration by using the expected value method or the most likely amount method. The Company includes the unconstrained amount of estimated variable consideration in the transaction price. The amount included in the transaction price is the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. At the end of each subsequent reporting period, we re-evaluate the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment.

In determining the transaction price, we adjust consideration for the effects of the time value of money if there is a significant benefit of financing. We assessed its collaboration agreements and concluded that no significant financing components were present.

105

If an arrangement contains customer options that allow the customer to acquire additional goods or services, including an exclusive license to our intellectual property, the goods and services underlying the customer options are evaluated to determine whether they are deemed to represent a material right. In determining whether the customer option has a material right, we assess whether there is an option to acquire additional goods or services at a discount. If the customer option is determined not to represent a material right, the option is not considered to be performance obligations at the outset of the arrangement. If the customer option is determined to represent a material right, the material right is recognized as a separate performance obligation at the outset of the arrangement. We allocate the transaction price to material rights based on the relative standalone selling price, which is determined based on the identified discount and the probability that the customer will exercise the option. Amounts allocated to a material right are not recognized as revenue until the option is exercised.

We recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation as each performance obligation is satisfied over time, with progress toward completion measured based on actual costs incurred relative to total estimated costs to be incurred over the life of the contract. Recorded revenue and costs are subject to revision as the contract progresses. Such revisions may result in increases or decreases to revenue and income and are reflected in the consolidated financial statements in the periods in which they are first identified. Estimating costs under our collaboration agreements is complex and involves significant judgment. Factors that must be considered in making estimates include labor productivity and availability, the nature and technical complexity of the work to be performed, potential performance delays, availability and timing of funding from the customer and progress toward completion. Adjustments to original estimates are often required as work progresses and additional information becomes known, even though the scope of the work required under the contract may not change. Any adjustment as a result of a change in estimates is made when facts develop, events become known, or an adjustment is otherwise warranted, such as in the case of contract change orders. We have procedures and processes in place to monitor the actual progress of a project against estimates and our estimates are updated if circumstances are warranted.

Performance obligations may include research and development services to be performed by us on behalf of the collaboration partner. Revenue is recognized on research and development efforts as the services are performed and presented on a gross basis, since we are the principal.

Under collaboration agreements, the timing of revenue recognition and contract billings may differ and result in contract assets and contract liabilities. Contract assets represent revenues recognized in excess of amounts billed under collaboration agreements and are transferred to accounts receivable when billed or billing rights become unconditional. Contract liabilities represent billings in excess of revenues recognized under collaboration agreements. 

For further information regarding our revenue recognition, please see Note 1, “Organization and Summary of Significant Accounting Policies” to our audited consolidated financial statements for the year ended December 31, 2020, included in this Annual Report on Form 10-K.

  Research and Development Expenses

As part of the process of preparing our financial statements, we are required to estimate our accrued expenses as of each balance sheet date. This process involves reviewing open contracts and purchase orders, communicating with our staff to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments, if necessary. The significant estimates in our accrued research and development expenses include the costs incurred for services performed by our vendors and clinical trial sites in connection with research and development activities for which we have not yet been invoiced.

We record our expenses related to research and development activities based on our estimates of the services received and efforts expended pursuant to quotes and contracts with vendors that conduct research and development on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expenses. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid expense accordingly. Non-refundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.

106

Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in our reporting amounts that are too high or too low in any particular period. To date, there have been no material differences between our estimates of such expenses and the amounts actually incurred.

Income Taxes

We account for income taxes under the asset and liability method. We record deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as for operating loss and tax credit carryforwards. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which we expect to recover or settle those temporary differences. We recognize the effect of a change in tax rates on deferred tax assets and liabilities in the results of operations in the period that includes the enactment date. We assess the likelihood that deferred tax assets will be realized, and we recognize a valuation allowance if it is more likely than not that some portion of the deferred tax assets will not be realized. This assessment requires judgment as to the likelihood and amounts of future taxable income by tax jurisdiction. To date, we have provided a valuation allowance against our deferred tax assets as we believe the objective and verifiable evidence of our historical pretax net losses outweighs any positive evidence of our forecasted future results. Although we believe that our tax estimates are reasonable, the ultimate tax determination involves significant judgment. We will continue to monitor the positive and negative evidence and will adjust the valuation allowance as sufficient objective positive evidence becomes available.

We account for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based upon technical merits, it is more likely than not that the position will be sustained upon examination. We recognize potential accrued interest and penalties associated with unrecognized tax positions within our global operations in income tax expense.

Stock-Based Compensation

We account for stock-based compensation expense related to stock options granted to employees, non-employees, and members of our board of directors under our 2018 Equity Incentive Plan, the 2014 Equity Incentive Plan, as amended, and the 2004 Amended and Restated Equity Incentive Plan, by estimating the fair value of each stock option or award on the date of grant using the Black-Scholes model. We recognize stock-based compensation expense on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period.

Recent Accounting Pronouncements Not Yet Adopted

For a discussion of recently issued accounting pronouncements and interpretations not yet adopted by us, please see Note 1, “Organization and Summary of Significant Accounting Policies” to our audited financial statements for the year ended December 31, 2020, included in this Annual Report on Form 10-K.

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 in the rules and regulations of the SEC.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

MOLECULAR TEMPLATES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	109
Consolidated Balance Sheets	111
Consolidated Statements of Operations and Comprehensive Loss	112
Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)	114
Consolidated Statements of Cash Flows	115
Notes to Consolidated Financial Statements	116

108

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Molecular Templates, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Molecular Templates, Inc. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders' equity, and cash flows for the years then ended, and the related notes  (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Progress Toward Completion of Collaboration Agreements

Description of the Matter

As discussed in Note 1 and 3 to the consolidated financial statements, the Company recognizes revenue arising from collaboration agreements. Revenue generated from the Company’s collaboration agreements relates to research and development services whereby revenue is recognized under an input method using the ratio of costs incurred to date compared to the total estimated costs required to complete the performance obligation. For the year ended December 31, 2020, the Company has recognized $15.6 million in research and development revenue. Auditing the progress toward completion of collaboration agreements was especially challenging because it involves subjective management assumptions about estimating the remaining research and development costs necessary to satisfy a performance obligation. The calculation of the total remaining estimated research and development cost includes forecasted costs associated with internal employee efforts, materials costs, and third-party contract costs, as well as the assumed timing and duration of these activities.  The recognition of revenue pursuant to collaboration arrangements is subject to these estimates and judgments developed by management and is sensitive to changes in these assumptions.

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How We Addressed the Matter in Our Audit To test the progress toward completion of collaboration agreements, we performed audit procedures that included, among others, reading the collaboration agreements and testing the accuracy and completeness of the underlying data used in evaluating the estimates and significant judgments described above. To assess the reasonableness of the Company’s significant estimates and judgments, we corroborated management estimates and judgments by performing sensitivity analyses of key inputs, comparing cost estimates to costs previously incurred for similar activities, inspecting communications between the Company and its collaborators regarding updates to estimated budgeted costs, evaluating the remaining level of effort required to complete the agreement, and inspecting evidence of actual costs incurred. We also discussed the basis for key assumptions with the Company’s research and development personnel, who oversee the completion of the collaboration arrangements.  

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2017.

Austin, Texas

March 19, 2021

110

MOLECULAR TEMPLATES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

	December 31, 2020			December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	25,218		$	85,451
Marketable securities, current		68,667			39,633
Prepaid expenses		6,080			2,318
Grants revenue receivable		—			7,100
Accounts receivable, related party		234			408
In-process research and development - held for sale		—			4,500
Other current assets		1,125			489
Total current assets		101,324			139,899
Marketable securities, non-current		—			1,510
Operating lease right-of-use assets		11,104			9,959
Property and equipment, net		22,254			18,158
Other assets		5,195			4,676
Total assets	$	139,877		$	174,202
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,350		$	1,465
Accrued liabilities		12,575			14,544
Deferred revenue, current		14,014			8,511
Deferred revenue, current, related party		789			8,780
Other current liabilities, related party		5,614			—
Other current liabilities		2,211			2,501
Total current liabilities		37,553			35,801
Deferred revenue, long-term		4,538			18,944
Deferred revenue, long-term, related party		3,106			441
Long-term debt, net		14,926			2,940
Operating lease liabilities		12,213			11,682
Other liabilities, related party		6,711			—
Other liabilities		1,490			1,366
Total liabilities		80,537			71,174
Commitments and contingencies (Note 10)
Stockholders’ equity
Preferred stock, $0.001 par value:
Authorized: 2,000,000 shares at December 31, 2020 and    December 31, 2019; issued and outstanding: 250 shares at    December 31, 2020 and December 31, 2019		—			—
Common stock, $0.001 par value:
Authorized: 150,000,000 shares at December 31, 2020 and    December 31, 2019; issued and outstanding: 49,984,333 shares at   December 31, 2020 and 45,589,157 shares at December 31, 2019		50			46
Additional paid-in capital		328,314			267,089
Accumulated other comprehensive income		17			18
Accumulated deficit		(269,041	)		(164,125	)
Total stockholders’ equity		59,340			103,028
Total liabilities and stockholders’ equity	$	139,877		$	174,202

The accompanying notes are an integral part of these consolidated financial statements.

111

MOLECULAR TEMPLATES, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

(in thousands, except share and per share data)

	Year Ended December 31,
	2020			2019
Research and development revenue, related party	$	6,567		$	19,499
Research and development revenue, other		9,068			—
Grant revenue		3,210			2,771
Total revenue		18,845			22,270
Operating expenses:
Research and development		92,965			50,519
General and administrative		26,722			20,077
Loss on impairment of in-process research and development		—			22,123
Total operating expenses		119,687			92,719
Loss from operations		100,842			70,449
Interest and other income, net		1,028			2,323
Interest and other expense, net		(1,705	)		(1,298	)
Loss on extinguishment of debt		(1,237	)		—
Loss on disposal of assets		(2,155	)		—
Change in fair value of warrant liabilities		—			3
Loss before provision for income taxes		104,911			69,421
Provision for income taxes		5			—
Net loss		104,916			69,421
Net loss attributable to common shareholders	$	104,916		$	69,421
Net loss per share attributable to common shareholders:
Basic and diluted	$	2.20		$	1.86
Weighted average number of shares used in net loss per share    calculations:
Basic and diluted		47,603,261			37,770,378

The accompanying notes are an integral part of these consolidated financial statements.

112

MOLECULAR TEMPLATES, INC.

CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS

(in thousands, except share and per share data)

	Year Ended December 31,
	2020			2019
Net loss	$	104,916		$	69,421
Other comprehensive income:
Unrealized gain, (loss) on available-for-sale securities		(1	)		18
Comprehensive loss	$	104,917		$	69,403

The accompanying notes are an integral part of these consolidated financial statements.

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MOLECULAR TEMPLATES, INC.

CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK and STOCKHOLDERS’ EQUITY

(in thousands, except share data)

	Convertible										Accumulated						Total
	Preferred								Additional		Other						Stockholders’
	Stock				Common Stock				Paid-In		Comprehensive			Accumulated			Equity
	Shares		Amount		Shares		Amount		Capital		Income (Loss)			Deficit			(Deficit)
Balances, December 31, 2018		—	$	—		36,736,012	$	37	$	195,573	$	—		$	(94,704	)	$	100,906
Issuance of common stock    pursuant to stock plans		—		—		286,479		—		1,748		—			—			1,748
Issuance of common stock in a    public offering, net of issuance    costs of $3.8 million		250		—		6,900,000		7		53,442		—			—			53,449
Issuance of common stock    through Private Placement,    net of issuance costs of $75    thousand		—		—		1,666,666		2		10,467		—			—			10,469
Stock-based compensation		—		—		—		—		5,859		—			—			5,859
Other comprehensive income (loss)		—		—		—		—		—		18			—			18
Net loss		—		—		—		—		—		—			(69,421	)		(69,421	)
Balances, December 31, 2019		250		—		45,589,157		46		267,089		18			(164,125	)		103,028
Issuance of common stock    pursuant to stock plans		—		—		261,260		—		1,040		—			—			1,040
Issuance of common stock in at-the-market offering, net of issuance costs of $1.6 million		—		—		4,133,916		4		48,368		—			—			48,372
Stock-based compensation		—		—		—		—		11,817		—			—			11,817
Other comprehensive income (loss)		—		—		—		—		—		(1	)		—			(1	)
Net loss		—		—		—		—		—		—			(104,916	)		(104,916	)
Balances, December 31, 2020		250	$	—		49,984,333	$	50	$	328,314	$	17		$	(269,041	)	$	59,340

The accompanying notes are an integral part of these consolidated financial statements.

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MOLECULAR TEMPLATES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Year Ended December 31,
	2020			2019
Cash flows from operating activities:
Net loss	$	104,916		$	69,421
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, amortization and other		3,917			1,182
Impairment and loss on fixed assets and intangibles		2,170			22,139
Stock-based compensation expense		11,817			5,859
Interest due on long-term debt		109			—
Amortization of debt discount and accretion related to debt		448			486
Change in common stock warrant fair value		—			(3	)
Accretion of asset retirement obligations		125			72
Loss on extinguishment of debt		1,237			—
Changes in operating assets and liabilities:
Prepaid expenses		(3,762	)		(74	)
Accounts receivable, related party		174			(168	)
Grants revenue receivable		7,100			(2,771	)
Other assets		1,948			(286	)
Operating lease right-of-use assets and liabilities		(87	)		2,816
Accounts payable		499			652
Accrued liabilities		(2,672	)		6,534
Other liabilities, related party		12,325			(36	)
Deferred revenue		(8,903	)		27,455
Deferred revenue, related party		(5,326	)		(19,680	)
Net cash used in operating activities		(83,797	)		(25,244	)
Cash flows from investing activities:
Purchases of property and equipment		(7,392	)		(9,649	)
Proceeds on sale of equipment		15			—
Purchase of marketable securities		(132,809	)		(90,159	)
Sales of marketable securities		105,523			60,084
Net cash used in investing activities		(34,663	)		(39,724	)
Cash flows from financing activities:
Proceeds from issuance of common stock through Private Placement, net of issuance costs		—			10,469
Proceeds from issuance of common stock, net of issuance costs		48,372			53,449
Payments of capital and finance lease obligations		(18	)		32
Proceeds from issuance of long-term debt and warrants, net		14,677			—
Repayment of long-term debt		(5,176	)		—
Proceeds from stock option exercises		1,040			1,748
Net cash provided by financing activities		58,895			65,698
Net increase/(decrease) in cash, cash equivalents, and restricted cash		(59,565	)		730
Cash, cash equivalents and restricted cash, beginning of period		88,451			87,721
Cash, cash equivalents and restricted cash, end of period	$	28,886		$	88,451
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents	$	25,218		$	85,451
Restricted cash included in Other assets		3,668			3,000
Total cash, cash equivalents and restricted cash	$	28,886		$	88,451
Supplemental Cash Flow Information
Cash paid for interest	$	931		$	684
Non-Cash Investing and Financing Activities
Fixed asset additions in accounts payable and accrued expenses	$	980		$	2,686

The accompanying notes are an integral part of these consolidated financial statements.

115

MOLECULAR TEMPLATES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1—ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of the Business

Molecular Templates, Inc. (the “Company” or “Molecular”), is a clinical stage biopharmaceutical company formed in 2001, with a biologic therapeutic platform for the development of novel targeted therapeutics for cancer and other diseases, headquartered in Austin, Texas. The Company’s focus is on the research and development of therapeutic compounds for a variety of cancers. The Company operates its business as a single segment, as defined by U.S. generally accepted accounting principles (“U.S. GAAP”).

On August 1, 2017, the Company, formerly known as Threshold Pharmaceuticals, Inc. (Nasdaq: THLD) (“Threshold”), completed its business combination with Private Molecular, in accordance with the terms of the Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), dated as of March 16, 2017, by and among Threshold, the Merger Sub, a wholly owned subsidiary of Threshold, and Private Molecular, pursuant to which Merger Sub merged with and into Private Molecular, with Private Molecular, surviving as a wholly-owned subsidiary of Threshold (the “Merger”). Immediately upon completion of the Merger, the former stockholders of Private Molecular held a majority of the voting interest of the combined company.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include the accounts of the Company and its wholly owned subsidiary and reflect the elimination of intercompany accounts and transactions.

Reclassifications

Certain amounts in the prior year’s presentation have been reclassified to conform to the current presentation. The condensed consolidated balance sheet at December 31, 2019 included herein was derived from the audited financial statements at that date, but includes a reclassification of $8.8 million from Deferred revenue, current to Deferred revenue, current, related party and $0.4 million from Deferred revenue, non-current to Deferred revenue, non-current, related party in order to conform to current period presentation. The condensed consolidated statements of cash flows for the year ended December 31, 2019, included herein includes a reclassification of $19.7 million from Deferred revenue to Deferred revenue, related party.

Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America as defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

Net Loss per Share

Basic net loss per share is calculated by dividing the net loss applicable to common stockholders by the weighted average number of shares of Common Stock outstanding during the period without consideration of Common Stock equivalents. Since the Company was in a loss position for all periods presented, diluted net loss per share is the same as basic net loss per share for all periods, as the inclusion of all potential common shares outstanding is anti-dilutive.

Cash and Cash Equivalents

The Company considers temporary investments with original maturities of three months or less from date of purchase to be cash equivalents. Restricted cash is recorded in other assets, based on when the restrictions expire. Other assets include $3.7 million and $3.0 million of restricted cash at December 31, 2020 and December 31, 2019, respectively.

116

Fair Value Measurement

The Company accounts for its marketable securities in accordance with ASC 820 “Fair Value Measurements and Disclosures.” ASC 820 defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. For Level 2 securities that have market prices from multiples sources, a “consensus price” or a weighted average price for each of these securities can be derived from a distribution-curve-based algorithm which includes market prices obtained from a variety of industrial standard data providers (e.g. Bloomberg), security master files from large financial institutions, and other third-party sources. Level 2 securities with short maturities and infrequent secondary market trades are typically priced using mathematical calculations adjusted for observable inputs when available.

Marketable Securities

The Company classifies its marketable securities as “available-for-sale.” Such marketable securities are recorded at fair value and unrealized gains and losses are recorded as a separate component of stockholders’ equity until realized. Realized gains and losses on sale of all such securities are reported in net loss, computed using the specific identification cost method. The Company places its marketable securities primarily in U.S. government securities, money market funds, corporate debt securities, commercial paper and certificates of deposit.

The Company’s investments are subject to a periodic impairment review. The Company recognizes an impairment charge when a decline in the fair value of its investments below the cost basis is judged to be other-than-temporary. The Company considers various factors in determining whether to recognize an impairment charge, including the length of time and extent to which the fair value has been less than the Company’s cost basis, the financial condition and near-term prospects of the investee, and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in the market value.

Concentration of Credit Risk and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to concentrations of risk consist principally of cash and cash equivalents, investments, long term debt and accounts receivable.

The Company’s cash and cash equivalents are with two major financial institutions in the United States.

The Company performs an ongoing credit evaluation of its strategic partners’ financial conditions and generally does not require collateral to secure accounts receivable from its strategic partners. The Company’s exposure to credit risk associated with non-payment will be affected principally by conditions or occurrences within Millennium Pharmaceuticals, Inc., a wholly-owned subsidiary of Takeda Pharmaceutical Company Ltd. (“Takeda”) and Vertex Pharmaceuticals Incorporated (“Vertex”). Takeda accounted for approximately 35% and 88% of total revenues for the years ended December 31, 2020 and December 31, 2019, respectively. Vertex accounted for approximately 48% and 0% of total revenues for the years ended December 31, 2020 and December 31, 2019, respectively.

In July 2020, the Company became aware of one potentially non-conforming batch of a single Company product fill. In February 2021, the batch was deemed non-conforming due to visible particulates identified in the release samples. This could result in a reversal of revenue in future periods as the Company recognizes collaboration revenue over time by measuring progress toward completion to satisfy the performance obligation. The Company does not believe this non-conforming batch will result in an increased timeline for its ongoing projects nor does it affect any other batches, production, or manufacturing. The Company expects to be able to meet the supply needs for all of its active clinical trials.

117

Drug or biologic candidates developed by the Company may require approvals or clearances from the U.S. Food and Drug Administration (“FDA”) or international regulatory agencies prior to commercial sales. There can be no assurance that the Company’s drug or biologic candidates will receive any of the required approvals or clearances. If the Company were to be denied approval or clearance or any such approval or clearance were to be delayed, it would have a material adverse impact on the Company.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Major additions and improvements are capitalized while maintenance and repairs that do not improve or extend the useful life of the respective asset are expensed. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets, which range from three to seven years. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the assets.

Patents

The gross value of Patents was $1.2 million and $1.3 million at December 31, 2020 and December 31, 2019, respectively, and are recorded in Other assets. The Company recorded $0.1 million of amortization expense for the years ended December 31, 2020 and December 31, 2019, with estimated expense to remain $0.1 million for each of the four successive years subsequent to December 31, 2020.

Impairment of Long-Lived Assets

When events, circumstances and/or operating results indicate that the carrying values of long-lived assets might not be recoverable through future operations, the Company prepares projections of the undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the projections indicate that the recorded amounts are not expected to be recoverable, such amounts are reduced to estimated fair value. Fair value is estimated based upon internal evaluation of each asset that includes quantitative analyses of net revenue and cash flows, review of recent sales of similar assets and market responses based upon discussions in connection with offers received from potential buyers. Certain factors used for these types of nonrecurring fair value measurements are considered Level 3 inputs. The Company recognized impairment of $22.1 million during the year ended December 31, 2019 related to its In-process research and development, which was sold during the year ended December 31, 2020. See Note 15, “In-Process Research and Development” for further details on the asset.

Long-term debt

The Company records debt issuance costs related to its long-term debt as a deduction from the carrying amount. The costs are amortized to interest expense over the life of the debt.

Revenue Recognition

The Company’s revenue has consisted principally of collaboration agreements for research and development revenue and grant revenue.

Grant revenue relates to the grants the Company has received from governmental bodies that are conditional cost reimbursement grants and we recognize revenue as allowable costs are incurred. Amounts collected in excess of revenue recognized are recorded as deferred revenue.

The Company’s collaborative arrangements may include one or more of the following: licenses, or options to obtain licenses; up-front fees; research and development activities and associated costs; milestone payments related to the achievement of development, regulatory, or commercial goals; and royalties on net sales of licensed products. Each of these payments may result in collaboration revenues or an offset against research and development expense.

The Company analyzes its collaboration arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements (“ASC 808”) to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards. This assessment is performed throughout the life of the arrangement based on changes to the arrangements. For collaboration arrangements within the scope of ASC 808 the company may analogize to ASC 606 for certain elements.

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The Company identifies the goods or services promised within each collaboration agreement and assesses whether each promised good or service is distinct for the purpose of identifying the performance obligations in the contract. This assessment involves subjective determinations and requires management to make judgments about the individual promised goods or services and whether such are separable from the other aspects of the contractual relationship. Promised goods and services are considered distinct provided that: (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and (ii) the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. In assessing whether a promised good or service is distinct, the Company considers factors such as the research, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. If a promised good or service is not distinct, an entity is required to combine that promised good or service with other promised goods or services until it identifies a bundle of goods or services that is distinct.

The allocation of the transaction price to the performance obligations in proportion to their standalone selling prices is determined at contract inception. If the consideration promised in a contract includes a variable amount, the Company estimates the amount of consideration to which it will be entitled in exchange for transferring the promised goods or services to a customer. The Company determines the amount of variable consideration by using the expected value method or the most likely amount method. The Company includes the unconstrained amount of estimated variable consideration in the transaction price. The amount included in the transaction price is the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. At the end of each subsequent reporting period, the Company re-evaluates the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment.

In determining the transaction price, the Company adjusts consideration for the effects of the time value of money if there is a significant benefit of financing. The Company assessed its collaboration agreements and concluded that no significant financing components were present.

If an arrangement contains customer options that allow the customer to acquire additional goods or services, including an exclusive license to the Company’s intellectual property, the goods and services underlying the customer options are evaluated to determine whether they are deemed to represent a material right. In determining whether the customer option has a material right, the Company assesses whether there is an option to acquire additional goods or services at a discount. If the customer option is determined not to represent a material right, the option is not considered to be performance obligations at the outset of the arrangement. If the customer option is determined to represent a material right, the material right is recognized as a separate performance obligation at the outset of the arrangement. The Company allocates the transaction price to material rights based on the relative standalone selling price, which is determined based on the identified discount and the probability that the customer will exercise the option. Amounts allocated to a material right are not recognized as revenue until the option is exercised.

The Company recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation as each performance obligation is satisfied over time, with progress toward completion measured based on actual costs incurred relative to total estimated costs to be incurred over the life of the contract. Recorded revenue and costs are subject to revision as the contract progresses. Such revisions may result in increases or decreases to revenue and income and are reflected in the consolidated financial statements in the periods in which they are first identified. Estimating costs under the Company’s collaboration agreements is complex and involves significant judgment. Factors that must be considered in making estimates include labor productivity and availability, the nature and technical complexity of the work to be performed, potential performance delays, availability and timing of funding from the customer and progress toward completion. Adjustments to original estimates are often required as work progresses and additional information becomes known, even though the scope of the work required under the contract may not change. Any adjustment as a result of a change in estimates is made when facts develop, events become known, or an adjustment is otherwise warranted, such as in the case of contract change orders. The Company has procedures and processes in place to monitor the actual progress of a project against estimates and the Company’s estimates are updated if circumstances are warranted.

Performance obligations may include research and development services to be performed by the Company on behalf of the collaboration partner. Revenue is recognized on research and development efforts as the services are performed and presented on a gross basis, since the Company is the principal.

Under collaboration agreements, the timing of revenue recognition and contract billings may differ, and result in contract assets and contract liabilities. Contract assets represent revenues recognized in excess of amounts billed under collaboration agreements and are transferred to accounts receivable when billed or billing rights become unconditional. Contract liabilities represent billings in excess of revenues recognized under collaboration agreements. 

119

Lease Accounting

In February 2016, the Financial Accounting Standards Board ("FASB") established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which supersedes ASC 840, Leases, and requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. Topic 842, as amended, (the "new lease standard") establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the consolidated balance sheets for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the consolidated statements of operation.

The Company adopted the new lease standard on January 1, 2019 using the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. Consequently, financial information was not updated, and the disclosures required under the new standard were not provided for dates and periods prior to the first quarter of fiscal 2019.

The Company has completed a qualitative and quantitative assessment of its lease portfolio, in which the standard had a material impact on the condensed consolidated balance sheets but did not have an impact on the condensed consolidated statement of operations. Upon adoption, the Company recognized lease liabilities of approximately $4.7 million based on the present value of the remaining minimum rental payments under current leasing standards for our existing operating leases. The corresponding ROU assets of $4.2 million recognized upon adoption are net of deferred rent.

The new standard provides a number of optional practical expedients in transition. The Company elected the practical expedients, which permits lessees not to reassess under the new standard prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to the Company. The new standard also provides practical expedients for an entity's ongoing accounting. The Company elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, ROU assets or lease liabilities will not be recognized, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. The Company also elected the practical expedient to not separate lease and non-lease components for office leases.

At inception of a contract, the Company determines whether an arrangement is or contains a lease. For all leases, the Company determines the classification as either operating leases or finance leases. Operating leases are included in Operating lease right-of-use assets and Operating lease liabilities in our condensed consolidated balance sheets.

Lease recognition occurs at the commencement date and lease liability amounts are based on the present value of lease payments over the lease term. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. If a lease does not provide information to determine an implicit interest rate, the Company uses our incremental borrowing rate in determining the present value of lease payments. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments under the lease. ROU assets also include any lease payments made prior to the commencement date and exclude lease incentives received. Operating lease expense is recognized on a straight-line basis over the lease term. The depreciable life of assets and leasehold improvements are limited by the expected lease term unless there is a transfer of title or purchase option reasonably certain of exercise. Lease agreements with both lease and non-lease components, are generally accounted for together as a single lease component.

As a result of applying the modified retrospective method to adopt the lease guidance, the following adjustments were made to accounts on the condensed consolidated balance sheet at January 1, 2019 (in thousands):

Balance Sheet	December 31, 2018		Effect of adoption of ASC 842			January 1, 2019
Assets
Operating lease right-of-use assets, non-current	$	—	$	4,180		$	4,180
Total assets	$	—	$	4,180		$	4,180
Liabilities
Operating lease liabilities, current	$	—	$	976		$	976
Deferred rent1		525		(525	)		—
Operating lease liabilities, non-current		—		3,729			3,729
Total liabilities	$	525	$	4,180		$	4,705

(1) Included in Other liabilities on the balance sheet.

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The Company has operating leases for administrative offices and R&D facilities, and certain finance leases for equipment. The operating leases have remaining terms of less than two years to less than eight years , and the finance lease have a remaining term of less than one year. Leases with an initial term of 12 months or less will not be recorded on the consolidated balance sheets as operating leases or finance leases, and the Company will recognize lease expense for these leases on a straight-line basis over the lease term. For leases commenced in 2019 and later, the Company accounts for lease components (e.g., fixed payments including rent, real estate taxes, and insurance costs) with non-lease components (e.g. common area maintenance costs). Certain leases include options to renew, with renewal terms that can extend the lease term from three to five years. The exercise of lease renewal options for our existing leases is at our sole discretion and not included in the measurement of lease liability and ROU asset as they are not reasonably certain to be exercised. Certain finance leases also include options to purchase the leased equipment. The depreciable life of assets and leasehold improvements are limited by the expected lease term unless there is a transfer of title or purchase option reasonably certain of exercise. The leases do not contain any residual value guarantees or material restrictive covenants.

Income Taxes

Income taxes are recorded in accordance with ASC 740, Accounting for Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. The Company determines its deferred tax assets and liabilities based on differences between financial reporting and tax bases of assets and liabilities, which are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are provided if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

ASC 740 clarifies the accounting for uncertainty in income taxes recognized in the financial statements and provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. The Company’s policy for recording interest and penalties associated with uncertain tax positions is to record such items as a component of tax expense.

Stock-Based Compensation

The Company recognizes stock-based compensation in accordance with ASC 718, “Compensation—Stock Compensation.” Under this guidance, stock-based compensation cost is based on the recognition of the grant date fair value estimated over the service period, which is generally the vesting period. The Company accounts for forfeitures as they occur. The Company accounts for its stock-based compensation awards to employees, including grants of employee stock options, to be recognized in the statements of operations based on their grant date fair values. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

The Company estimates the grant date fair value of each option award using the Black-Scholes option-pricing model. The use of the Black-Scholes option-pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the common stock. To determine the expected term of the Company’s employee stock options granted, the Company utilized the simplified approach as defined by SEC Staff Accounting Bulletin No. 107, “Share-Based Payment”. To determine the risk-free interest rate, the Company utilized an average interest rate based on U.S. Treasury instruments with a term consistent with the expected term of the Company’s stock-based awards. To determine the expected stock price volatility for the Company’s stock-based awards, the Company considers its historical volatility and its industry peers. The fair value of all the Company’s stock-based awards assumes no dividends as the Company does not anticipate paying cash dividends on its common stock.

Warrants

In conjunction with certain financing transactions, the Company issued warrants to purchase the Company’s common stock. The Company determines whether the warrants should be classified as a liability or equity according to ASC 480, “Distinguishing Liabilities from Equity”. For warrants classified as equity, the Company records the value of the warrants in additional paid-in capital on the balance sheet. The Company will continue to evaluate the classification of the equity warrants on a quarterly basis, to determine whether the warrants continue to meet equity classification requirement.

Research and Development Costs

Research and development expenses consist of costs such as salaries and benefits, laboratory supplies, facility costs, consulting fees and fees paid to contract research organizations, clinical trial sites, laboratories, other clinical service providers and contract manufacturing organizations. Research and development costs are expensed as incurred.

121

Comprehensive loss

Comprehensive loss is comprised of the Company’s net loss and other comprehensive income (loss). Unrealized gain (loss) on available-for-sale marketable securities represents the only component of other comprehensive income (loss).

Clinical Trial Accruals

The Company’s preclinical and clinical trials are performed by third party contract research organizations (CROs) and/or clinical investigators, and clinical supplies are manufactured by contract manufacturing organizations (CMOs). Invoicing from these third parties may be monthly based upon services performed or based upon milestones achieved. The Company accrues these expenses based upon its assessment of the status of each clinical trial and the work completed, and upon information obtained from the CROs and CMOs. The Company’s estimates are dependent upon the timeliness and accuracy of data provided by the CROs and CMOs regarding the status and cost of the studies as well as management’s best estimate and may not match the actual services performed by the organizations. This could result in adjustments to the Company’s research and development expenses in future periods. To date the Company has had no significant adjustments.

Bonus Accruals

The Company has bonus programs for eligible employees. Bonuses are determined based on various criteria, including the achievement of corporate, departmental and individual goals. Bonus accruals are estimated based on various factors, including target bonus percentages per level of employee and probability of achieving the goals upon which bonuses are based. The Company’s management periodically reviews the progress made towards the goals under the bonus programs. As bonus accruals are dependent upon management’s judgments of the likelihood of achieving the various goals, it is possible for bonus expense to vary significantly in future periods if changes occur in those management estimates.

Segments

The Company has one reportable segment and uses one measurement of results of operations to manage its business. All long-lived assets are maintained in the United States of America.

Recently Issued Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 is intended to improve the effectiveness of disclosures in the notes to financial statements related to fair value measurements in Topic 820. This ASU was effective for annual periods beginning after December 15, 2019, including interim periods within that period. The impact of the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). ASU 2018-15 aligns the accounting for implementation costs incurred in a hosting arrangement that is a service contract with the guidance on capitalizing costs associated with developing or obtaining internal-use software. This ASU was effective for annual periods beginning after December 15, 2019, including interim periods within that period, and early adoption is permitted. The impact of the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, which clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC Topic 606 when the counterparty is a customer. In addition, Topic 808 precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. This guidance was effective for the Company beginning January 1, 2020. The impact of the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which requires recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The new guidance applies to loans, accounts receivable, trade receivables, other financial assets measured at amortized cost, loan commitments and other off-balance sheet credit exposures. The new guidance also applies to debt securities and other financial assets measured at fair value through other comprehensive income. This guidance was effective for the Company beginning January 1, 2020. The impact of the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

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In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740: Simplifying the Accounting for Income Taxes), which removes certain exceptions to the general principles in Topic 740. ASU 2019-12 is effective for the fiscal years beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848: Facilitation of the Effects of Reference Rate Reform on Financial Reporting). The new guidance provides optional guidance for a limited period of time for applying U.S. GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The guidance will be effective prospectively as of March 12, 2020 through December 31, 2022 and interim periods within those fiscal years. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (Subtopic 470-20: Debt with Conversion and Other Options and Subtopic 815-40: Derivatives and Hedging - Contracts in Entity’s Own Equity). The new guidance simplifies accounting for convertible instruments by removing major separation models, removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. The amendment is effective for the Company for fiscal years beginning after December 15, 2023. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

NOTE 2—NET LOSS PER SHARE

Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period utilizing the two-class method. As discussed further in Note 11 “Stockholders’ Equity”, Preferred Stock Shareholders participate equally with Common Stock Shareholders in earnings, but do not participate in losses, and are excluded from the Basic net loss calculation. Diluted net loss per share is computed by giving effect to all potential dilutive common shares, including outstanding options, warrants and convertible preferred stock. More specifically, at December 31, 2020 and December 31, 2019, stock options, warrants and if converted preferred stock totaling approximately 10,095,000 and 8,516,000 common shares, respectively, were excluded from the computation of diluted net loss per share as their effect would have been anti-dilutive. Additionally, the effects of the beneficial conversion feature (“BCF”) related to the Series A Convertible Preferred Stock increased the net loss attributable to common shareholders in the calculation of net loss per share. See Note 11 “Stockholders’ Equity” for additional information on the BCF.

NOTE 3 — RESEARCH AND DEVELOPMENT AGREEMENTS

Disaggregated Research and Development Revenue

Research and Development revenue is attributable to regions based on the location of our collaboration partner's parent company headquarters. Research and Development revenues disaggregated by location were as follows (in thousands):

	Year Ended December 31,
	2020		2019
Japan	$	6,567	$	19,499
United States		9,068		—
Total research and development revenue	$	15,635	$	19,499

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Related Party Collaboration Agreements - Takeda Pharmaceuticals, Inc.

Research and development revenue from related party relates to revenue from research and development agreements with Millennium Pharmaceuticals, Inc., a wholly owned subsidiary of Takeda and were as follows (in thousands):

	Year Ended December 31,
	2020		2019
Takeda Individual Project Agreement	$	—	$	48
Takeda Development and License Agreement		6,068		18,468
Takeda Multi-Target Agreement		499		983
Total research and development revenue, related party	$	6,567	$	19,499

At December 31, 2020 and December 31, 2019, the Company had deferred revenue, other liabilities for co-share payments and accounts receivable balances from the research and development agreements with Takeda, who is a related party. These amounts were as follows (in thousands):  

	December 31, 2020		December 31, 2019
Assets
Accounts receivable	$	234	$	408
Liabilities
Other current liabilities	$	5,614		—
Deferred revenue, current		789		8,780
Deferred revenue, non-current		3,106		441
Other liabilities		6,711		—
Total liabilities	$	16,220	$	9,221

Takeda Development and License Agreement

On September 18, 2018, the Company entered into a Development and License Agreement with Takeda (“Takeda Development and License Agreement”) for the development and commercialization of products incorporating or comprised of one or more CD38 SLT-A fusion proteins (“Licensed Products”) for the treatment of patients with diseases such as multiple myeloma.

The Company, at its discretion, exercised the co-development option in July 2019 and as a result is eligible to receive pre-clinical and clinical development milestone payments of up to $307.5 million upon the achievement of certain development milestones and regulatory approvals, and sales milestone payments of up to $325.0 million upon the achievement of certain sales milestone events.

The Company may elect to end its co-development by providing Takeda with written notice of termination of the co-development. In the event the Company elects to end the co-development, the Company will be subject to reduced payments and royalty rates as set forth more specifically in the Takeda Development and License Agreement.

The Company will also be entitled to receive tiered royalties, subject to certain reductions, as percentages of annual aggregate net sales, if any, of Licensed Products. The royalty percentages would range from low double-digits to low twenties if the Company continues its option to co-develop, and from high-single digits to low teens if the Company does not continue its option to co-develop.

The Company identified one performance obligation at the inception of the Takeda Development and License Agreement, the research and development services for the CD38 ETBs, including manufacturing. The Company determined that research, development and commercialization license and the participation in the committee meetings are not distinct from the research and development services and therefore those promised services were combined into one combined performance obligation.

The total transaction price of $29.8 million consists of (1) the $30.0 million upfront payment, (2) a $10.0 million development milestone payment which was achieved in the first quarter of 2020, (3) minus $10.2 million in expected co-share payments payable to Takeda during Early-Stage Development, as defined in the Takeda Development and License Agreement. The expected co-share payment is considered variable consideration, and the Company applied a constraint using the expected value method. Significant judgement was involved in determining transaction consideration, including the determination of the variable consideration, including the constraint on consideration.

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At December 31, 2020, the other potential development milestones and sales milestones are not currently deemed probable of being achieved, as they are dependent on factors outside the Company’s control. Therefore, these future development milestones and sales-based milestone payments have been fully constrained and are not included in the transaction price.

The Company recognizes revenue using a cost-based input measure. In applying the cost-based input method of revenue recognition, the Company used actual costs incurred relative to budgeted costs expected to be incurred for the combined performance obligation. These costs consist primarily of internal employee efforts and third-party contract costs. Revenue is recognized based on actual costs incurred as a percentage of total budgeted costs as the Company completes its performance obligation over the estimated service period.

In July 2019, the Company exercised its co-development option and the agreed upon collaboration budget was increased to cover additional research and development activities whereby both parties will continue to cost share. The Company evaluated the additional research and development services and concluded these services were distinct from services currently being provided and represented a cost sharing arrangement between the Company and Takeda. As such, research and development expenses for this performance obligation will be expensed as incurred.

At December 31, 2020 and December 31, 2019, total deferred revenue related to the performance obligation was $1.3 million and $6.1 million, respectively.

Takeda Multi-Target Agreement

In June 2017, The Company entered into a Multi-Target Collaboration and License Agreement with Takeda (the “Takeda Multi-Target Agreement”) in which the Company agreed to collaborate with Takeda to identify and generate ETBs, against two targets designated by Takeda. Takeda designated certain targets of interest as the focus of the research. Each party granted to the other nonexclusive rights in its intellectual property for purposes of the conduct of the research, and the Company agreed to work exclusively with Takeda with respect to the designated targets.

Under the Takeda Multi-Target Agreement, Takeda has an option during an option period to obtain an exclusive license under the Company’s intellectual property to develop, manufacture, commercialize and otherwise exploit ETBs against the designated targets. The option period for each target ends three months after the completion of the evaluation of such designated target.

As of December 31, 2020 , the Company received cumulative payments of $5.0 million from Takeda pursuant to the Takeda Multi-Target Agreement. The Company may receive payments from the following:

• $30.0 million in aggregate through the exercise of the option to license ETBs.

• Clinical development milestone payments of up to approximately $397.0 million, for achievement of development milestones and regulatory approval of collaboration products under the Takeda Multi-Target Agreement.

• Commercial milestone payments of up to $150.0 million, for achievement of pre-specified sales milestones related to net sales of all collaboration products under the Takeda Multi-Target Agreement.

• Tiered royalty payments of a mid-single to low-double digit percentage of net sales of any licensed ETBs, subject to certain reductions.

• Up to $10.0 million in certain contingency fees.

The Takeda Multi-Target Agreement will expire on the expiration of the option period (within three months after the completion of the evaluation of each designated target) for the designated targets if Takeda does not exercise its options, or, following exercise of the option, on the later of the expiration of patent rights claiming the licensed ETB or ten years from first commercial sale of a licensed ETB. The Takeda Multi-Target Agreement may be terminated sooner by Takeda for convenience or upon a material change of control, or by either party for an uncured material breach of the agreement. Under the Takeda Multi-Target Agreement, both parties have the right to terminate the agreement, with a specified notice period.

The Company evaluated the contract termination clause and concluded that it was a non-substantive termination provision. As such, an initial contract term was defined as the length of the termination notice period, with a deemed renewal option to continue the research and development services over the remainder of the contract term as a material right.

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The Company determined that the promised goods and services under the Takeda Multi-Target Agreement were the background IP license, the research and development services, manufacturing during the initial contract period, and a renewal option to continue the research and development services. The Company determined that there were two performance obligations: research and development services, and the renewal options. Since the background IP and manufacturing were not distinct from the research and development services, they were deemed to be one performance obligation. Transaction consideration was allocated to each of the performance obligations using an estimate of the standalone selling price, and revenues are recognized over the period that the research and development services occur. The Company also concluded that, since the option for the exclusive license is deemed to be at fair value, the option does not provide the customer with a material right and should be accounted for if and when the option is exercised.

At December 31, 2020 and December 31, 2019, deferred revenue related to the performance obligation was $2.6 million and $3.1 million, respectively.  

Vertex Collaboration Agreement

In November 2019, the Company entered into a collaboration agreement with (the “Vertex Collaboration Agreement”) Vertex Pharmaceuticals Incorporated (“Vertex”), to perform strategic research leveraging the Company’s engineered toxin body (“ETB”) technology platform to discover and develop novel targeted biologic therapies for applications outside of oncology.

Pursuant to the terms of the Vertex Collaboration Agreement, the Company granted Vertex an exclusive option to obtain an exclusive license under the Company’s licensed technology to exploit one or more ETB products that are discovered by the Company against up to two designated targets. Vertex has selected an initial target and has the option to designate one additional target within specified time limits.

Vertex paid the Company an upfront payment of $38.0 million, consisting of $23.0 million in cash and a $15.0 million equity investment pursuant to a Share Purchase Agreement (the “SPA”). In addition to the upfront payments, the Company may also receive an additional $22.0 million through the exercise of the options to license ETB products or to add an additional target. Additionally, Vertex will reimburse the Company for certain mutually agreed manufacturing technology transfer activities.

The Company may, for each target under the Vertex Collaboration Agreement, receive up to an additional $180.0 million in milestone payments upon the achievement of certain development and regulatory milestone events and up to an additional $70.0 million in milestone payments upon the achievement of certain sales milestone events. The Company will also be entitled to receive, subject to certain reductions, tiered mid-single digit royalties as percentages of calendar year net sales, if any, on any licensed product.

The Company will be responsible for conducting the research activities through the designation, if any, of one or more development candidates. Upon the exercise by Vertex of its option for a development candidate, Vertex will be responsible for all development, manufacturing, regulatory and commercialization activities with respect to that development candidate.

Unless earlier terminated, the Vertex Collaboration Agreement will expire (i) on a country-by-country basis and licensed product-by-licensed product basis on the date of expiration of all payment obligations under the Collaboration Agreement with respect to such licensed product in such country and (ii) in its entirety upon the expiration of all payment obligations thereunder with respect to all licensed products in all countries or upon Vertex’s decision not to exercise any option on or prior to the applicable deadlines. Vertex has the right to terminate the Vertex Collaboration Agreement for convenience upon prior written notice to the Company. Either party has the right to terminate the Vertex Collaboration Agreement (a) for the insolvency of the other party or (b) subject to specified cure periods, in the event of the other party’s uncured material breach.

The Company identified one performance obligation at the inception of the Vertex Collaboration Agreement consisting of research and development services. The Company recognizes revenue under the Vertex Collaboration Agreement using a cost-based input measure. In applying the cost-based input method of revenue recognition, the Company will use actual costs incurred relative to budgeted costs expected to be incurred. These costs consist primarily of internal employee efforts and third-party contract costs. Revenue is recognized based on actual costs incurred as a percentage of total budgeted costs as the Company completes its performance obligation over the estimated service period.

In connection with the Vertex Collaboration Agreement, the Company and Vertex entered into a SPA pursuant to which Vertex agreed to purchase 1,666,666 shares of the Company’s common stock, par value $0.001 per share, at a price per share of $9.00. As the price per share was in excess of the fair value of the Company’s common stock, the Company allocated $4.5 million of this consideration to the Collaboration Agreement. The issuance of these shares was pursuant to a private placement exemption from registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D thereunder.

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In addition to the SPA, the Vertex Collaboration Agreement contemplates that the Company may enter into certain other ancillary arrangements with Vertex.

At December 31, 2020 and December 31, 2019, deferred revenue related to the Vertex Collaboration Agreement was $18.4 million and $27.5 million, respectively.

Grant Agreements

In September 2018, the Company entered into a Cancer Research Agreement (the “CD38 CPRIT Agreement”) with the Cancer Prevention and Research Institute of Texas (“CPRIT”). The CD38 CPRIT Agreement was extended in October 2020, under which CPRIT awarded a $15.2 million product development grant to fund research of a cancer therapy involving a CD38 targeting ETB. Pursuant to the CD38 CPRIT Agreement, the Company may also use such funds to develop a replacement CD38 targeting ETB, with or without a partner.

In 2011, the Company entered into a Cancer Research Agreement (the “CPRIT Agreement”) with CPRIT under which CPRIT awarded a $10.6 million product development grant for the CD20-targeting ETB MT-3724, this grant ended in November 2019. At December 31, 2020 the Company had received $20.0 million and has a remaining receivable of $0.0 million.

During the twelve months ended December 31, 2020 and December 31, 2019, the Company recognized $3.2 million and $2.8 million, respectively, in grant revenue under these awards. Qualified expenditures submitted for reimbursement in excess of amounts received are recorded as receivables in Grant revenue receivable. At December 31, 2020 and December 31, 2019, the Company had $0.0 million and $7.1 million, respectively, recorded in Grants revenue receivable.

NOTE 4—MARKETABLE SECURITIES AND FAIR VALUE MEASUREMENTS

The following table sets forth the Company’s financial assets (cash equivalents and available-for-sale marketable securities) at fair value on a recurring basis as of December 31, 2020 and 2019:

			Basis of Fair Value Measurements
	December 31, 2020		Level 1		Level 2		Level 3
Money market funds	$	23,794	$	23,794	$	—	$	—
Commercial paper		42,863		—		42,863		—
United States Treasury Bills		21,794		—		21,794		—
United States government-related debt securities		4,009		—		4,009		—
Total	$	92,460	$	23,794	$	68,666	$	—
Amounts included in:
Cash and cash equivalents	$	23,793
Marketable securities, current		68,667
Total cash equivalents and marketable securities	$	92,460

			Basis of Fair Value Measurements
	December 31, 2019		Level 1		Level 2		Level 3
Money market funds	$	79,970	$	79,970	$	—	$	—
Commercial paper		20,436		—		20,436		—
United States Treasury Bills		16,738		—		16,738		—
United States government-related debt securities		7,010		—		7,010		—
Corporate bonds		1,351		—		1,351		—
Total	$	125,505	$	79,970	$	45,535	$	—
Amounts included in:
Cash and cash equivalents	$	84,362
Marketable securities, current		39,633
Marketable securities, non-current		1,510
Total cash equivalents and marketable securities	$	125,505

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The Company invests in highly-liquid, investment-grade securities. The following is a summary of the Company’s available-for-sale securities at December 31, 2020 and 2019:

	December 31, 2020
	Cost Basis		Unrealized Gain		Unrealized Loss			Fair Value
Cash equivalents - money market funds, commercial    paper and corporate bonds	$	23,793	$	—	$	—		$	23,793
Marketable securities, current - commercial paper,    Treasury bills and corporate bonds		68,650		19		(2	)		68,667

	December 31, 2019
	Cost Basis		Unrealized Gain		Unrealized Loss		Fair Value
Cash equivalents - money market funds, commercial    paper and corporate bonds	$	84,361	$	1	$	—	$	84,362
Marketable securities, current - commercial paper,    Treasury bills and corporate bonds		39,616		17		—		39,633
Marketable securities, non-current - Treasury bills		1,510		—		—		1,510

The following summarized the contractual maturities of the Company’s available-for-sale investments at December 31, 2020 2019:

	December 31, 2020
	Cost Basis		Fair Value
Due in one year or less	$	92,443	$	92,460
Due after one year through five years		—		—
Total	$	92,443	$	92,460

	December 31, 2019
	Cost Basis		Fair Value
Due in one year or less	$	123,977	$	123,995
Due after one year through five years		1,510		1,510
Total	$	125,487	$	125,505

The Company received no proceeds and $1.3 million of proceeds from the sale of available-for-sale securities for the years ended December 31, 2020 and 2019, respectively, with an immaterial realized gain for the year ended December 31, 2019. The basis on which the cost of the security sold was determined is specific identification. 

NOTE 5—PROPERTY AND EQUIPMENT

Property and equipment consists of the following (in thousands):

	December 31,
	2020			2019
Laboratory equipment	$	16,159		$	10,587
Leasehold improvements		12,391			10,383
Furniture and fixtures		474			150
Computer and equipment		615			331
		29,639			21,451
Less: Accumulated depreciation		(7,385	)		(3,293	)
Total property and equipment, net	$	22,254		$	18,158

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Depreciation expense was $4.1 million and $2.0 million for the years ended December 31, 2020 and 2019, respectively.

In connection with the continued expansion of the Company’s facilities, at December 31, 2020 and 2019, the Company had net Asset Retirement Obligation (ARO) assets totaling $0.8 million and $1.0 million, respectively. The ARO assets are included in Leasehold improvements.

NOTE 6—BALANCE SHEET COMPONENTS

Accrued liabilities comprise the following (in thousands):

	December 31, 2020		December 31, 2019
Accrued liabilities:
General and administrative	$	1,577	$	4,521
Clinical trial related costs		1,743		1,383
Non-clinical research and manufacturing operations		4,321		5,774
Payroll related		4,908		2,849
Other accrued expenses		26		17
Total Accrued liabilities	$	12,575	$	14,544

         Other current liabilities comprise the following (in thousands):

	December 31, 2020		December 31, 2019
Other Current liabilities:
Finance Lease Liability, current portion		1		18
Long Term Debt, Current Portion		—		800
Operating Lease Liability, current portion		2,210		1,683
Total Other Current liabilities	$	2,211	$	2,501

NOTE 7 — RELATED PARTY TRANSACTIONS

Takeda Agreements

In connection with the Takeda Stock Purchase Agreement described in Note 3 “Research and Development Collaboration Agreements”, Takeda became a related party, following the stock purchase. Refer to Note 3, Research and Development Collaboration Agreements, for more details about the Takeda Collaboration Agreement, the Takeda Multi-Target Agreement and the Takeda Development and License Agreement. Refer to Note 12, “Stockholders’ Equity”, for more detail about the Takeda Stock Purchase Agreement. Jonathan Lanfear, a director of the Company, was the Vice President and Global Head of Oncology and Neuroscience Business Development for Takeda until September 25, 2020.

Public Offerings

On September 25, 2018, the Company closed its underwritten public offering (the “2018 Public Offering”) of its common stock, in which Longitude Venture Partners III, L.P. and CDK Associates, L.L.C., current stockholders of the Company, purchased 365,000 and 545,454 shares of common stock, respectively, at the public offering price. Scott Morenstein, a director of the Company is a Managing Director of Caxton Alternative Management LP, the investment manager of CDK Associates, L.L.C., David Hirsch, a director of the Company, is a member of Longitude Capital Partners III, LLC, the general partner of Longitude Venture Partners III, L.P.

On November 25, 2019, the Company closed its underwritten public offering (the “2019 Public Offering”) of its common stock and 250 shares of our newly designated Series A Convertible Preferred Stock, in which Longitude Venture Partners III, L.P. and CDK Associates, L.L.C., purchased 937,500 and 468,750 shares of common stock, respectively, at the public offering price.

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NOTE 8 — BORROWING ARRANGEMENTS

Perceptive Credit Facility

On February 27, 2018, the Company entered into a term loan facility with Perceptive Credit Holdings II, LP (“Perceptive”) in the amount of $10.0 million (the “Perceptive Credit Facility”). The Perceptive Credit Facility consisted of a $5.0 million term loan, which was drawn on the effective date of the Perceptive Credit Facility, and an additional $5.0 million term loan which the Company did not draw down. The principal on the facility accrued interest at an annual rate equal to a three-month LIBOR plus the Applicable Margin. The Applicable Margin was 11.00%. Upon the occurrence, and during the continuance, of an event of default, the Applicable Margin, defined above, would be increased by 4.00% per annum. Payments for the first 24 months were interest only and were paid quarterly. After the second anniversary of the closing date of the Perceptive Credit Facility, principal payments of $0.2 million were due each calendar quarter. The Company incurred $0.5 million in deferred finance costs and issued the debt net of a $1.5 million discount, in connection with the credit facility.

The Company repaid the Perceptive Credit Facility on May 21, 2020, from the proceeds of the K2 Loan and Security Agreement discussed below. Upon the termination of the Perceptive Credit Facility, the Company paid $4.9 million in principal and interest and $0.1 million in exit fees and prepayment penalties. The Company recognized a total loss on extinguishment of debt in the amount of $1.2 million related to the Perceptive Credit Facility during the year ended December 31, 2020.

In connection with the Perceptive Credit Facility, on February 27, 2018 the Company issued Perceptive a warrant to purchase 190,000 shares of the Company’s common stock. The warrant is exercisable for a period of seven years from the date of issuance at an exercise price per share of $9.5792, subject to certain adjustments as specified in the Warrant. See Note 11, “Stockholders’ Equity” for further discussion of the warrant. The fair value of the warrant of $1.5 million was recorded as a debt discount at issuance and was included in the loss on extinguishment.

K2 Health Ventures Loan and Security Agreement

On May 21, 2020, the Company entered into a Loan and Security Agreement with K2 HealthVentures LLC in the amount of $45.0 million (“K2 Loan and Security Agreement”). The K2 Loan and Security Agreement consists of three tranches, the first of which was drawn on the closing date in the amount of $15.0 million. The second tranche of $20.0 million may be drawn between March 1, 2021 and June 30, 2021 at the Company’s option and subject to the achievement of certain clinical milestones. A third tranche of $10.0 million may be drawn after the Company’s second tranche draw, but prior to December 31, 2021. The principal accrues interest at an annual rate of equal to the greater of 8.45% or the sum of the Prime Rate plus 5.2% and commenced on July 1, 2020. The interest rate at December 31, 2020 was 8.45%. Payments are interest only until July 1, 2022, provided, however, that if no event of default has occurred and the second tranche has been fully funded payments will be interest only until July 1, 2023. After the second anniversary of the closing date of the K2 Loan and Security Agreement, principal payments are due monthly. The loan matures on June 1, 2024 and includes both financial and non-financial covenants including a minimum cash balance requirement. The Company was in compliance with the debt covenants at December 31, 2020 and expects to be compliant with the debt covenants for the next 12 months. The Company recorded the debt net of $1.1 million comprised of deferred financing costs, debt discount and associated exit fee which are being accreted to interest expense over the term of the K2 Loan and Security Agreement using the effective interest method. Additionally, the Company incurred $0.2 million in facilities fee related to the second tranche which will be classified as a prepaid asset until drawn upon.

As of December 31, 2020 and December 31, 2019 the Perceptive Credit Facility principal balance was $0.0 million and $5.0, respectively. As of December 31, 2020 and December 31, 2019 the K2 Loan principal balance was $15.0 million and $0.0 million, respectively.

As of December 31, 2020 and December 31, 2019 the carrying value of the long-term debt was $14.9 million and $3.7 million, respectively.

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Future required principal and final payments on the K2 Loan were as follows at December 31, 2020 ($ in thousands):

2021	—
2022	4,105
2023	7,537
2024	3,358
Total Principal Amounts	15,000
Final Fee Due at Maturity	861
Unamortized discount, deferred costs and final fee	(935	)
Total Long-Term Debt, net	14,926

NOTE 9 – LEASES

In January 2019, the Company entered into a lease agreement for an additional 57,000 square feet of administrative office and research and development space in Austin, Texas. The lease commenced March 2019 and expires August 2028 and does not contain an option to renew. The tables below include the impact of this lease. Upon the commencement of the lease, the Company recorded an operating lease ROU asset and a lease liability of $7.2 million. In connection with entering into the lease and in lieu of a cash deposit, the Company obtained a letter of credit of $3.0 million. Additionally, the Company has recorded an asset retirement obligation as a result of this lease which has a balance of $0.4 million at December 31, 2020.

In June 2020, the Company entered into a lease agreement for office space in New York, New York. The space consists of an initial 9,289 square feet and an additional 3,000 square feet of expansion space. The lease for the initial space commenced on August 1, 2020 and the possession of the expansion space commenced in December 2020. The term for both spaces will expire on October 30, 2025 and does not contain an option to renew. In connection with entering into the lease and in lieu of a cash deposit, the Company obtained a letter of credit in the amount of $0.2 million.

Changes in the carrying amounts of the Company’s AROs for the years ended December 31, 2020 and 2019 are shown below (in thousands):

	2020		2019
Balance at beginning of year	$	1,365	$	344
Liabilities incurred in the current period		—		949
Accretion expense		125		72
Balance at end of year	$	1,490	$	1,365

At December 31, 2020, the Company did not have any operating and finance leases that have not yet commenced.

The components of lease expense for the years ended December 31, 2020 and December 31, 2019 were as follows (in thousands):

	2020		2019
Operating leases
Operating lease expense	$	2,520	$	2,175
Variable lease expense		491		456
Total operating lease expense	$	3,011	$	2,631
Finance leases
Amortization of right-of-use asset	$	8	$	8
Interest on lease liabilities		1		2
Total finance lease expense	$	9	$	10

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The following table summarizes the balance sheet classification of leases at December 31, 2020 (in thousands):

Operating leases
Operating lease right-of-use assets	$	11,104
Operating lease liabilities, current1	$	2,210
Operating lease liabilities, non-current		12,213
Total operating lease liabilities	$	14,423
Finance leases
Property and equipment, at cost	$	77
Less, Accumulated depreciation		49
Property and equipment, net	$	28
Finance lease liabilities, current1	$	1

1. Included in other current liabilities.

The following table presents other information on leases as of December 31, 2020 and December 31, 2019 (in thousands):

	2020			2019
Weighted average remaining lease term, operating leases	6.1 years			7.2 years
Weighted average remaining lease term, finance leases	0.1 years			0.8 years
Weighted average discount rate, operating leases		7.04	%		6.72	%
Weighted average discount rate, finance leases		0.00	%		6.88	%
Right of use assets obtained in exchange for operating lease liabilities	$	2,735		$	7,501

Future minimum payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2020 (in thousands):

	Operating Leases			Finance Leases
2021	$	3,142		$	1
2022		3,361			—
2023		2,689			—
2024		2,218			—
2025		2,147			—
Thereafter		4,244			—
Total lease payments		17,801			1
Less:
Imputed interest		(3,378	)		—
Total lease liabilities	$	14,423		$	1

Supplemental cash flow information related to the Company’s leases were as follows for the years ended December 31, 2020 and December 31, 2019 (in thousands):

	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows operating leases	$	2,453	$	1,278
Operating cash flows finance leases		1		3
Financing cash flows finance leases	$	18	$	31

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NOTE 10—COMMITMENTS AND CONTINGENCIES

Commitments

The Company has entered into project work orders for each of its clinical trials with clinical research organizations (“CRO”) and related laboratory vendors. Under the terms of these agreements, the Company is required to pay certain upfront fees for direct services costs. Based on the particular agreement some of the fees may be for services yet to be rendered and are reflected as a current prepaid asset and have an unamortized balance of approximately $1.1 million at December 31, 2020. In connection with the Company’s clinical trials, it has entered into separate project work orders for each trial with its CRO. The Company has entered into agreements with CROs and other external service providers for services, primarily in connection with the clinical trials and development of the Company’s drug candidates. The Company was contractually obligated for up to approximately $49.0  million of future services under these agreements at December 31, 2020, for which amounts have not been accrued as services have not been performed. The Company’s actual contractual obligations will vary depending upon several factors, including the progress and results of the underlying services.

We have entered into estimated purchase obligations which in total range from $13.2 million to $13.9 million and includes signed orders for capital equipment.  

As a result of our collaboration agreement with Takeda, we exercised our right to cost-share approximately 50% of the development costs for Phase I. Future clinical trial expense related to this trial has not been included within the purchase commitments because they are contingent on enrollment in clinical trials and the activities required to be performed by the clinical sites.

Contingencies

In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to vendors, lessors, business partners, collaborators and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements, services to be provided by or on behalf of the Company, or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements and may enter in the future with its directors and certain of its officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. The Company maintains director and officer insurance, which may cover certain liabilities arising from its obligation to indemnify its directors and certain of its officers and employees, and former officers and directors in certain circumstances. The Company maintains product liability insurance, clinical trial insurance and comprehensive general liability insurance, which may cover certain liabilities arising from its indemnification obligations. It is not possible to determine the maximum potential amount of exposure under these indemnification obligations due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular indemnification obligation. Such indemnification obligations may not be subject to maximum loss clauses. Management is not currently aware of any matters that could have a material adverse effect on the financial position, results of operations or cash flows of the Company.

The Company believes that its product liability, clinical trial and comprehensive general liability insurance are adequate for current operations. However, the coverage limits of this insurance may not be adequate to cover all potential claims. Product liability, clinical trial and comprehensive general liability insurance is expensive and may be difficult to obtain or maintain on commercially reasonable terms. A successful claim against the Company in excess of the Company’s insurance coverage or outside the scope of an indemnity given by any vendors, lessors, business partners, collaborators and other parties in Company agreements could adversely affect the Company’s results of operations.

NOTE 11—STOCKHOLDERS’ EQUITY

Private Placement and Related Warrants

On August 1, 2017, the Company entered into a securities purchase agreement with Longitude Venture Partners III, L.P. and certain other accredited investors (the “Longitude Securities Purchase Agreement”), pursuant to which the Company sold an aggregate of 5,793,063 units (the “Units”) having an aggregate purchase price of $40.0 million (“PIPE Financing”), each such Unit consisting of (i) one (1) share (the “Shares”) of our common stock and (ii) a warrant (the “Private Placement Warrants”) to purchase 0.5 shares of our common stock (the “Private Placement”). The Private Placement was pursuant to equity commitment letter agreements entered into by and between the Company and investors in March 2017 and June 2017. The purchase price per Unit was $6.9048. The Warrants are exercisable for a period of seven years from the date of their issuance at a per-share exercise price of $6.8423 (which exercise price shall be payable in cash or through a cashless exercise mechanic), subject to certain adjustments as specified in the Warrants. At December 31, 2020, there were warrants outstanding under this agreement to purchase 2,896,528 shares of common stock. The warrants were valued at $16.3 million using the Black-Scholes model, and recorded in additional paid-in capital. The Black-Scholes inputs used were: expected dividend rate of 0%, expected volatility of 147%, risk free interest rate of 2.07%, and expected term of 7.0 years. The warrants were exercisable upon issuance and expire August 1, 2024.

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In December 2015, the Company entered into an agreement with Wedbush (“Wedbush Agreement”), which was subsequently amended in December of 2017, related to Wedbush’s services associated with the equity financing under the Longitude Securities Purchase Agreement. As part of the Wedbush Agreement, the Company issued warrants to purchase 57,930 shares of our common stock (the “Wedbush Warrants”). The Wedbush Warrants are exercisable for a period of seven years from the date of their issuance at a per-share exercise price of $6.8423 (which exercise price shall be payable in cash or through a cashless exercise mechanic), subject to certain adjustments as specified in the Warrants. At December 31, 2020, there were Wedbush Warrants outstanding to purchase 57,930 shares of common stock. The Wedbush Warrants were valued at $0.4 million using the Black-Scholes model. The Black-Scholes inputs used were: expected dividend rate of 0%, expected volatility of 108%, risk free interest rate of 2.3%, and expected term of 7.0 years. The warrants were exercisable upon issuance and expire December 1, 2024.  

Subsequent Private Placements  

In connection with the execution of the Takeda Multi-Target Agreement, the Company entered into the Takeda Stock Purchase Agreement. Pursuant to the Takeda Stock Purchase Agreement, following the consummation of the Private Placement, Takeda purchased 2,922,993 shares of the Company common stock, at a price per share of $6.8423, for an aggregate purchase price of $20.0 million.

In connection with the execution of the Vertex Collaboration Agreement, the Company entered into the Vertex Stock Purchase Agreement. Pursuant to the Vertex Stock Purchase Agreement, Vertex purchased 1,666,666 shares of the Company common stock, at a price per share of $9.00, for an aggregate purchase price of $15.0 million. See Note 3, “Research and Development Agreements” for additional information.

Public Offerings

On September 25, 2018, the Company closed its underwritten public offering (the “2018 Public Offering”) of 9,430,000 shares of its common stock, which included the exercise in full by the underwriters of their option to purchase 1,230,000 additional shares of common stock, at a price to the public of $5.50 per share. The net proceeds to the Company from the 2018 Public Offering, after deducting the underwriting discounts and commissions and offering expenses payable by the Company, were approximately $48.1 million.

On November 25, 2019, the Company closed its underwritten public offering (the “2019 Public Offering”) of 6,900,000 shares of its common stock at a price to the public of $8.00 per share, and 250 shares of newly designated Series A Convertible Preferred Stock (“Series A Preferred Stock”) at a price to the public of $8.00 per share. The offering included the exercise in full by the underwriters of their option to purchase up to 900,000 additional shares of common stock. The net proceeds to the Company from the offering, after deducting the underwriting discounts and commissions and offering expenses payable by the Company, were approximately $53.4 million. Each share of Series A Preferred Stock is convertible to 1,000 shares of Common Stock, provided that the holder of Series A Preferred Stock will be prohibited from converting the Series A Preferred Stock into shares of common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 9.99% of the total number of shares of the Company’s common stock then issued and outstanding. In the event of the Company’s liquidation, dissolution, or winding up, holders of Series A Preferred Stock will receive a payment equal to $0.001 per share of Series A Preferred Stock before any proceeds are distributed to the holders of the Company’s common stock and pari passu with any distributions to the holders of the Company’s Series A Preferred Stock. Series A Preferred Stock participate in earnings equally with Common Stock shareholders, with the same dividend rate, but do not participate in losses as discussed in Note 2, “Net Loss per Common Share”. The Series A Preferred Stock has no voting rights, except as required by law and except that the consent of the Series A Preferred Stockholders will be required to amend the terms of the Series A Preferred Stock. Based on the guidance in ASC 470-20-20, the Company determined that a BCF existed, as the effective conversion price for the Series A Preferred Stock at issuance was less than the fair value of the common stock which the preferred shares are convertible into. The BCF based on the intrinsic value of the date of issuances for the Series A Preferred Stock was $0.7 million.

In July 2020, the Company raised gross proceeds of approximately $50.0 million and net proceeds of $48.5 million through at-the-market sales (“ATM”) of its common stock pursuant to its ATM facility. The Company sold approximately 3.6 million shares of the Company’s common stock at a purchase price of $12.00 per share and 0.5 million shares at a purchase price of $12.70, in each case the market price at the time of sale. These sales constituted the full available dollar amount under the Company’s current ATM facility, and with such completion, its current ATM facility has terminated.

On August 7, 2020, the Company filed with the Securities and Exchange Commission (“SEC”) a registration statement on Form S-3 for $300.0 million of securities (the “Shelf Registration Statement”), inclusive of a $100.0 million ATM program. This Shelf Registration Statement is in replacement of the Company’s existing registration statement on Form S-3 and incorporates the unsold balance remaining thereto. The SEC declared the Shelf Registration Statement effective on August 17, 2020 and the Company may make sales of securities from time to time, depending on market conditions, pursuant to the Shelf Registration Statement.

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Subsequent Common Stock Warrants

On February 28, 2018, in connection with the Perceptive Credit Facility, the Company issued warrants to purchase 190,000 shares of the Company’s common stock with an exercise price of $9.58 (the “2018 Warrants”). The 2018 Warrants are exercisable for a period of seven years from the date of issuance, subject to certain adjustments as specified in the Warrants. The 2018 Warrants were classified as equity and recorded in additional paid-in capital. They were valued at $1.5 million using the Black-Scholes model. The Black-Scholes inputs used were: expected dividend rate of 0%, expected volatility of 105%, risk free interest rate of 2.8%, and expected term of 7.0 years.  See Note 8, “Borrowing Arrangements”, for further detail about the Perceptive Credit Facility.  

NOTE 12—EQUITY INCENTIVE PLANS AND STOCK-BASED COMPENSATION

2018 Equity Incentive Plan

In May 2018, the Company adopted the 2018 Equity Incentive Plan (“2018 Plan”). The 2018 Plan serves as a successor to the 2004 Amended and Restated Equity Incentive Plan (“2004 Plan”), 2009 Stock Plan, as amended (“2009 Plan”) and 2014 Equity Incentive Plan (“2014 Plan”) with any forfeited, expired or cancelled awards under those plans being absorbed into the 2018 Plan for future issuance. The terms of the 2018 Plan provide for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, other stock awards, and performance awards that may be settled in cash, stock, or other property. Stock options may be granted under the 2018 Plan with an exercise price not less than 100% of the fair market value of the common stock on the date of grant. Stock options under the 2018 Plan may be granted with terms of up to ten years and generally vest over a period of four years, with the exception of grants to non-employee directors and consultants where the vesting period is or may be shorter. The total number of shares of the Company’s common stock initially reserved for issuance under the 2018 Plan was equal to the sum of (i) 2,000,000 newly reserved shares, which included, as of April 30, 2018, 104,184 shares reserved and unallocated under the 2009 Stock Plan, as amended, and 335,040 shares reserved and unallocated under the 2014 Equity Incentive Plan, as amended, plus (ii) up to 2,885,121 additional shares that may be added to the 2018 Plan in connection with the forfeiture, expiration or cancellation of awards outstanding under the 2014 Plan, the 2009 Plan and the 2004 Plan as of May 31, 2018. Additionally, the number of shares of common stock that may be issued under the 2018 Plan shall increase on each January 1, beginning with January 1, 2019, and continuing through and including January 1, 2028 by an amount equal to the lesser of (i) 4% of the number of outstanding shares of common stock on that date and (ii) an amount determined by the Company’s board of directors or compensation committee; provided, however, that in no event will the number of shares available for issuance under the 2018 Plan be increased to the extent such increase, in addition to any other increases proposed by the board of directors in the number of shares available for issuance under all other employee or director stock plan would result in the total number of shares then available for issuance under all employee and director stock plans exceeding 20% of the outstanding shares of the Company’s common stock on the first day of the applicable fiscal year. As of December 31, 2020 options to purchase 679,187 shares of common stock were available for future grants under the 2018 Plan.

2004 Employee Stock Purchase Plan

On January 1, 2017 an additional 9,091 shares were authorized for issuance under the 2004 Employee Stock Purchase Plan (“2004 Purchase Plan”) pursuant to the annual automatic increase to the authorized shares under the 2004 Purchase Plan. The 2004 Purchase Plan contains consecutive, overlapping 24 month offering periods. Each offering period includes four six-month purchase periods. The price of the common stock purchased will be the lower of 85% of the fair market value of the common stock at the beginning of an offering period or at the end of the purchase period. For the years ended December 31, 2020 and December 31, 2019, no shares were purchased by employees under the 2004 Purchase Plan. At December 31, 2020 and 2019, there were 8,636 were authorized and available for issuance under the 2004 Purchase Plan.

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Equity Incentive Plan

The following table summarizes information about stock option activity for years ended December 31, 2020 and 2019:

	Outstanding Options Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value (in millions):
Balances, December 31, 2018		4,002,999		$	10.43		6.40	$	1.50
Granted		2,023,600		$	6.00
Exercised		(286,479	)	$	6.10
Cancelled		(977,058	)	$	22.39
Balances, December 31, 2019		4,763,062		$	6.36		8.10	$	36.63
Granted		2,453,506		$	14.06
Exercised		(261,260	)	$	3.99
Cancelled		(257,381	)	$	9.99
Balances, December 31, 2020		6,697,927		$	9.13		7.76	$	13.79
Vested and expected to vest, December 31, 2020		6,697,927		$	9.13		7.76	$	13.79
Exercisable at December 31, 2020		2,845,501		$	6.66		6.68	$	8.85

At December 31, 2020, stock options outstanding and exercisable by exercise price were as follows:

		Options Outstanding						Options Exercisable
Range of Exercise Prices		Number Outstanding		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$	0.71-4.28		402,543		3.32	$	1.22		399,639	$	1.20
$	4.66-4.66		920,356		7.79	$	4.66		408,708	$	4.66
$	4.74-5.81		335,019		7.84	$	5.07		158,293	$	5.10
$	6.31-6.31		1,189,849		7.25	$	6.31		790,675	$	6.31
$	6.54-8.95		698,912		8.04	$	7.91		359,276	$	7.91
$	9.28-10.78		733,969		6.67	$	9.74		598,957	$	9.71
$	10.92-13.99		676,300		9.14	$	12.64		46,076	$	13.16
$	14.50-14.50		1,322,971		8.87	$	14.50		75,469	$	14.50
$	14.94-61.27		416,190		9.12	$	15.94		6,590	$	42.74
$	70.29-70.29		1,818		1.37	$	70.29		1,818	$	70.29
$	0.71-70.29		6,697,927		7.76	$	9.13		2,845,501	$	6.66

The total intrinsic value of stock options exercised during the years ended December 31, 2020 and December 31, 2019 was $2.5 million and $0.6 million respectively, as determined at the date of the option exercise.

Cash received from stock option exercises was $1.0 million and $1.7 million for the years ended December 31, 2020 and December 31, 2019, respectively. The Company issues new shares of common stock upon exercise of options. In connection with the exercises, there is no tax benefit realized by the Company due to the Company’s current loss position.

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Equity-Based Compensation Expense

Stock-based compensation expense, which consists of the compensation cost for employee stock options and the value of options issued to non-employees for services rendered, was allocated to research and development and general and administrative in the consolidated statements of operations as follows (in thousands):

	Year Ended December 31,
	2020		2019
Research and development	$	6,387	$	2,398
General and administrative		5,430		3,461
Total stock-based compensation	$	11,817	$	5,859

At December 31, 2020, the total unrecognized compensation cost related to unvested stock-based awards granted to employees under the Company’s equity incentive plan was approximately $30.0 million. This cost will be recorded as compensation expense on a ratable basis over the remaining weighted average requisite service period of approximately 2.53 years.

Valuation Assumptions

The Company estimated the fair value of stock options granted using the Black-Scholes option-pricing formula and a single option award approach. This fair value is being amortized ratably over the requisite service periods of the awards, which is generally the vesting period.

The fair value of employee stock options was estimated using the following weighted-average assumptions:

	Year Ended December 31,
	2020			2019
Employee Stock Options:
Risk-free interest rate		1.44	%		2.37	%
Expected term (in years)		6.08			6.08
Dividend yield		—			—
Volatility		110.90	%		108.70	%
Weighted-average fair value of stock options granted	$	11.75		$	5.00

NOTE 13—INCOME TAXES

For the years ended December 31, 2020 and 2019, the Company recorded an income tax provision expense of $5.00 thousand and $0.00, respectively, as reflected in the table below.

A reconciliation of income taxes at the statutory federal income tax rate to net income taxes included in the accompanying statements of operations is as follows (in thousands):

	2020			2019
U.S. federal taxes (benefit) at statutory rate	$	(22,032	)	$	(14,578	)
State federal income tax benefit		(895	)		(528	)
Permanent differences		(46	)		34
Stock compensation		524			4,112
Research and development credits		(4,043	)		(1,677	)
Change in valuation allowance due to operations		26,484			12,756
Expiring state carryovers and other		13			(119	)
Total	$	5		$	—

137

The tax effects of temporary differences that give rise to significant components of the net deferred tax assets are as follows (in thousands):

	December 31,
	2020			2019
Deferred tax assets
Net operating loss carryforward	$	42,029		$	26,554
Research and development credits		9,066			4,147
Deferred stock compensation		3,260			1,571
Deferred revenue		5,195			1,956
Lease liability		3,045			2,835
Other		1,301			736
Total deferred tax assets		63,896			37,799
Total deferred tax liabilities
Depreciable and amortizable assets		(1,677	)		(1,340	)
Right-of-use asset		(2,344	)		(2,112	)
R&D intangible assets		—			(956	)
Total deferred tax liabilities		(4,021	)		(4,408	)
Less: Valuation allowance		(59,875	)		(33,391	)
Net deferred tax assets	$	—		$	—

At December 31, 2020, the Company had federal net operating loss carryforwards of approximately $198.8 million available to offset future taxable income and state net operating loss carryforwards of approximately $0.4 million available to offset future taxable income. The Company’s federal net operating loss carryforwards of $62.8 million which will begin to expire in 2024 if not used before such time to offset future taxable income or tax liabilities. The Company’s federal net operating loss carryforwards of $136.0 million which do not expire. A portion of the Company’s net operating loss carryforward is subject to certain limitations on annual utilization in case of changes in ownership, as defined by federal and state tax laws. The annual limitation may result in the expiration of the net operating loss before utilization.

At December 31, 2020, the Company had federal research and development tax credits available to offset future taxes of approximately $7.6 million, which expire in the year beginning 2022, and state research and development tax credits of approximately $1.9 million, which expire beginning 2033.

The Company has established a valuation allowance against its deferred tax assets due to the uncertainty surrounding the realization of such assets. The valuation allowance increased by $26.5 million from continuing operations.

The Company has no uncertain tax positions as of December 31, 2020 and 2019. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company currently has no federal or state tax examinations in progress nor has it had any federal or state tax examinations since its inception. As a result of the Company’s net operating loss carryforwards, all of its tax years are subject to federal and state tax examination.

NOTE 14—EMPLOYEE BENEFIT PLAN

The Company sponsors a defined-contribution savings plan under Section 401(k) of the Internal Revenue Code covering all full-time employees (“Molecular Templates 401(k) Plan”). Participants meeting certain criteria, as defined in the plan document, are eligible for a matching contribution, in amounts determined at the discretion of the Company. Contributions to the Molecular Templates 401(k) Plan by the Company were $0.5 million and $0.2 million for the years ended December 31, 2020 and 2019, respectively.

NOTE 15 – IN-PROCESS RESEARCH AND DEVELOPMENT

In December 2020, the Company completed the sale of Evofosfamide which was previously classified as In-process research and development - held for sale. In connection with sale, the Company recorded a loss on assets held for sale of $2.0 million which is the difference between the carrying value and the consideration received.

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NOTE 16—SUBSEQUENT EVENTS

Bristol Myers Squibb Company Collaboration Agreement

In February 2021, the Company, entered into a Collaboration Agreement (the “BMS Collaboration Agreement”) with Bristol Myers Squibb Company (“Bristol Myers Squibb”) to perform strategic research collaboration leveraging the Company’s ETB technology platform to discover and develop novel products containing ETBs directed to multiple targets.

Pursuant to the terms of the BMS Collaboration Agreement, the Company granted Bristol Myers Squibb a series of exclusive options to obtain one or more exclusive licenses under the Company’s intellectual property to exploit products containing ETBs directed against certain targets designated by Bristol Myers Squibb.

Bristol Myers Squibb will pay the Company an upfront payment of $70.0 million. In addition to the upfront payment, the Company may receive near term and development and regulatory milestone payments of up to $874.5 million. The Company will also be eligible to receive up to an additional $450.0 million in payments upon the achievement of certain sales milestones, and subject to certain reductions, tiered royalties ranging from mid-single digits up to mid-teens as percentages of calendar year net sales, if any, on any licensed product.

The Company will be responsible for conducting the research activities through the designation, if any, of one or more development candidates. Upon the exercise of its option for a development candidate, Bristol Myers Squibb will be responsible for all development, manufacturing, regulatory and commercialization activities with respect to that development candidate.

Unless earlier terminated, the BMS Collaboration Agreement will expire (i) on a country-by-country basis and licensed product-by-licensed product basis, on the date of expiration of the royalty payment obligations under the BMS Collaboration Agreement with respect to such licensed product in such country and (ii) in its entirety upon the earlier of (a) the expiration of the royalty payment obligations under the BMS Collaboration Agreement with respect to all licensed products in all countries or (b) upon Bristol Myers Squibb’s decision not to exercise any option on or prior to the applicable option deadlines. Bristol Myers Squibb has the right to terminate the BMS Collaboration Agreement for convenience upon prior written notice to the Company. Either party has the right to terminate the BMS Collaboration Agreement (a) for the insolvency of the other party or (b) subject to specified cure periods, in the event of the other party’s uncured material breach. The Company has the right upon prior written notice to terminate the BMS Collaboration Agreement in the event that Bristol Myers Squibb or any of its affiliates asserts a challenge against the Company’s patents.

February 2021 Public Offering

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In February 2021, the Company, completed a public offering of 6,000,000 shares of common stock at an offering price of $12.65 per share. The approximately net proceeds to the Company were $71.0 million, after deducting underwriting discounts, commissions and other estimated offering expenses payable by the Company.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2020. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to its management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2020, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

• Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and directors of the Company; and

• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013). Based on this evaluation, management has concluded our internal control over financial reporting at December 31, 2020 was effective.

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Remediation of Previously Reported Material Weakness

Our management previously identified a material weakness related to IT general controls for the significant applications used in the preparation of the financial statements. Specifically, controls were not designed and operating effectively over the manage access process to adequately restrict user and privileged access to the financial applications, including periodic review of appropriate access; and over program change management to ensure that program and data changes were tested, authorized and implemented appropriately. Accordingly, automated controls and manual controls that are dependent on the effective operation of the deficient IT general controls were also ineffective.

Management implemented a remediation plan to address the root causes which contributed to the material weakness and is committed to a strong Internal Control over Financial Reporting (ICFR) environment. The remediation plan included (i) implementing improved IT change management policies and procedures, control activities, and tools to ensure changes affecting financial IT applications are identified, authorized, tested, and implemented appropriately; (ii) implementing improved processes for requesting, authorizing, and reviewing user access to key systems which impact our financial reporting, including identifying access to roles where manual business process controls may be required; (iii) implementation of appropriate segregation of duties in all systems that impact internal control over financial reporting; (iv) increasing resources dedicated to monitoring IT general controls to ensure compliance with policies and procedures; (v) engaging outside resources to assist with the design and implementation of a risk-based internal controls plan, enhance process documentation, provide company-wide training, and help with management's self-assessment and testing of internal controls.

As a result of our remediation efforts, as of December 31, 2020, we have remediated the material weakness.

Changes in Internal Control over Financial Reporting

Other than the remediation of the material weakness described above, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the year ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

Not applicable

141

PART III

The information required by Part III is omitted from this report because we will file a definitive proxy statement within 120 days after the end of our 2020 fiscal year pursuant to Regulation 14A for our 2021 Annual Meeting of Stockholders, or the 2021 Proxy Statement, will be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended. If the 2021 Proxy Statement is not filed within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, the omitted information will be included in an amendment to this Annual Report on Form 10-K filed not later than the end of such 120-day period.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The response to this item is incorporated by reference from the discussion responsive thereto under the captions “Management and Corporate Governance,” “Section 16(a) Beneficial Ownership Reporting Compliance,” and “Code of Business Conduct and Ethics” in the Company’s Proxy Statement for the 2021 Annual Meeting of Stockholders.

ITEM 11. EXECUTIVE COMPENSATION

The response to this item is incorporated by reference from the discussion responsive thereto under the caption “Executive Officer and Director Compensation” in the Company’s Proxy Statement for the 2021 Annual Meeting of Stockholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The response to this item is incorporated by reference from the discussion responsive thereto under the captions “Security Ownership of Certain Beneficial Owners and Management,” and “Equity Compensation Plan Information” in the Company’s Proxy Statement for the 2021 Annual Meeting of Stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The response to this item is incorporated by reference from the discussion responsive thereto under the captions “Certain Relationships and Related Person Transactions” and “Management and Corporate Governance” in the Company’s Proxy Statement for the 2021 Annual Meeting of Stockholders.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The response to this item is incorporated by reference from the discussion responsive thereto under the caption “Independent Registered Public Accounting Firm” in the Company’s Proxy Statement for the 2021 Annual Meeting of Stockholders.

142

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following documents are being filed as part of this report:

(1) The following financial statements of the Company and the report of Ernst & Young LLP are included in Part II, Item 8:

Reports of Independent Registered Public Accounting Firms

Consolidated Balance Sheets

Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)  

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

(2) All financial statement supporting schedules are omitted because the information is inapplicable or presented in the Notes to Consolidated Financial Statements.

(3) A list of exhibits filed with this report or incorporated herein by reference is found in the Exhibit Index immediately following the signature page of this Annual Report.

EXHIBIT NUMBER	DESCRIPTION
2.1^	Agreement and Plan of Merger and Reorganization, dated March 16, 2017, by and among the Company, Molecular Templates OpCo, Inc. and Trojan Merger Sub, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, as amended (File No. 001-32979), filed on March 17, 2017).
3.1	Amended and Restated Certificate of Incorporation of the Company, as subsequently amended (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K (File No. 001-32979) filed on March 6, 2014).
3.2	Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Company, dated August 1, 2017 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-32979) filed on August 1, 2017).
3.3	Certificate of Amendment (Name Change) of Amended and Restated Certificate of Incorporation of the Company, dated August 1, 2017 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-32979) filed on August 7, 2017).
3.4	Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock, dated November 22, 2019 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-32979), filed on November 25, 2019).
3.5	Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.4 to the Company’s Annual Report on Form 10-K (File No. 001-32979), filed on March 29, 2019).
3.6	Registration Rights Agreement, dated June 4, 2020, by and among the Company and the selling stockholders named therein (incorporated by reference to Exhibit 4.6 to the Company’s registration statement on Form S-3 Report (filed No. 333-238937), filed on June 4, 2020).
4.1	Form of Warrant issued pursuant to the Company’s prospectus supplement, dated February 18, 2015, and accompanying prospectus (incorporated by reference to Exhibit 4.9 to the Company’s Annual Report on Form 10-K (File No. 001-32979) filed on March 3, 2015).
4.2	Form of Warrant issued pursuant to the Securities Purchase Agreement, dated August 1, 2017, among the Company and the investors named therein (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, as filed on August 7, 2017).
4.3	Form of Warrant issued to Wedbush Securities, dated December 1, 2017 (incorporated by reference to Exhibit 4.3 to the Company’s Annual Report on Form 10-K (File No. 001-32979), as filed on March 30, 2018).
4.4	Warrant to Purchase Common Stock issued to Perceptive Credit Holdings II, LP (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 001-32979) filed on March 2, 2018).
4.5	Form of Senior Indenture (incorporated by reference to Exhibit 4.7 to the Company’s registration statement on Form S-3 (File No. 333-228975), filed on December 21, 2018).
4.6	Form of Subordinated Indenture (incorporated by reference to Exhibit 4.8 to the Company’s registration statement on Form S-3 (File No. 333-228975), filed on December 21, 2018).

143

10.1+	2004 Amended and Restated Equity Incentive Plan of the Company, as amended (incorporated by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-K (File No. 001-32979) filed on March 15, 2012).
10.2+	Amended and Restated 2004 Employee Stock Purchase Plan (incorporated by reference to Exhibit 99.2 to the Company’s Registration Statement on Form S-8 (File No. 333-164865) filed on February 11, 2010).
10.3	Amended and Restated Non-Employee Director Compensation Policy, adopted by the Board of Directors of the Company on October 9, 2017, amended as of May 31, 2018 and further amended as of December 19, 2019 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-32979), filed on December 19, 2019).
10.4	2014 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-32979) filed on October 13, 2017).
10.5+	Form of Indemnification Agreement between the Company and each of its directors and executive officers (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-32979) filed on August 7, 2017).
10.6+	Form of Notice of Grant of Stock Options and Option Agreement under the 2004 Equity Incentive Plan (incorporated by reference to Exhibit 10.25 to the Company’s Current Report on Form 8-K (File No. 000-51136) filed on March 17, 2006).
10.7+	Form of Stock Option Grant Notice and Option Agreement for employees under the 2014 Equity Incentive Plan (incorporated by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K (File No. 001-32979), filed on March 30, 2018).
10.8+	Form of Stock Option Grant Notice and Option Agreement for non-employee directors under the 2014 Equity Incentive Plan (incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K (File No. 001-32979), filed  on March 30, 2018).
10.9+	Amended and Restated Executive Employment Agreement, dated April 22, 2016, between Molecular Templates OpCo, Inc. and Eric E. Poma, Ph.D. (incorporated by reference to Exhibit 10.43 to the Company’s Registration Statement on Form S-4/A (File No. 333-217993) filed on May 15, 2017).
10.10+	Amended and Restated Executive Employment Agreement, dated April 22, 2016, between Molecular Templates OpCo, Inc. and Jason Kim (incorporated by reference to Exhibit 10.44 to the Company’s Registration Statement on Form S-4/A (File No. 333-217993) filed on May 15, 2017).
10.11+	Amended and Restated Executive Employment Agreement, dated November 3, 2017, by and between the Company and Adam D. Cutler (incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K (File No. 001-32979), filed on March 30, 2018).
10.12	Sales Agreement between the Company and Cowen and Company, LLC, dated November 2, 2015 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 001-32979), filed on November 2, 2015).
10.13	Form of Company Support Agreement by and between Molecular Templates OpCo, Inc. and each of the parties named in each agreement therein (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, as amended (File No. 001-32979), filed on March 17, 2017).
10.14	Form of Molecular Templates OpCo, Inc. Support Agreement by and between the Company and each of the parties named in each agreement therein (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, as amended (File No. 001-32979), filed on March 17, 2017).
10.15	Form of Company Lock-Up Agreement by and between the Company and each of the parties named in each agreement therein (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, as amended (File No. 001-32979), filed on March 17, 2017).
10.16	Form of Molecular Templates OpCo, Inc. Lock-Up Agreement by and between the Company and each of the parties named in each agreement therein (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, as amended (File No. 001-32979), filed on March 17, 2017).
10.17	Lease Agreement, dated as of October 1, 2016, by and between NW Austin Officer Partners LLC and Molecular Templates OpCo, Inc., as amended on January 30, 2017 (incorporated by reference to Exhibit 10.28 to the Company’s Registration Statement on Form S-4, filed on May 15, 2017, as amended on June 27, 2017).
10.17.1	Second Amendment to the Lease Agreement, dated March 29, 2017, by and between NW Austin Officer Partners LLC and Molecular Templates OpCo, Inc. (incorporated by reference to Exhibit 10.17.1 to the Company’s Annual Report on Form 10-K (File No. 001-32979), filed on March 30, 2018).

144

10.17.2	Third Amendment to the Lease Agreement, dated June 23, 2017, by and between NW Austin Officer Partners LLC and Molecular Templates OpCo, Inc.(incorporated by reference to Exhibit 10.17.2 to the Company’s Annual Report on Form 10-K (File No. 001-32979), filed on March 30, 2018).
10.18	Sublease, dated October 1, 2016, by and between Zimmer Holdings, Inc. and Molecular Templates OpCo, Inc. (incorporated by reference to Exhibit 10.29 to the Company’s Registration Statement on Form S-4 (File No. 333-217993), filed on May 15, 2017, as amended on June 27, 2017).
10.19	Lease, dated as of August 11, 2016, by and between Evergreen Shipping Agency (America) Corporation and Molecular Templates OpCo, Inc. (incorporated by reference to Exhibit 10.30 to the Company’s Registration Statement on Form S-4 (File No. 333-217993), filed on May 15, 2017, as amended on June 27, 2017).
10.20†	Research Collaboration and Option Agreement, dated as of October 31, 2016, by and between Takeda Pharmaceutical Company, Ltd. and Molecular Templates OpCo, Inc. (incorporated by reference to Exhibit 10.31 to the Company’s Registration Statement on Form S-4 (File No. 333-217993), filed on May 15, 2017, as amended on June 27, 2017).
10.21†	Non-Exclusive License Agreement, dated as of July 17, 2014, by and between the Henry M. Jackson Foundation for the Advancement of Military Medicine and Molecular Templates OpCo, Inc. (incorporated by reference to Exhibit 10.32 to the Company’s Registration Statement on Form S-4 (File No. 333-217993), filed on May 15, 2017, as amended on June 27, 2017).
10.22+	Molecular Templates Amended and Restated 2009 Stock Plan, as amended through September 19, 2013 (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K (File No. 001-32979), filed on March 30, 2018).
10.23+	Molecular Templates 2009 Stock Plan Form of Option Agreement (incorporated by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K (File No. 001-32979), filed on March 30, 2018).
10.24	Equity Commitment Letter Agreement, dated as of March 16, 2017, among the Company, Molecular Templates OpCo, Inc., and Longitude Venture Partners III, L.P. (incorporated by reference to Exhibit 10.35 to the Company’s Registration Statement on Form S-4 (File No. 333-217993), filed on May 15, 2017, as amended on June 27, 2017).
10.25	Note Purchase Agreement, dated as of March 16, 2017, by and between the Company and Molecular Templates OpCo, Inc. (incorporated by reference to Exhibit 10.39 to the Company’s Registration Statement on Form S-4 (File No. 333-217993), filed on May 15, 2017, as amended on June 27, 2017).
10.26	Securities Purchase Agreement, dated August 1, 2017, among the Company and the investors named therein (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 001-32979) filed on August 7, 2017).
10.27	Registration Rights Agreement, dated August 1, 2017, among the Company and the investors named therein (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (File No. 001-32979) filed on August 7, 2017).
10.28	Amended and Restated Loan and Security Agreement, dated as of April 30, 2015, by and between Molecular Templates OpCo, Inc. and Silicon Valley Bank (incorporated by reference to Exhibit 10.42 to the Company’s Registration Statement on Form S-4 (File No. 333-217993), filed on May 15, 2017, as amended on June 27, 2017).
10.29†	Multi-License Collaboration and License Agreement, dated as of June 23, 2017, by and between Millennium Pharmaceuticals, Inc., a wholly owned subsidiary of Takeda Pharmaceutical Company, Ltd. and Molecular Templates OpCo, Inc. (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K (File No. 001-32979) filed on October 17, 2017).
10.30	Stock Purchase Agreement, dated as of June 23, 2017, by and among Molecular Templates OpCo, Inc., the Company and Millennium Pharmaceuticals, Inc., a wholly owned subsidiary of Takeda Pharmaceutical Company Ltd. (incorporated by reference to Exhibit 10.48 to the Company’s Registration Statement on Form S-4, filed on May 15, 2017, as amended on June 27, 2017).
10.31†	Cancer Research Grant Contract, dated as of November 7, 2012, by and between the Cancer Prevention & Research Institute of Texas and Molecular Templates OpCo, Inc. (incorporated by reference to Exhibit 10.33 to the Company’s Current Report on Form 8-K (File No. 001-32979), filed on June 22, 2018).
10.32+	Molecular Templates, Inc. 2018 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K  (File No. 001-32979) filed on June 1, 2018).
10.33+	Form of Stock Option Grant Notice and Option Agreement for employees under the 2018 Equity Incentive Plan (incorporated by reference to Exhibit 4.6 to the Company’s Registration Statement on Form S-8 (File No. 333-225826),  filed on June 22, 2018).

145

10.34+	Form of Stock Option Grant Notice and Option Agreement for non-employee directors under the 2018 Equity Incentive Plan (incorporated by reference to Exhibit 4.7 to the Company’s Registration Statement on Form S-8 (File No. 333-225826) filed on June 22, 2018).
10.35†	Development Collaboration and Exclusive License Agreement by and between the Company and Millennium Pharmaceuticals, Inc., dated September 18, 2018 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 001-32979) filed on November 13, 2018).
10.36†	Cancer Research Grant Contract, dated September 18, 2018, by and between The Company and the Cancer Prevention and Research Institute of Texas (incorporated by reference to Exhibit 10.3 to the Company Quarterly Report on Form 10-Q/A (File No. 001-32979) filed on February 13, 2019).
10.37	Sublease, dated as of January 23, 2019, by and between the Company and State Farm Mutual Automobile Insurance Company (incorporated by reference to Exhibit 10.37 to the Company’s Annual Report on Form 10-K (File No. 001-32979), filed on March 29, 2019).
10.38	Credit Agreement and Guaranty, dated as of February 27, 2018, among the Molecular Templates OpCo, Inc., a Delaware corporation, as borrower, the Company, a Delaware corporation, as guarantor, Perceptive Credit Holdings II, LP, as Lender, and certain of Lender’s successors and assigns party thereto from time to time (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-32979), filed on March 2, 2018).
10.39	Registration Rights Agreement, dated February 27, 2018, by and between the Company and Perceptive Credit Holdings II, LP (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (File No. 001-32979), filed on March 2, 2018).
10.40	Underwriting Agreement, dated September 20, 2018, among the Company and Cowen and Company, LLC and Evercore Group L.L.C., as representatives of the several underwriters named therein (incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K (File No. 001-32979), filed on September 24, 2018).
10.41	Sublease Agreement, dated as of January 23, 2019, by and between Molecular Templates, Inc. and State Farm Mutual Automobile Insurance Company (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 001-32979), filed on May 13, 2019).
10.42	First Amendment to Sublease Agreement, dated as of May 16, 2019, by and between Molecular Templates, Inc. and State Farm Mutual Automobile Insurance Company (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 001-32979), filed on August 12, 2019).
10.43††	First Amendment to the Development Collaboration and Exclusive License Agreement, dated as of July 18, 2019, by and between Molecular Templates, Inc. and Millennium Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 001-32979), filed on November 12, 2019).
10.44	Underwriting Agreement, dated November 20, 2019, among Molecular Templates, Inc. and Cowen and Company, LLC, Barclays Capital Inc. and Stifel, Nicolaus & Company, Incorporated, as representatives of the several underwriters named therein (incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K (File No. 001-32979), filed on November 25, 2019).
10.45††	Master Collaboration Agreement, dated November 18, 2019, by and between Vertex Pharmaceuticals Incorporated and the Company (incorporated by reference to Exhibit 10.46 to the Company’s Annual Report on Form 10-K (File No. 001-32979), filed on March 13, 2020).
10.46	Share Purchase Agreement, dated November 18, 2019, by and between Vertex Pharmaceuticals Incorporated and the Company (incorporated by reference to Exhibit 10.47 to the Company’s Annual Report on Form 10-K (File No. 001-32979), filed on March 13, 2020).
10.47+	Executive Employment Agreement, dated January 3, 2019, by and between Roget J. Waltzman, M.D. and the Company (incorporated by reference to Exhibit 10.48 to the Company’s Annual Report on Form 10-K (File No. 001-32979), filed on March 13, 2020).
10.48	Loan and Security Agreement, dated May 21, 2020, by and among the Company, Molecular Templates OpCo, Inc., and, K2 HealthVentures LLC and Ankura Trust Company, LLC  (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-32979), filed on May 22, 2020).
10.49	Sales Agreement, dated August 7, 2020, by and between the Company and Cowen and Company, LLC  (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (File No. 001-32979), filed on August 7, 2020).

146

21.1*	Subsidiaries of the Company.
23.1*	Consent of Ernst & Young LLP.
31.1*	Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities and Exchange Act of 1934, as amended, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities and Exchange Act of 1934, as amended, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

^	The schedules and exhibits to this exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the SEC upon request.
*	Filed herewith.
**	Furnished herewith. This certification is not deemed filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and is not deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act.
†	Confidential treatment granted as to certain portions, which portions have been omitted and filed separately with the SEC.
††	Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[***]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.
+	Indicates a management contract or compensatory plan or arrangement.

ITEM 16. 10-K SUMMARY

Not applicable.

147

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	MOLECULAR TEMPLATES, INC.
March 19, 2021	By:	/s/ ERIC E. POMA, PH.D.
		Eric E. Poma, Ph.D. Chief Executive Officer and Chief Scientific Officer

Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature		Title	Date
/s/ Eric E. Poma, Ph.D.		Chief Executive Officer and Chief Scientific Officer (Principal Executive Officer)	March 19, 2021
Eric E. Poma, Ph.D.
/s/ Adam Cutler		Chief Financial Officer (Principal Financial and Accounting Officer)	March 19, 2021
Adam Cutler
/s/ Harold E. Selick, Ph.D.		Director	March 19, 2021
Harold E. Selick, Ph.D.
/s/ Jonathan Lanfear		Director	March 19, 2021
Jonathan Lanfear
/s/ David R. Hoffmann		Director	March 19, 2021
David R. Hoffmann
/s/ David Hirsch, M.D., Ph.D.		Director	March 19, 2021
David Hirsch
/s/ Kevin Lalande		Director	March 19, 2021
Kevin Lalande
/s/ Scott Morenstein		Director	March 19, 2021
Scott Morenstein
/s/ Corazon “Corsee” Sanders, Ph.D.	Director		March 19, 2021
Corazon “Corsee” Sanders, Ph.D.

148

EX-21.1

Exhibit 21.1

SUBSIDIARIES OF MOLECULAR TEMPLATES, INC.

Subsidiary	Jurisdiction
Molecular Templates OpCo, Inc.	Delaware
THLD Enterprises (UK), Limited	United Kingdom

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration Statements:

1. Registration Statement (Form S-3 No. 333-242078) of Molecular Templates, Inc.,

2. Registration Statement (Form S-3 No. 333-238937) of Molecular Templates, Inc.,

3. Registration Statement (Form S-3 No. 333-228975) of Molecular Templates, Inc.,

4. Registration Statement (Form S-3 No. 333-225223) of Molecular Templates, Inc.,

5. Registration Statement (Form S-3 No. 333-220477) of Molecular Templates, Inc.,

6. Registration Statement (Form S-3 No. 333-207745) of Threshold Pharmaceuticals, Inc.,

7. Registration Statement (Form S-3 No. 333-195084) of Threshold Pharmaceuticals, Inc.,

8. Registration Statement (Form S-3 No. 333-174844) of Threshold Pharmaceuticals, Inc.,

9. Registration Statement (Form S-3 No. 333-169689) of Threshold Pharmaceuticals, Inc.,

10. Registration Statement (Form S-3 No. 333-162719) of Threshold Pharmaceuticals, Inc.,

11. Registration Statement (Form S-3 No. 333-153475)) of Threshold Pharmaceuticals, Inc.,

12. Registration Statement (Form S-3 No. 333-202043) of Threshold Pharmaceuticals, Inc.,

13. Registration Statement (Form S-4 No. 333-217993) of Threshold Pharmaceuticals, Inc.,

14. Registration Statement (Form S-8 No. 333-237148) of Molecular Templates, Inc. pertaining to the Molecular Templates, Inc. 2018 Equity Incentive Plan,

15. Registration Statement (Form S-8 No. 333-230617) of Molecular Templates, Inc. pertaining to the Molecular Templates, Inc. 2018 Equity Incentive Plan,

16. Registration Statement (Form S-8 No. 333-225826) of Molecular Templates, Inc. pertaining to the Molecular Templates, Inc. 2018 Equity Incentive Plan,

17. Registration Statement (Form S-8 No. 333-221002) of Molecular Templates, Inc. pertaining to the 2009 Stock Plan, as amended, the 2014 Equity Incentive Plan, as amended, and the Amended and Restated 2004 Employee Stock Purchase Plan,

18. Registration Statement (Form S-8 No. 333-210089) of Threshold Pharmaceuticals, Inc. pertaining to the Amended and Restated 2004 Employee Stock Purchase Plan,

19. Registration Statement (Form S-8 No. 333-202476) of Threshold Pharmaceuticals, Inc. pertaining to the Amended and Restated 2004 Employee Stock Purchase Plan,

20. Registration Statement (Form S-8 No. 333-196249) of Threshold Pharmaceuticals, Inc. pertaining to the 2014 Equity Incentive Plan, and the Amended and Restated 2004 Employee Stock Purchase Plan,

21. Registration Statement (Form S-8 No. 333-187107) of Threshold Pharmaceuticals, Inc. pertaining to the 2004 Amended and Restated Equity Incentive Plan, and the Amended and Restated 2004 Employee Stock Purchase Plan,

22. Registration Statement (Form S-8 No. 333-180149) of Threshold Pharmaceuticals, Inc. pertaining to the 2004 Amended and Restated Equity Incentive Plan, and the Amended and Restated 2004 Employee Stock Purchase Plan,

23. Registration Statement (Form S-8 No. 333-173047 of Threshold Pharmaceuticals, Inc. pertaining to the 2004 Amended and Restated Equity Incentive Plan, and the Amended and Restated 2004 Employee Stock Purchase Plan,

24. Registration Statement (Form S-8 No. 333-167260) of Threshold Pharmaceuticals, Inc. pertaining to the Amended and Restated 2004 Equity Incentive Plan,

25. Registration Statement (Form S-8 No. 333-164865) of Threshold Pharmaceuticals, Inc. pertaining to the 2004 Amended and Restated Equity Incentive Plan, and the Amended and Restated 2004 Employee Stock Purchase Plan,

26. Registration Statement (Form S-8 No. 333-156733) of Threshold Pharmaceuticals, Inc. pertaining to the Amended and Restated 2004 Equity Incentive Plan,

27. Registration Statement (Form S-8 No. 333-143130) of Threshold Pharmaceuticals, Inc. pertaining to the Amended and Restated 2004 Equity Incentive Plan,

28. Registration Statement (Form S-8 No. 333-134598) of Threshold Pharmaceuticals, Inc. pertaining to the Amended and Restated 2004 Equity Incentive Plan, and the 2004 Employee Stock Purchase Plan, and

29. Registration Statement (Form S-8 No. 333-126276) of Threshold Pharmaceuticals, Inc. pertaining to the 2001 Equity Incentive Plan, the 2004 Equity Incentive Plan, and the 2004 Employee Stock Purchase Plan;

of our report dated March 19, 2021, with respect to the consolidated financial statements of Molecular Templates, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2020.

/s/ Ernst & Young LLP

Austin, Texas

March 19, 2021

EX-31.1

Exhibit 31.1

CERTIFICATIONS UNDER SECTION 302

I, Eric E. Poma, Ph.D., certify that:

1.  I have reviewed this annual report on Form 10-K of Molecular Templates, Inc.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)  designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)  designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.  The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)  all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 19, 2021

/s/ Eric E. Poma Ph.D.

Eric E. Poma, Ph.D.

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS UNDER SECTION 302

I, Adam Cutler, certify that:

1.  I have reviewed this annual report on Form 10-K of Molecular Templates, Inc.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)  designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)  designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.  The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)  all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  March 19, 2021

/s/ Adam Cutler

Adam Cutler

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATIONS UNDER SECTION 906

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of Molecular Templates, Inc., a Delaware corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:

The Annual Report for the year ended December 31, 2020 (the “Form 10-K”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  March 19, 2021

/s/ Eric E. Poma Ph.D.

Eric E. Poma, Ph.D.

Chief Executive Officer

Date:  March 19, 2021

/s/ Adam Cutler

Adam Cutler

Chief Financial Officer

XML

Document and Entity Information - USD ($)

12 Months Ended

Dec. 31, 2020

Mar. 17, 2021

Jun. 30, 2020

Cover [Abstract]

Document Type

10-K

Amendment Flag

false

Document Period End Date

Dec. 31, 2020

Document Fiscal Year Focus

2020

Document Fiscal Period Focus

FY

Entity Registrant Name

MOLECULAR TEMPLATES, INC.

Entity Central Index Key

0001183765

Current Fiscal Year End Date

--12-31

Entity Well-known Seasoned Issuer

No

Entity Current Reporting Status

Yes

Entity Voluntary Filers

No

Entity Interactive Data Current

Yes

Entity Filer Category

Non-accelerated Filer

Entity Small Business

true

Entity Emerging Growth Company

false

Entity Shell Company

false

Entity File Number

001-32979

Entity Incorporation, State or Country Code

DE

Entity Tax Identification Number

94-3409596

Entity Address, Address Line One

9301 Amberglen Blvd

Entity Address, Address Line Two

Suite 100

Entity Address, City or Town

Austin

Entity Address, State or Province

TX

Entity Address, Postal Zip Code

78729

City Area Code

512

Local Phone Number

869-1555

Entity Public Float

$ 410,327,063

Entity Common Stock, Shares Outstanding

56,052,306

Title of 12(b) Security

Common Stock, $0.001 Par Value Per Share

Trading Symbol

MTEM

Security Exchange Name

NASDAQ

Document Annual Report

true

Document Transition Report

false

Documents Incorporated by Reference

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement for the registrant’s 2021 annual meeting of stockholders to be filed pursuant to Regulation 14A within 120 days of the registrant’s fiscal year ended December 31, 2020 are incorporated herein by reference into Part III of this Annual Report on Form 10-K.

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Current assets:
Cash and cash equivalents	$ 25,218	$ 85,451
Marketable securities, current	68,667	39,633
Prepaid expenses	6,080	2,318
Grants revenue receivable	0	7,100
Accounts receivable, related party	234	408
In-process research and development - held for sale	0	4,500
Other current assets	1,125	489
Total current assets	101,324	139,899
Marketable securities, non-current	0	1,510
Operating lease right-of-use assets	11,104	9,959
Property and equipment, net	22,254	18,158
Other assets	5,195	4,676
Total assets	139,877	174,202
Current liabilities:
Accounts payable	2,350	1,465
Accrued liabilities	12,575	14,544
Deferred revenue, current	14,014	8,511
Deferred revenue, current, related party	789	8,780
Other current liabilities, related party	5,614	0
Other current liabilities	2,211	2,501
Total current liabilities	37,553	35,801
Deferred revenue, long-term	4,538	18,944
Deferred revenue, long-term, related party	3,106	441
Long-term debt, net	14,926	2,940
Operating lease liabilities	12,213	11,682
Other liabilities, related party	6,711	0
Other liabilities	1,490	1,366
Total liabilities	80,537	71,174
Commitments and contingencies (Note 10)	0	0
Stockholders’ equity
Preferred stock, $0.001 par value: Authorized: 2,000,000 shares at December 31, 2020 and December 31, 2019; issued and outstanding: 250 shares at December 31, 2020 and December 31, 2019	0	0
Common stock, $0.001 par value: Authorized: 150,000,000 shares at December 31, 2020 and December 31, 2019; issued and outstanding: 49,984,333 shares at December 31, 2020 and 45,589,157 shares at December 31, 2019	50	46
Additional paid-in capital	328,314	267,089
Accumulated other comprehensive income	17	18
Accumulated deficit	(269,041)	(164,125)
Total stockholders’ equity	59,340	103,028
Total liabilities and stockholders’ equity	$ 139,877	$ 174,202

XML

Consolidated Balance Sheets (Parenthetical) - $ / shares	Dec. 31, 2020	Dec. 31, 2019
Statement Of Financial Position [Abstract]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	2,000,000	2,000,000
Preferred stock, shares issued	250	250
Preferred stock, shares outstanding	250	250
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	150,000,000	150,000,000
Common stock, shares issued	49,984,333	45,589,157
Common stock, shares outstanding	49,984,333	45,589,157

XML

Consolidated Statement of Operations - USD ($)	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Total revenue	$ 18,845,000	$ 22,270,000
Operating expenses:
Research and development	92,965,000	50,519,000
General and administrative	26,722,000	20,077,000
Loss on impairment of in-process research and development	0	22,123,000
Total operating expenses	119,687,000	92,719,000
Loss from operations	100,842,000	70,449,000
Interest and other income, net	1,028,000	2,323,000
Interest and other expense, net	(1,705,000)	(1,298,000)
Loss on extinguishment of debt	(1,237,000)	0
Loss on disposal of assets	(2,155,000)	0
Change in fair value of warrant liabilities	0	3,000
Loss before provision for income taxes	104,911,000	69,421,000
Provision for income taxes	5,000.00	0.00
Net loss	104,916,000	69,421,000
Net loss attributable to common shareholders	$ 104,916,000	$ 69,421,000
Net loss per share attributable to common shareholders:
Basic and diluted	$ 2.20	$ 1.86
Weighted average number of shares used in net loss per share calculations:
Basic and diluted	47,603,261	37,770,378
Research And Development Revenue | Other
Total revenue	$ 9,068,000	$ 0
Research And Development Revenue | Related Party
Total revenue	6,567,000	19,499,000
Grant
Total revenue	$ 3,210,000	$ 2,771,000

XML

Consolidated Statement of Comprehensive Loss - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Statement Of Income And Comprehensive Income [Abstract]
Net loss	$ 104,916	$ 69,421
Other comprehensive income:
Unrealized gain, (loss) on available-for-sale securities	(1)	18
Comprehensive loss	$ 104,917	$ 69,403

XML

Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity - USD ($) $ in Thousands	Total	At-the-market Offering	Private Placement	Convertible Preferred Stock	Convertible Preferred Stock At-the-market Offering	Convertible Preferred Stock Private Placement	Common Stock	Common Stock At-the-market Offering	Common Stock Private Placement	Additional Paid-In Capital	Additional Paid-In Capital At-the-market Offering	Additional Paid-In Capital Private Placement	Accumulated Other Comprehensive Income (Loss)	Accumulated Other Comprehensive Income (Loss) At-the-market Offering	Accumulated Other Comprehensive Income (Loss) Private Placement	Accumulated Deficit	Accumulated Deficit At-the-market Offering	Accumulated Deficit Private Placement
Balances, value at Dec. 31, 2018	$ 100,906			$ 0			$ 37			$ 195,573			$ 0			$ (94,704)
Balances, shares at Dec. 31, 2018				0			36,736,012
Issuance of common stock pursuant to stock plans	1,748			$ 0			$ 0			1,748			0			0
Issuance of common stock pursuant to stock plans, shares							286,479
Issuance of common stock, net of issuance costs	53,449		$ 10,469	$ 0		$ 0	$ 7		$ 2	53,442		$ 10,467	0		$ 0	0		$ 0
Issuance of common stock, net of issuance costs, shares				250			6,900,000		1,666,666
Stock-based compensation	5,859			$ 0			$ 0			5,859			0			0
Other comprehensive income (loss)	18			0			0			0			18			0
Net loss	(69,421)			0			0			0			0			(69,421)
Balances, value at Dec. 31, 2019	103,028			$ 0			$ 46			267,089			18			(164,125)
Balances, shares at Dec. 31, 2019				250			45,589,157
Issuance of common stock pursuant to stock plans	1,040			$ 0			$ 0			1,040			0			0
Issuance of common stock pursuant to stock plans, shares							261,260
Issuance of common stock, net of issuance costs		$ 48,372			$ 0			$ 4			$ 48,368			$ 0			$ 0
Issuance of common stock, net of issuance costs, shares								4,133,916
Stock-based compensation	11,817			0			$ 0			11,817			0			0
Other comprehensive income (loss)	(1)			0			0			0			(1)			0
Net loss	(104,916)			0			0			0			0			(104,916)
Balances, value at Dec. 31, 2020	$ 59,340			$ 0			$ 50			$ 328,314			$ 17			$ (269,041)
Balances, shares at Dec. 31, 2020				250			49,984,333

XML

Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Parenthetical) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Issuance of common stock		$ 3,800
Private Placement
Issuance of common stock		$ 75
At-the-market Offering
Issuance of common stock	$ 1,600

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Cash flows from operating activities:
Net loss	$ 104,916	$ 69,421
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, amortization and other	3,917	1,182
Impairment and loss on fixed assets and intangibles	2,170	22,139
Stock-based compensation expense	11,817	5,859
Interest due on long-term debt	109	0
Amortization of debt discount and accretion related to debt	448	486
Change in common stock warrant fair value	0	(3)
Accretion of asset retirement obligations	125	72
Loss on extinguishment of debt	1,237	0
Changes in operating assets and liabilities:
Prepaid expenses	(3,762)	(74)
Accounts receivable, related party	174	(168)
Grants revenue receivable	7,100	(2,771)
Other assets	1,948	(286)
Operating lease right-of-use assets and liabilities	(87)	2,816
Accounts payable	499	652
Accrued liabilities	(2,672)	6,534
Other liabilities, related party	12,325	(36)
Deferred revenue	(8,903)	27,455
Deferred revenue, related party	(5,326)	(19,680)
Net cash used in operating activities	(83,797)	(25,244)
Cash flows from investing activities:
Purchases of property and equipment	(7,392)	(9,649)
Proceeds on sale of equipment	15	0
Purchase of marketable securities	(132,809)	(90,159)
Sales of marketable securities	105,523	60,084
Net cash used in investing activities	(34,663)	(39,724)
Cash flows from financing activities:
Proceeds from issuance of common stock through Private Placement, net of issuance costs	0	10,469
Proceeds from issuance of common stock, net of issuance costs	48,372	53,449
Payments of capital and finance lease obligations	(18)	32
Proceeds from issuance of long-term debt and warrants, net	14,677	0
Repayment of long-term debt	(5,176)	0
Proceeds from stock option exercises	1,040	1,748
Net cash provided by financing activities	58,895	65,698
Net increase/(decrease) in cash, cash equivalents, and restricted cash	(59,565)	730
Cash, cash equivalents and restricted cash, beginning of period	88,451	87,721
Cash, cash equivalents and restricted cash, end of period	28,886	88,451
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents	25,218	85,451
Restricted cash included in Other assets	$ 3,668	$ 3,000
Restricted Cash and Cash Equivalents, Asset, Statement of Financial Position [Extensible List]	us-gaap:OtherAssetsMember	us-gaap:OtherAssetsMember
Cash, cash equivalents and restricted cash, end of period	$ 28,886	$ 88,451
Supplemental Cash Flow Information
Cash paid for interest	931	684
Non-Cash Investing and Financing Activities
Fixed asset additions in accounts payable and accrued expenses	$ 980	$ 2,686

XML

Organization and Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2020

Accounting Policies [Abstract]

Organization and Summary of Significant Accounting Policies

NOTE 1—ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of the Business

Molecular Templates, Inc. (the “Company” or “Molecular”), is a clinical stage biopharmaceutical company formed in 2001, with a biologic therapeutic platform for the development of novel targeted therapeutics for cancer and other diseases, headquartered in Austin, Texas. The Company’s focus is on the research and development of therapeutic compounds for a variety of cancers. The Company operates its business as a single segment, as defined by U.S. generally accepted accounting principles (“U.S. GAAP”).

On August 1, 2017, the Company, formerly known as Threshold Pharmaceuticals, Inc. (Nasdaq: THLD) (“Threshold”), completed its business combination with Private Molecular, in accordance with the terms of the Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), dated as of March 16, 2017, by and among Threshold, the Merger Sub, a wholly owned subsidiary of Threshold, and Private Molecular, pursuant to which Merger Sub merged with and into Private Molecular, with Private Molecular, surviving as a wholly-owned subsidiary of Threshold (the “Merger”). Immediately upon completion of the Merger, the former stockholders of Private Molecular held a majority of the voting interest of the combined company.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include the accounts of the Company and its wholly owned subsidiary and reflect the elimination of intercompany accounts and transactions.

Reclassifications

Certain amounts in the prior year’s presentation have been reclassified to conform to the current presentation. The condensed consolidated balance sheet at December 31, 2019 included herein was derived from the audited financial statements at that date, but includes a reclassification of $8.8 million from Deferred revenue, current to Deferred revenue, current, related party and $0.4 million from Deferred revenue, non-current to Deferred revenue, non-current, related party in order to conform to current period presentation. The condensed consolidated statements of cash flows for the year ended December 31, 2019, included herein includes a reclassification of $19.7 million from Deferred revenue to Deferred revenue, related party.

Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America as defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

Net Loss per Share

Basic net loss per share is calculated by dividing the net loss applicable to common stockholders by the weighted average number of shares of Common Stock outstanding during the period without consideration of Common Stock equivalents. Since the Company was in a loss position for all periods presented, diluted net loss per share is the same as basic net loss per share for all periods, as the inclusion of all potential common shares outstanding is anti-dilutive.

Cash and Cash Equivalents

The Company considers temporary investments with original maturities of three months or less from date of purchase to be cash equivalents. Restricted cash is recorded in other assets, based on when the restrictions expire. Other assets include $3.7 million and $3.0 million of restricted cash at December 31, 2020 and December 31, 2019, respectively.

Fair Value Measurement

The Company accounts for its marketable securities in accordance with ASC 820 “Fair Value Measurements and Disclosures.” ASC 820 defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. For Level 2 securities that have market prices from multiples sources, a “consensus price” or a weighted average price for each of these securities can be derived from a distribution-curve-based algorithm which includes market prices obtained from a variety of industrial standard data providers (e.g. Bloomberg), security master files from large financial institutions, and other third-party sources. Level 2 securities with short maturities and infrequent secondary market trades are typically priced using mathematical calculations adjusted for observable inputs when available.

Marketable Securities

The Company classifies its marketable securities as “available-for-sale.” Such marketable securities are recorded at fair value and unrealized gains and losses are recorded as a separate component of stockholders’ equity until realized. Realized gains and losses on sale of all such securities are reported in net loss, computed using the specific identification cost method. The Company places its marketable securities primarily in U.S. government securities, money market funds, corporate debt securities, commercial paper and certificates of deposit.

The Company’s investments are subject to a periodic impairment review. The Company recognizes an impairment charge when a decline in the fair value of its investments below the cost basis is judged to be other-than-temporary. The Company considers various factors in determining whether to recognize an impairment charge, including the length of time and extent to which the fair value has been less than the Company’s cost basis, the financial condition and near-term prospects of the investee, and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in the market value.

Concentration of Credit Risk and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to concentrations of risk consist principally of cash and cash equivalents, investments, long term debt and accounts receivable.

The Company’s cash and cash equivalents are with two major financial institutions in the United States.

The Company performs an ongoing credit evaluation of its strategic partners’ financial conditions and generally does not require collateral to secure accounts receivable from its strategic partners. The Company’s exposure to credit risk associated with non-payment will be affected principally by conditions or occurrences within Millennium Pharmaceuticals, Inc., a wholly-owned subsidiary of Takeda Pharmaceutical Company Ltd. (“Takeda”) and Vertex Pharmaceuticals Incorporated (“Vertex”). Takeda accounted for approximately 35% and 88% of total revenues for the years ended December 31, 2020 and December 31, 2019, respectively. Vertex accounted for approximately 48% and 0% of total revenues for the years ended December 31, 2020 and December 31, 2019, respectively.

In July 2020, the Company became aware of one potentially non-conforming batch of a single Company product fill. In February 2021, the batch was deemed non-conforming due to visible particulates identified in the release samples. This could result in a reversal of revenue in future periods as the Company recognizes collaboration revenue over time by measuring progress toward completion to satisfy the performance obligation. The Company does not believe this non-conforming batch will result in an increased timeline for its ongoing projects nor does it affect any other batches, production, or manufacturing. The Company expects to be able to meet the supply needs for all of its active clinical trials.

Drug or biologic candidates developed by the Company may require approvals or clearances from the U.S. Food and Drug Administration (“FDA”) or international regulatory agencies prior to commercial sales. There can be no assurance that the Company’s drug or biologic candidates will receive any of the required approvals or clearances. If the Company were to be denied approval or clearance or any such approval or clearance were to be delayed, it would have a material adverse impact on the Company.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Major additions and improvements are capitalized while maintenance and repairs that do not improve or extend the useful life of the respective asset are expensed. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets, which range from three to seven years. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the assets.

Patents

The gross value of Patents was $1.2 million and $1.3 million at December 31, 2020 and December 31, 2019, respectively, and are recorded in Other assets. The Company recorded $0.1 million of amortization expense for the years ended December 31, 2020 and December 31, 2019, with estimated expense to remain $0.1 million for each of the four successive years subsequent to December 31, 2020.

Impairment of Long-Lived Assets

When events, circumstances and/or operating results indicate that the carrying values of long-lived assets might not be recoverable through future operations, the Company prepares projections of the undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the projections indicate that the recorded amounts are not expected to be recoverable, such amounts are reduced to estimated fair value. Fair value is estimated based upon internal evaluation of each asset that includes quantitative analyses of net revenue and cash flows, review of recent sales of similar assets and market responses based upon discussions in connection with offers received from potential buyers. Certain factors used for these types of nonrecurring fair value measurements are considered Level 3 inputs. The Company recognized impairment of $22.1 million during the year ended December 31, 2019 related to its In-process research and development, which was sold during the year ended December 31, 2020. See Note 15, “In-Process Research and Development” for further details on the asset.

Long-term debt

The Company records debt issuance costs related to its long-term debt as a deduction from the carrying amount. The costs are amortized to interest expense over the life of the debt.

Revenue Recognition

The Company’s revenue has consisted principally of collaboration agreements for research and development revenue and grant revenue.

Grant revenue relates to the grants the Company has received from governmental bodies that are conditional cost reimbursement grants and we recognize revenue as allowable costs are incurred. Amounts collected in excess of revenue recognized are recorded as deferred revenue.

The Company’s collaborative arrangements may include one or more of the following: licenses, or options to obtain licenses; up-front fees; research and development activities and associated costs; milestone payments related to the achievement of development, regulatory, or commercial goals; and royalties on net sales of licensed products. Each of these payments may result in collaboration revenues or an offset against research and development expense.

The Company analyzes its collaboration arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements (“ASC 808”) to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards. This assessment is performed throughout the life of the arrangement based on changes to the arrangements. For collaboration arrangements within the scope of ASC 808 the company may analogize to ASC 606 for certain elements.

The Company identifies the goods or services promised within each collaboration agreement and assesses whether each promised good or service is distinct for the purpose of identifying the performance obligations in the contract. This assessment involves subjective determinations and requires management to make judgments about the individual promised goods or services and whether such are separable from the other aspects of the contractual relationship. Promised goods and services are considered distinct provided that: (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and (ii) the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. In assessing whether a promised good or service is distinct, the Company considers factors such as the research, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. If a promised good or service is not distinct, an entity is required to combine that promised good or service with other promised goods or services until it identifies a bundle of goods or services that is distinct.

The allocation of the transaction price to the performance obligations in proportion to their standalone selling prices is determined at contract inception. If the consideration promised in a contract includes a variable amount, the Company estimates the amount of consideration to which it will be entitled in exchange for transferring the promised goods or services to a customer. The Company determines the amount of variable consideration by using the expected value method or the most likely amount method. The Company includes the unconstrained amount of estimated variable consideration in the transaction price. The amount included in the transaction price is the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. At the end of each subsequent reporting period, the Company re-evaluates the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment.

In determining the transaction price, the Company adjusts consideration for the effects of the time value of money if there is a significant benefit of financing. The Company assessed its collaboration agreements and concluded that no significant financing components were present.

If an arrangement contains customer options that allow the customer to acquire additional goods or services, including an exclusive license to the Company’s intellectual property, the goods and services underlying the customer options are evaluated to determine whether they are deemed to represent a material right. In determining whether the customer option has a material right, the Company assesses whether there is an option to acquire additional goods or services at a discount. If the customer option is determined not to represent a material right, the option is not considered to be performance obligations at the outset of the arrangement. If the customer option is determined to represent a material right, the material right is recognized as a separate performance obligation at the outset of the arrangement. The Company allocates the transaction price to material rights based on the relative standalone selling price, which is determined based on the identified discount and the probability that the customer will exercise the option. Amounts allocated to a material right are not recognized as revenue until the option is exercised.

The Company recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation as each performance obligation is satisfied over time, with progress toward completion measured based on actual costs incurred relative to total estimated costs to be incurred over the life of the contract. Recorded revenue and costs are subject to revision as the contract progresses. Such revisions may result in increases or decreases to revenue and income and are reflected in the consolidated financial statements in the periods in which they are first identified. Estimating costs under the Company’s collaboration agreements is complex and involves significant judgment. Factors that must be considered in making estimates include labor productivity and availability, the nature and technical complexity of the work to be performed, potential performance delays, availability and timing of funding from the customer and progress toward completion. Adjustments to original estimates are often required as work progresses and additional information becomes known, even though the scope of the work required under the contract may not change. Any adjustment as a result of a change in estimates is made when facts develop, events become known, or an adjustment is otherwise warranted, such as in the case of contract change orders. The Company has procedures and processes in place to monitor the actual progress of a project against estimates and the Company’s estimates are updated if circumstances are warranted.

Performance obligations may include research and development services to be performed by the Company on behalf of the collaboration partner. Revenue is recognized on research and development efforts as the services are performed and presented on a gross basis, since the Company is the principal.

Under collaboration agreements, the timing of revenue recognition and contract billings may differ, and result in contract assets and contract liabilities. Contract assets represent revenues recognized in excess of amounts billed under collaboration agreements and are transferred to accounts receivable when billed or billing rights become unconditional. Contract liabilities represent billings in excess of revenues recognized under collaboration agreements. 

Lease Accounting

In February 2016, the Financial Accounting Standards Board ("FASB") established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which supersedes ASC 840, Leases, and requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. Topic 842, as amended, (the "new lease standard") establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the consolidated balance sheets for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the consolidated statements of operation.

The Company adopted the new lease standard on January 1, 2019 using the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. Consequently, financial information was not updated, and the disclosures required under the new standard were not provided for dates and periods prior to the first quarter of fiscal 2019.

The Company has completed a qualitative and quantitative assessment of its lease portfolio, in which the standard had a material impact on the condensed consolidated balance sheets but did not have an impact on the condensed consolidated statement of operations. Upon adoption, the Company recognized lease liabilities of approximately $4.7 million based on the present value of the remaining minimum rental payments under current leasing standards for our existing operating leases. The corresponding ROU assets of $4.2 million recognized upon adoption are net of deferred rent.

The new standard provides a number of optional practical expedients in transition. The Company elected the practical expedients, which permits lessees not to reassess under the new standard prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to the Company. The new standard also provides practical expedients for an entity's ongoing accounting. The Company elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, ROU assets or lease liabilities will not be recognized, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. The Company also elected the practical expedient to not separate lease and non-lease components for office leases.

At inception of a contract, the Company determines whether an arrangement is or contains a lease. For all leases, the Company determines the classification as either operating leases or finance leases. Operating leases are included in Operating lease right-of-use assets and Operating lease liabilities in our condensed consolidated balance sheets.

Lease recognition occurs at the commencement date and lease liability amounts are based on the present value of lease payments over the lease term. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. If a lease does not provide information to determine an implicit interest rate, the Company uses our incremental borrowing rate in determining the present value of lease payments. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments under the lease. ROU assets also include any lease payments made prior to the commencement date and exclude lease incentives received. Operating lease expense is recognized on a straight-line basis over the lease term. The depreciable life of assets and leasehold improvements are limited by the expected lease term unless there is a transfer of title or purchase option reasonably certain of exercise. Lease agreements with both lease and non-lease components, are generally accounted for together as a single lease component.

As a result of applying the modified retrospective method to adopt the lease guidance, the following adjustments were made to accounts on the condensed consolidated balance sheet at January 1, 2019 (in thousands):

Balance Sheet	December 31, 2018		Effect of adoption of ASC 842			January 1, 2019
Assets
Operating lease right-of-use assets, non-current	$	—	$	4,180		$	4,180
Total assets	$	—	$	4,180		$	4,180
Liabilities
Operating lease liabilities, current	$	—	$	976		$	976
Deferred rent1		525		(525	)		—
Operating lease liabilities, non-current		—		3,729			3,729
Total liabilities	$	525	$	4,180		$	4,705

(1) Included in Other liabilities on the balance sheet.

The Company has operating leases for administrative offices and R&D facilities, and certain finance leases for equipment. The operating leases have remaining terms of less than two years to less than eight years , and the finance lease have a remaining term of less than one year. Leases with an initial term of 12 months or less will not be recorded on the consolidated balance sheets as operating leases or finance leases, and the Company will recognize lease expense for these leases on a straight-line basis over the lease term. For leases commenced in 2019 and later, the Company accounts for lease components (e.g., fixed payments including rent, real estate taxes, and insurance costs) with non-lease components (e.g. common area maintenance costs). Certain leases include options to renew, with renewal terms that can extend the lease term from three to five years. The exercise of lease renewal options for our existing leases is at our sole discretion and not included in the measurement of lease liability and ROU asset as they are not reasonably certain to be exercised. Certain finance leases also include options to purchase the leased equipment. The depreciable life of assets and leasehold improvements are limited by the expected lease term unless there is a transfer of title or purchase option reasonably certain of exercise. The leases do not contain any residual value guarantees or material restrictive covenants.

Income Taxes

Income taxes are recorded in accordance with ASC 740, Accounting for Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. The Company determines its deferred tax assets and liabilities based on differences between financial reporting and tax bases of assets and liabilities, which are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are provided if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

ASC 740 clarifies the accounting for uncertainty in income taxes recognized in the financial statements and provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. The Company’s policy for recording interest and penalties associated with uncertain tax positions is to record such items as a component of tax expense.

Stock-Based Compensation

The Company recognizes stock-based compensation in accordance with ASC 718, “Compensation—Stock Compensation.” Under this guidance, stock-based compensation cost is based on the recognition of the grant date fair value estimated over the service period, which is generally the vesting period. The Company accounts for forfeitures as they occur. The Company accounts for its stock-based compensation awards to employees, including grants of employee stock options, to be recognized in the statements of operations based on their grant date fair values. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

The Company estimates the grant date fair value of each option award using the Black-Scholes option-pricing model. The use of the Black-Scholes option-pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the common stock. To determine the expected term of the Company’s employee stock options granted, the Company utilized the simplified approach as defined by SEC Staff Accounting Bulletin No. 107, “Share-Based Payment”. To determine the risk-free interest rate, the Company utilized an average interest rate based on U.S. Treasury instruments with a term consistent with the expected term of the Company’s stock-based awards. To determine the expected stock price volatility for the Company’s stock-based awards, the Company considers its historical volatility and its industry peers. The fair value of all the Company’s stock-based awards assumes no dividends as the Company does not anticipate paying cash dividends on its common stock.

Warrants

In conjunction with certain financing transactions, the Company issued warrants to purchase the Company’s common stock. The Company determines whether the warrants should be classified as a liability or equity according to ASC 480, “Distinguishing Liabilities from Equity”. For warrants classified as equity, the Company records the value of the warrants in additional paid-in capital on the balance sheet. The Company will continue to evaluate the classification of the equity warrants on a quarterly basis, to determine whether the warrants continue to meet equity classification requirement.

Research and Development Costs

Research and development expenses consist of costs such as salaries and benefits, laboratory supplies, facility costs, consulting fees and fees paid to contract research organizations, clinical trial sites, laboratories, other clinical service providers and contract manufacturing organizations. Research and development costs are expensed as incurred.

Comprehensive loss

Comprehensive loss is comprised of the Company’s net loss and other comprehensive income (loss). Unrealized gain (loss) on available-for-sale marketable securities represents the only component of other comprehensive income (loss).

Clinical Trial Accruals

The Company’s preclinical and clinical trials are performed by third party contract research organizations (CROs) and/or clinical investigators, and clinical supplies are manufactured by contract manufacturing organizations (CMOs). Invoicing from these third parties may be monthly based upon services performed or based upon milestones achieved. The Company accrues these expenses based upon its assessment of the status of each clinical trial and the work completed, and upon information obtained from the CROs and CMOs. The Company’s estimates are dependent upon the timeliness and accuracy of data provided by the CROs and CMOs regarding the status and cost of the studies as well as management’s best estimate and may not match the actual services performed by the organizations. This could result in adjustments to the Company’s research and development expenses in future periods. To date the Company has had no significant adjustments.

Bonus Accruals

The Company has bonus programs for eligible employees. Bonuses are determined based on various criteria, including the achievement of corporate, departmental and individual goals. Bonus accruals are estimated based on various factors, including target bonus percentages per level of employee and probability of achieving the goals upon which bonuses are based. The Company’s management periodically reviews the progress made towards the goals under the bonus programs. As bonus accruals are dependent upon management’s judgments of the likelihood of achieving the various goals, it is possible for bonus expense to vary significantly in future periods if changes occur in those management estimates.

Segments

The Company has one reportable segment and uses one measurement of results of operations to manage its business. All long-lived assets are maintained in the United States of America.

Recently Issued Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 is intended to improve the effectiveness of disclosures in the notes to financial statements related to fair value measurements in Topic 820. This ASU was effective for annual periods beginning after December 15, 2019, including interim periods within that period. The impact of the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). ASU 2018-15 aligns the accounting for implementation costs incurred in a hosting arrangement that is a service contract with the guidance on capitalizing costs associated with developing or obtaining internal-use software. This ASU was effective for annual periods beginning after December 15, 2019, including interim periods within that period, and early adoption is permitted. The impact of the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, which clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC Topic 606 when the counterparty is a customer. In addition, Topic 808 precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. This guidance was effective for the Company beginning January 1, 2020. The impact of the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which requires recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The new guidance applies to loans, accounts receivable, trade receivables, other financial assets measured at amortized cost, loan commitments and other off-balance sheet credit exposures. The new guidance also applies to debt securities and other financial assets measured at fair value through other comprehensive income. This guidance was effective for the Company beginning January 1, 2020. The impact of the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740: Simplifying the Accounting for Income Taxes), which removes certain exceptions to the general principles in Topic 740. ASU 2019-12 is effective for the fiscal years beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848: Facilitation of the Effects of Reference Rate Reform on Financial Reporting). The new guidance provides optional guidance for a limited period of time for applying U.S. GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The guidance will be effective prospectively as of March 12, 2020 through December 31, 2022 and interim periods within those fiscal years. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (Subtopic 470-20: Debt with Conversion and Other Options and Subtopic 815-40: Derivatives and Hedging - Contracts in Entity’s Own Equity). The new guidance simplifies accounting for convertible instruments by removing major separation models, removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. The amendment is effective for the Company for fiscal years beginning after December 15, 2023. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

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Net Loss Per Share

12 Months Ended

Dec. 31, 2020

Earnings Per Share [Abstract]

Net Loss Per Share

NOTE 2—NET LOSS PER SHARE

Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period utilizing the two-class method. As discussed further in Note 11 “Stockholders’ Equity”, Preferred Stock Shareholders participate equally with Common Stock Shareholders in earnings, but do not participate in losses, and are excluded from the Basic net loss calculation. Diluted net loss per share is computed by giving effect to all potential dilutive common shares, including outstanding options, warrants and convertible preferred stock. More specifically, at December 31, 2020 and December 31, 2019, stock options, warrants and if converted preferred stock totaling approximately 10,095,000 and 8,516,000 common shares, respectively, were excluded from the computation of diluted net loss per share as their effect would have been anti-dilutive. Additionally, the effects of the beneficial conversion feature (“BCF”) related to the Series A Convertible Preferred Stock increased the net loss attributable to common shareholders in the calculation of net loss per share. See Note 11 “Stockholders’ Equity” for additional information on the BCF.

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Research and Development Agreements

12 Months Ended

Dec. 31, 2020

Research And Development [Abstract]

Research and Development Agreements

NOTE 3 — RESEARCH AND DEVELOPMENT AGREEMENTS

Disaggregated Research and Development Revenue

Research and Development revenue is attributable to regions based on the location of our collaboration partner's parent company headquarters. Research and Development revenues disaggregated by location were as follows (in thousands):

	Year Ended December 31,
	2020		2019
Japan	$	6,567	$	19,499
United States		9,068		—
Total research and development revenue	$	15,635	$	19,499

Related Party Collaboration Agreements - Takeda Pharmaceuticals, Inc.

Research and development revenue from related party relates to revenue from research and development agreements with Millennium Pharmaceuticals, Inc., a wholly owned subsidiary of Takeda and were as follows (in thousands):

	Year Ended December 31,
	2020		2019
Takeda Individual Project Agreement	$	—	$	48
Takeda Development and License Agreement		6,068		18,468
Takeda Multi-Target Agreement		499		983
Total research and development revenue, related party	$	6,567	$	19,499

At December 31, 2020 and December 31, 2019, the Company had deferred revenue, other liabilities for co-share payments and accounts receivable balances from the research and development agreements with Takeda, who is a related party. These amounts were as follows (in thousands):  

	December 31, 2020		December 31, 2019
Assets
Accounts receivable	$	234	$	408
Liabilities
Other current liabilities	$	5,614		—
Deferred revenue, current		789		8,780
Deferred revenue, non-current		3,106		441
Other liabilities		6,711		—
Total liabilities	$	16,220	$	9,221

Takeda Development and License Agreement

On September 18, 2018, the Company entered into a Development and License Agreement with Takeda (“Takeda Development and License Agreement”) for the development and commercialization of products incorporating or comprised of one or more CD38 SLT-A fusion proteins (“Licensed Products”) for the treatment of patients with diseases such as multiple myeloma.

The Company, at its discretion, exercised the co-development option in July 2019 and as a result is eligible to receive pre-clinical and clinical development milestone payments of up to $307.5 million upon the achievement of certain development milestones and regulatory approvals, and sales milestone payments of up to $325.0 million upon the achievement of certain sales milestone events.

The Company may elect to end its co-development by providing Takeda with written notice of termination of the co-development. In the event the Company elects to end the co-development, the Company will be subject to reduced payments and royalty rates as set forth more specifically in the Takeda Development and License Agreement.

The Company will also be entitled to receive tiered royalties, subject to certain reductions, as percentages of annual aggregate net sales, if any, of Licensed Products. The royalty percentages would range from low double-digits to low twenties if the Company continues its option to co-develop, and from high-single digits to low teens if the Company does not continue its option to co-develop.

The Company identified one performance obligation at the inception of the Takeda Development and License Agreement, the research and development services for the CD38 ETBs, including manufacturing. The Company determined that research, development and commercialization license and the participation in the committee meetings are not distinct from the research and development services and therefore those promised services were combined into one combined performance obligation.

The total transaction price of $29.8 million consists of (1) the $30.0 million upfront payment, (2) a $10.0 million development milestone payment which was achieved in the first quarter of 2020, (3) minus $10.2 million in expected co-share payments payable to Takeda during Early-Stage Development, as defined in the Takeda Development and License Agreement. The expected co-share payment is considered variable consideration, and the Company applied a constraint using the expected value method. Significant judgement was involved in determining transaction consideration, including the determination of the variable consideration, including the constraint on consideration.

At December 31, 2020, the other potential development milestones and sales milestones are not currently deemed probable of being achieved, as they are dependent on factors outside the Company’s control. Therefore, these future development milestones and sales-based milestone payments have been fully constrained and are not included in the transaction price.

The Company recognizes revenue using a cost-based input measure. In applying the cost-based input method of revenue recognition, the Company used actual costs incurred relative to budgeted costs expected to be incurred for the combined performance obligation. These costs consist primarily of internal employee efforts and third-party contract costs. Revenue is recognized based on actual costs incurred as a percentage of total budgeted costs as the Company completes its performance obligation over the estimated service period.

In July 2019, the Company exercised its co-development option and the agreed upon collaboration budget was increased to cover additional research and development activities whereby both parties will continue to cost share. The Company evaluated the additional research and development services and concluded these services were distinct from services currently being provided and represented a cost sharing arrangement between the Company and Takeda. As such, research and development expenses for this performance obligation will be expensed as incurred.

At December 31, 2020 and December 31, 2019, total deferred revenue related to the performance obligation was $1.3 million and $6.1 million, respectively.

Takeda Multi-Target Agreement

In June 2017, The Company entered into a Multi-Target Collaboration and License Agreement with Takeda (the “Takeda Multi-Target Agreement”) in which the Company agreed to collaborate with Takeda to identify and generate ETBs, against two targets designated by Takeda. Takeda designated certain targets of interest as the focus of the research. Each party granted to the other nonexclusive rights in its intellectual property for purposes of the conduct of the research, and the Company agreed to work exclusively with Takeda with respect to the designated targets.

Under the Takeda Multi-Target Agreement, Takeda has an option during an option period to obtain an exclusive license under the Company’s intellectual property to develop, manufacture, commercialize and otherwise exploit ETBs against the designated targets. The option period for each target ends three months after the completion of the evaluation of such designated target.

As of December 31, 2020 , the Company received cumulative payments of $5.0 million from Takeda pursuant to the Takeda Multi-Target Agreement. The Company may receive payments from the following:

• $30.0 million in aggregate through the exercise of the option to license ETBs.

• Clinical development milestone payments of up to approximately $397.0 million, for achievement of development milestones and regulatory approval of collaboration products under the Takeda Multi-Target Agreement.

• Commercial milestone payments of up to $150.0 million, for achievement of pre-specified sales milestones related to net sales of all collaboration products under the Takeda Multi-Target Agreement.

• Tiered royalty payments of a mid-single to low-double digit percentage of net sales of any licensed ETBs, subject to certain reductions.

• Up to $10.0 million in certain contingency fees.

The Takeda Multi-Target Agreement will expire on the expiration of the option period (within three months after the completion of the evaluation of each designated target) for the designated targets if Takeda does not exercise its options, or, following exercise of the option, on the later of the expiration of patent rights claiming the licensed ETB or ten years from first commercial sale of a licensed ETB. The Takeda Multi-Target Agreement may be terminated sooner by Takeda for convenience or upon a material change of control, or by either party for an uncured material breach of the agreement. Under the Takeda Multi-Target Agreement, both parties have the right to terminate the agreement, with a specified notice period.

The Company evaluated the contract termination clause and concluded that it was a non-substantive termination provision. As such, an initial contract term was defined as the length of the termination notice period, with a deemed renewal option to continue the research and development services over the remainder of the contract term as a material right.

The Company determined that the promised goods and services under the Takeda Multi-Target Agreement were the background IP license, the research and development services, manufacturing during the initial contract period, and a renewal option to continue the research and development services. The Company determined that there were two performance obligations: research and development services, and the renewal options. Since the background IP and manufacturing were not distinct from the research and development services, they were deemed to be one performance obligation. Transaction consideration was allocated to each of the performance obligations using an estimate of the standalone selling price, and revenues are recognized over the period that the research and development services occur. The Company also concluded that, since the option for the exclusive license is deemed to be at fair value, the option does not provide the customer with a material right and should be accounted for if and when the option is exercised.

At December 31, 2020 and December 31, 2019, deferred revenue related to the performance obligation was $2.6 million and $3.1 million, respectively.  

Vertex Collaboration Agreement

In November 2019, the Company entered into a collaboration agreement with (the “Vertex Collaboration Agreement”) Vertex Pharmaceuticals Incorporated (“Vertex”), to perform strategic research leveraging the Company’s engineered toxin body (“ETB”) technology platform to discover and develop novel targeted biologic therapies for applications outside of oncology.

Pursuant to the terms of the Vertex Collaboration Agreement, the Company granted Vertex an exclusive option to obtain an exclusive license under the Company’s licensed technology to exploit one or more ETB products that are discovered by the Company against up to two designated targets. Vertex has selected an initial target and has the option to designate one additional target within specified time limits.

Vertex paid the Company an upfront payment of $38.0 million, consisting of $23.0 million in cash and a $15.0 million equity investment pursuant to a Share Purchase Agreement (the “SPA”). In addition to the upfront payments, the Company may also receive an additional $22.0 million through the exercise of the options to license ETB products or to add an additional target. Additionally, Vertex will reimburse the Company for certain mutually agreed manufacturing technology transfer activities.

The Company may, for each target under the Vertex Collaboration Agreement, receive up to an additional $180.0 million in milestone payments upon the achievement of certain development and regulatory milestone events and up to an additional $70.0 million in milestone payments upon the achievement of certain sales milestone events. The Company will also be entitled to receive, subject to certain reductions, tiered mid-single digit royalties as percentages of calendar year net sales, if any, on any licensed product.

The Company will be responsible for conducting the research activities through the designation, if any, of one or more development candidates. Upon the exercise by Vertex of its option for a development candidate, Vertex will be responsible for all development, manufacturing, regulatory and commercialization activities with respect to that development candidate.

Unless earlier terminated, the Vertex Collaboration Agreement will expire (i) on a country-by-country basis and licensed product-by-licensed product basis on the date of expiration of all payment obligations under the Collaboration Agreement with respect to such licensed product in such country and (ii) in its entirety upon the expiration of all payment obligations thereunder with respect to all licensed products in all countries or upon Vertex’s decision not to exercise any option on or prior to the applicable deadlines. Vertex has the right to terminate the Vertex Collaboration Agreement for convenience upon prior written notice to the Company. Either party has the right to terminate the Vertex Collaboration Agreement (a) for the insolvency of the other party or (b) subject to specified cure periods, in the event of the other party’s uncured material breach.

The Company identified one performance obligation at the inception of the Vertex Collaboration Agreement consisting of research and development services. The Company recognizes revenue under the Vertex Collaboration Agreement using a cost-based input measure. In applying the cost-based input method of revenue recognition, the Company will use actual costs incurred relative to budgeted costs expected to be incurred. These costs consist primarily of internal employee efforts and third-party contract costs. Revenue is recognized based on actual costs incurred as a percentage of total budgeted costs as the Company completes its performance obligation over the estimated service period.

In connection with the Vertex Collaboration Agreement, the Company and Vertex entered into a SPA pursuant to which Vertex agreed to purchase 1,666,666 shares of the Company’s common stock, par value $0.001 per share, at a price per share of $9.00. As the price per share was in excess of the fair value of the Company’s common stock, the Company allocated $4.5 million of this consideration to the Collaboration Agreement. The issuance of these shares was pursuant to a private placement exemption from registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D thereunder.

In addition to the SPA, the Vertex Collaboration Agreement contemplates that the Company may enter into certain other ancillary arrangements with Vertex.

At December 31, 2020 and December 31, 2019, deferred revenue related to the Vertex Collaboration Agreement was $18.4 million and $27.5 million, respectively.

Grant Agreements

In September 2018, the Company entered into a Cancer Research Agreement (the “CD38 CPRIT Agreement”) with the Cancer Prevention and Research Institute of Texas (“CPRIT”). The CD38 CPRIT Agreement was extended in October 2020, under which CPRIT awarded a $15.2 million product development grant to fund research of a cancer therapy involving a CD38 targeting ETB. Pursuant to the CD38 CPRIT Agreement, the Company may also use such funds to develop a replacement CD38 targeting ETB, with or without a partner.

In 2011, the Company entered into a Cancer Research Agreement (the “CPRIT Agreement”) with CPRIT under which CPRIT awarded a $10.6 million product development grant for the CD20-targeting ETB MT-3724, this grant ended in November 2019. At December 31, 2020 the Company had received $20.0 million and has a remaining receivable of $0.0 million.

During the twelve months ended December 31, 2020 and December 31, 2019, the Company recognized $3.2 million and $2.8 million, respectively, in grant revenue under these awards. Qualified expenditures submitted for reimbursement in excess of amounts received are recorded as receivables in Grant revenue receivable. At December 31, 2020 and December 31, 2019, the Company had $0.0 million and $7.1 million, respectively, recorded in Grants revenue receivable.

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Marketable Securities and Fair Value Measurements

12 Months Ended

Dec. 31, 2020

Fair Value Disclosures [Abstract]

Marketable Securities and Fair Value Measurements

NOTE 4—MARKETABLE SECURITIES AND FAIR VALUE MEASUREMENTS

The following table sets forth the Company’s financial assets (cash equivalents and available-for-sale marketable securities) at fair value on a recurring basis as of December 31, 2020 and 2019:

			Basis of Fair Value Measurements
	December 31, 2020		Level 1		Level 2		Level 3
Money market funds	$	23,794	$	23,794	$	—	$	—
Commercial paper		42,863		—		42,863		—
United States Treasury Bills		21,794		—		21,794		—
United States government-related debt securities		4,009		—		4,009		—
Total	$	92,460	$	23,794	$	68,666	$	—
Amounts included in:
Cash and cash equivalents	$	23,793
Marketable securities, current		68,667
Total cash equivalents and marketable securities	$	92,460

			Basis of Fair Value Measurements
	December 31, 2019		Level 1		Level 2		Level 3
Money market funds	$	79,970	$	79,970	$	—	$	—
Commercial paper		20,436		—		20,436		—
United States Treasury Bills		16,738		—		16,738		—
United States government-related debt securities		7,010		—		7,010		—
Corporate bonds		1,351		—		1,351		—
Total	$	125,505	$	79,970	$	45,535	$	—
Amounts included in:
Cash and cash equivalents	$	84,362
Marketable securities, current		39,633
Marketable securities, non-current		1,510
Total cash equivalents and marketable securities	$	125,505

The Company invests in highly-liquid, investment-grade securities. The following is a summary of the Company’s available-for-sale securities at December 31, 2020 and 2019:

	December 31, 2020
	Cost Basis		Unrealized Gain		Unrealized Loss			Fair Value
Cash equivalents - money market funds, commercial    paper and corporate bonds	$	23,793	$	—	$	—		$	23,793
Marketable securities, current - commercial paper,    Treasury bills and corporate bonds		68,650		19		(2	)		68,667

	December 31, 2019
	Cost Basis		Unrealized Gain		Unrealized Loss		Fair Value
Cash equivalents - money market funds, commercial    paper and corporate bonds	$	84,361	$	1	$	—	$	84,362
Marketable securities, current - commercial paper,    Treasury bills and corporate bonds		39,616		17		—		39,633
Marketable securities, non-current - Treasury bills		1,510		—		—		1,510

The following summarized the contractual maturities of the Company’s available-for-sale investments at December 31, 2020 2019:

	December 31, 2020
	Cost Basis		Fair Value
Due in one year or less	$	92,443	$	92,460
Due after one year through five years		—		—
Total	$	92,443	$	92,460

	December 31, 2019
	Cost Basis		Fair Value
Due in one year or less	$	123,977	$	123,995
Due after one year through five years		1,510		1,510
Total	$	125,487	$	125,505

The Company received no proceeds and $1.3 million of proceeds from the sale of available-for-sale securities for the years ended December 31, 2020 and 2019, respectively, with an immaterial realized gain for the year ended December 31, 2019. The basis on which the cost of the security sold was determined is specific identification. 

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Property and Equipment

12 Months Ended

Dec. 31, 2020

Property Plant And Equipment [Abstract]

Property and Equipment

NOTE 5—PROPERTY AND EQUIPMENT

Property and equipment consists of the following (in thousands):

	December 31,
	2020			2019
Laboratory equipment	$	16,159		$	10,587
Leasehold improvements		12,391			10,383
Furniture and fixtures		474			150
Computer and equipment		615			331
		29,639			21,451
Less: Accumulated depreciation		(7,385	)		(3,293	)
Total property and equipment, net	$	22,254		$	18,158

Depreciation expense was $4.1 million and $2.0 million for the years ended December 31, 2020 and 2019, respectively.

In connection with the continued expansion of the Company’s facilities, at December 31, 2020 and 2019, the Company had net Asset Retirement Obligation (ARO) assets totaling $0.8 million and $1.0 million, respectively. The ARO assets are included in Leasehold improvements.

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Balance Sheet Components

12 Months Ended

Dec. 31, 2020

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Balance Sheet Components

NOTE 6—BALANCE SHEET COMPONENTS

Accrued liabilities comprise the following (in thousands):

	December 31, 2020		December 31, 2019
Accrued liabilities:
General and administrative	$	1,577	$	4,521
Clinical trial related costs		1,743		1,383
Non-clinical research and manufacturing operations		4,321		5,774
Payroll related		4,908		2,849
Other accrued expenses		26		17
Total Accrued liabilities	$	12,575	$	14,544

         Other current liabilities comprise the following (in thousands):

	December 31, 2020		December 31, 2019
Other Current liabilities:
Finance Lease Liability, current portion		1		18
Long Term Debt, Current Portion		—		800
Operating Lease Liability, current portion		2,210		1,683
Total Other Current liabilities	$	2,211	$	2,501

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Related Party Transactions

12 Months Ended

Dec. 31, 2020

Related Party Transactions [Abstract]

Related Party Transactions

NOTE 7 — RELATED PARTY TRANSACTIONS

Takeda Agreements

In connection with the Takeda Stock Purchase Agreement described in Note 3 “Research and Development Collaboration Agreements”, Takeda became a related party, following the stock purchase. Refer to Note 3, Research and Development Collaboration Agreements, for more details about the Takeda Collaboration Agreement, the Takeda Multi-Target Agreement and the Takeda Development and License Agreement. Refer to Note 12, “Stockholders’ Equity”, for more detail about the Takeda Stock Purchase Agreement. Jonathan Lanfear, a director of the Company, was the Vice President and Global Head of Oncology and Neuroscience Business Development for Takeda until September 25, 2020.

Public Offerings

On September 25, 2018, the Company closed its underwritten public offering (the “2018 Public Offering”) of its common stock, in which Longitude Venture Partners III, L.P. and CDK Associates, L.L.C., current stockholders of the Company, purchased 365,000 and 545,454 shares of common stock, respectively, at the public offering price. Scott Morenstein, a director of the Company is a Managing Director of Caxton Alternative Management LP, the investment manager of CDK Associates, L.L.C., David Hirsch, a director of the Company, is a member of Longitude Capital Partners III, LLC, the general partner of Longitude Venture Partners III, L.P.

On November 25, 2019, the Company closed its underwritten public offering (the “2019 Public Offering”) of its common stock and 250 shares of our newly designated Series A Convertible Preferred Stock, in which Longitude Venture Partners III, L.P. and CDK Associates, L.L.C., purchased 937,500 and 468,750 shares of common stock, respectively, at the public offering price.

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Borrowing Arrangements

12 Months Ended

Dec. 31, 2020

Debt Disclosure [Abstract]

Borrowing Arrangements

NOTE 8 — BORROWING ARRANGEMENTS

Perceptive Credit Facility

On February 27, 2018, the Company entered into a term loan facility with Perceptive Credit Holdings II, LP (“Perceptive”) in the amount of $10.0 million (the “Perceptive Credit Facility”). The Perceptive Credit Facility consisted of a $5.0 million term loan, which was drawn on the effective date of the Perceptive Credit Facility, and an additional $5.0 million term loan which the Company did not draw down. The principal on the facility accrued interest at an annual rate equal to a three-month LIBOR plus the Applicable Margin. The Applicable Margin was 11.00%. Upon the occurrence, and during the continuance, of an event of default, the Applicable Margin, defined above, would be increased by 4.00% per annum. Payments for the first 24 months were interest only and were paid quarterly. After the second anniversary of the closing date of the Perceptive Credit Facility, principal payments of $0.2 million were due each calendar quarter. The Company incurred $0.5 million in deferred finance costs and issued the debt net of a $1.5 million discount, in connection with the credit facility.

The Company repaid the Perceptive Credit Facility on May 21, 2020, from the proceeds of the K2 Loan and Security Agreement discussed below. Upon the termination of the Perceptive Credit Facility, the Company paid $4.9 million in principal and interest and $0.1 million in exit fees and prepayment penalties. The Company recognized a total loss on extinguishment of debt in the amount of $1.2 million related to the Perceptive Credit Facility during the year ended December 31, 2020.

In connection with the Perceptive Credit Facility, on February 27, 2018 the Company issued Perceptive a warrant to purchase 190,000 shares of the Company’s common stock. The warrant is exercisable for a period of seven years from the date of issuance at an exercise price per share of $9.5792, subject to certain adjustments as specified in the Warrant. See Note 11, “Stockholders’ Equity” for further discussion of the warrant. The fair value of the warrant of $1.5 million was recorded as a debt discount at issuance and was included in the loss on extinguishment.

K2 Health Ventures Loan and Security Agreement

On May 21, 2020, the Company entered into a Loan and Security Agreement with K2 HealthVentures LLC in the amount of $45.0 million (“K2 Loan and Security Agreement”). The K2 Loan and Security Agreement consists of three tranches, the first of which was drawn on the closing date in the amount of $15.0 million. The second tranche of $20.0 million may be drawn between March 1, 2021 and June 30, 2021 at the Company’s option and subject to the achievement of certain clinical milestones. A third tranche of $10.0 million may be drawn after the Company’s second tranche draw, but prior to December 31, 2021. The principal accrues interest at an annual rate of equal to the greater of 8.45% or the sum of the Prime Rate plus 5.2% and commenced on July 1, 2020. The interest rate at December 31, 2020 was 8.45%. Payments are interest only until July 1, 2022, provided, however, that if no event of default has occurred and the second tranche has been fully funded payments will be interest only until July 1, 2023. After the second anniversary of the closing date of the K2 Loan and Security Agreement, principal payments are due monthly. The loan matures on June 1, 2024 and includes both financial and non-financial covenants including a minimum cash balance requirement. The Company was in compliance with the debt covenants at December 31, 2020 and expects to be compliant with the debt covenants for the next 12 months. The Company recorded the debt net of $1.1 million comprised of deferred financing costs, debt discount and associated exit fee which are being accreted to interest expense over the term of the K2 Loan and Security Agreement using the effective interest method. Additionally, the Company incurred $0.2 million in facilities fee related to the second tranche which will be classified as a prepaid asset until drawn upon.

As of December 31, 2020 and December 31, 2019 the Perceptive Credit Facility principal balance was $0.0 million and $5.0, respectively. As of December 31, 2020 and December 31, 2019 the K2 Loan principal balance was $15.0 million and $0.0 million, respectively.

As of December 31, 2020 and December 31, 2019 the carrying value of the long-term debt was $14.9 million and $3.7 million, respectively.

Future required principal and final payments on the K2 Loan were as follows at December 31, 2020 ($ in thousands):

2021	—
2022	4,105
2023	7,537
2024	3,358
Total Principal Amounts	15,000
Final Fee Due at Maturity	861
Unamortized discount, deferred costs and final fee	(935	)
Total Long-Term Debt, net	14,926

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Leases

12 Months Ended

Dec. 31, 2020

Leases [Abstract]

Leases

NOTE 9 – LEASES

In January 2019, the Company entered into a lease agreement for an additional 57,000 square feet of administrative office and research and development space in Austin, Texas. The lease commenced March 2019 and expires August 2028 and does not contain an option to renew. The tables below include the impact of this lease. Upon the commencement of the lease, the Company recorded an operating lease ROU asset and a lease liability of $7.2 million. In connection with entering into the lease and in lieu of a cash deposit, the Company obtained a letter of credit of $3.0 million. Additionally, the Company has recorded an asset retirement obligation as a result of this lease which has a balance of $0.4 million at December 31, 2020.

In June 2020, the Company entered into a lease agreement for office space in New York, New York. The space consists of an initial 9,289 square feet and an additional 3,000 square feet of expansion space. The lease for the initial space commenced on August 1, 2020 and the possession of the expansion space commenced in December 2020. The term for both spaces will expire on October 30, 2025 and does not contain an option to renew. In connection with entering into the lease and in lieu of a cash deposit, the Company obtained a letter of credit in the amount of $0.2 million.

Changes in the carrying amounts of the Company’s AROs for the years ended December 31, 2020 and 2019 are shown below (in thousands):

	2020		2019
Balance at beginning of year	$	1,365	$	344
Liabilities incurred in the current period		—		949
Accretion expense		125		72
Balance at end of year	$	1,490	$	1,365

At December 31, 2020, the Company did not have any operating and finance leases that have not yet commenced.

The components of lease expense for the years ended December 31, 2020 and December 31, 2019 were as follows (in thousands):

	2020		2019
Operating leases
Operating lease expense	$	2,520	$	2,175
Variable lease expense		491		456
Total operating lease expense	$	3,011	$	2,631
Finance leases
Amortization of right-of-use asset	$	8	$	8
Interest on lease liabilities		1		2
Total finance lease expense	$	9	$	10

The following table summarizes the balance sheet classification of leases at December 31, 2020 (in thousands):

Operating leases
Operating lease right-of-use assets	$	11,104
Operating lease liabilities, current1	$	2,210
Operating lease liabilities, non-current		12,213
Total operating lease liabilities	$	14,423
Finance leases
Property and equipment, at cost	$	77
Less, Accumulated depreciation		49
Property and equipment, net	$	28
Finance lease liabilities, current1	$	1

1. Included in other current liabilities.

The following table presents other information on leases as of December 31, 2020 and December 31, 2019 (in thousands):

	2020			2019
Weighted average remaining lease term, operating leases	6.1 years			7.2 years
Weighted average remaining lease term, finance leases	0.1 years			0.8 years
Weighted average discount rate, operating leases		7.04	%		6.72	%
Weighted average discount rate, finance leases		0.00	%		6.88	%
Right of use assets obtained in exchange for operating lease liabilities	$	2,735		$	7,501

Future minimum payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2020 (in thousands):

	Operating Leases			Finance Leases
2021	$	3,142		$	1
2022		3,361			—
2023		2,689			—
2024		2,218			—
2025		2,147			—
Thereafter		4,244			—
Total lease payments		17,801			1
Less:
Imputed interest		(3,378	)		—
Total lease liabilities	$	14,423		$	1

Supplemental cash flow information related to the Company’s leases were as follows for the years ended December 31, 2020 and December 31, 2019 (in thousands):

	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows operating leases	$	2,453	$	1,278
Operating cash flows finance leases		1		3
Financing cash flows finance leases	$	18	$	31

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2020

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

NOTE 10—COMMITMENTS AND CONTINGENCIES

Commitments

The Company has entered into project work orders for each of its clinical trials with clinical research organizations (“CRO”) and related laboratory vendors. Under the terms of these agreements, the Company is required to pay certain upfront fees for direct services costs. Based on the particular agreement some of the fees may be for services yet to be rendered and are reflected as a current prepaid asset and have an unamortized balance of approximately $1.1 million at December 31, 2020. In connection with the Company’s clinical trials, it has entered into separate project work orders for each trial with its CRO. The Company has entered into agreements with CROs and other external service providers for services, primarily in connection with the clinical trials and development of the Company’s drug candidates. The Company was contractually obligated for up to approximately $49.0  million of future services under these agreements at December 31, 2020, for which amounts have not been accrued as services have not been performed. The Company’s actual contractual obligations will vary depending upon several factors, including the progress and results of the underlying services.

We have entered into estimated purchase obligations which in total range from $13.2 million to $13.9 million and includes signed orders for capital equipment.  

As a result of our collaboration agreement with Takeda, we exercised our right to cost-share approximately 50% of the development costs for Phase I. Future clinical trial expense related to this trial has not been included within the purchase commitments because they are contingent on enrollment in clinical trials and the activities required to be performed by the clinical sites.

Contingencies

In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to vendors, lessors, business partners, collaborators and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements, services to be provided by or on behalf of the Company, or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements and may enter in the future with its directors and certain of its officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. The Company maintains director and officer insurance, which may cover certain liabilities arising from its obligation to indemnify its directors and certain of its officers and employees, and former officers and directors in certain circumstances. The Company maintains product liability insurance, clinical trial insurance and comprehensive general liability insurance, which may cover certain liabilities arising from its indemnification obligations. It is not possible to determine the maximum potential amount of exposure under these indemnification obligations due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular indemnification obligation. Such indemnification obligations may not be subject to maximum loss clauses. Management is not currently aware of any matters that could have a material adverse effect on the financial position, results of operations or cash flows of the Company.

The Company believes that its product liability, clinical trial and comprehensive general liability insurance are adequate for current operations. However, the coverage limits of this insurance may not be adequate to cover all potential claims. Product liability, clinical trial and comprehensive general liability insurance is expensive and may be difficult to obtain or maintain on commercially reasonable terms. A successful claim against the Company in excess of the Company’s insurance coverage or outside the scope of an indemnity given by any vendors, lessors, business partners, collaborators and other parties in Company agreements could adversely affect the Company’s results of operations.

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Stockholders' Equity

12 Months Ended

Dec. 31, 2020

Equity [Abstract]

Stockholders' Equity

NOTE 11—STOCKHOLDERS’ EQUITY

Private Placement and Related Warrants

On August 1, 2017, the Company entered into a securities purchase agreement with Longitude Venture Partners III, L.P. and certain other accredited investors (the “Longitude Securities Purchase Agreement”), pursuant to which the Company sold an aggregate of 5,793,063 units (the “Units”) having an aggregate purchase price of $40.0 million (“PIPE Financing”), each such Unit consisting of (i) one (1) share (the “Shares”) of our common stock and (ii) a warrant (the “Private Placement Warrants”) to purchase 0.5 shares of our common stock (the “Private Placement”). The Private Placement was pursuant to equity commitment letter agreements entered into by and between the Company and investors in March 2017 and June 2017. The purchase price per Unit was $6.9048. The Warrants are exercisable for a period of seven years from the date of their issuance at a per-share exercise price of $6.8423 (which exercise price shall be payable in cash or through a cashless exercise mechanic), subject to certain adjustments as specified in the Warrants. At December 31, 2020, there were warrants outstanding under this agreement to purchase 2,896,528 shares of common stock. The warrants were valued at $16.3 million using the Black-Scholes model, and recorded in additional paid-in capital. The Black-Scholes inputs used were: expected dividend rate of 0%, expected volatility of 147%, risk free interest rate of 2.07%, and expected term of 7.0 years. The warrants were exercisable upon issuance and expire August 1, 2024.

In December 2015, the Company entered into an agreement with Wedbush (“Wedbush Agreement”), which was subsequently amended in December of 2017, related to Wedbush’s services associated with the equity financing under the Longitude Securities Purchase Agreement. As part of the Wedbush Agreement, the Company issued warrants to purchase 57,930 shares of our common stock (the “Wedbush Warrants”). The Wedbush Warrants are exercisable for a period of seven years from the date of their issuance at a per-share exercise price of $6.8423 (which exercise price shall be payable in cash or through a cashless exercise mechanic), subject to certain adjustments as specified in the Warrants. At December 31, 2020, there were Wedbush Warrants outstanding to purchase 57,930 shares of common stock. The Wedbush Warrants were valued at $0.4 million using the Black-Scholes model. The Black-Scholes inputs used were: expected dividend rate of 0%, expected volatility of 108%, risk free interest rate of 2.3%, and expected term of 7.0 years. The warrants were exercisable upon issuance and expire December 1, 2024.  

Subsequent Private Placements  

In connection with the execution of the Takeda Multi-Target Agreement, the Company entered into the Takeda Stock Purchase Agreement. Pursuant to the Takeda Stock Purchase Agreement, following the consummation of the Private Placement, Takeda purchased 2,922,993 shares of the Company common stock, at a price per share of $6.8423, for an aggregate purchase price of $20.0 million.

In connection with the execution of the Vertex Collaboration Agreement, the Company entered into the Vertex Stock Purchase Agreement. Pursuant to the Vertex Stock Purchase Agreement, Vertex purchased 1,666,666 shares of the Company common stock, at a price per share of $9.00, for an aggregate purchase price of $15.0 million. See Note 3, “Research and Development Agreements” for additional information.

Public Offerings

On September 25, 2018, the Company closed its underwritten public offering (the “2018 Public Offering”) of 9,430,000 shares of its common stock, which included the exercise in full by the underwriters of their option to purchase 1,230,000 additional shares of common stock, at a price to the public of $5.50 per share. The net proceeds to the Company from the 2018 Public Offering, after deducting the underwriting discounts and commissions and offering expenses payable by the Company, were approximately $48.1 million.

On November 25, 2019, the Company closed its underwritten public offering (the “2019 Public Offering”) of 6,900,000 shares of its common stock at a price to the public of $8.00 per share, and 250 shares of newly designated Series A Convertible Preferred Stock (“Series A Preferred Stock”) at a price to the public of $8.00 per share. The offering included the exercise in full by the underwriters of their option to purchase up to 900,000 additional shares of common stock. The net proceeds to the Company from the offering, after deducting the underwriting discounts and commissions and offering expenses payable by the Company, were approximately $53.4 million. Each share of Series A Preferred Stock is convertible to 1,000 shares of Common Stock, provided that the holder of Series A Preferred Stock will be prohibited from converting the Series A Preferred Stock into shares of common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 9.99% of the total number of shares of the Company’s common stock then issued and outstanding. In the event of the Company’s liquidation, dissolution, or winding up, holders of Series A Preferred Stock will receive a payment equal to $0.001 per share of Series A Preferred Stock before any proceeds are distributed to the holders of the Company’s common stock and pari passu with any distributions to the holders of the Company’s Series A Preferred Stock. Series A Preferred Stock participate in earnings equally with Common Stock shareholders, with the same dividend rate, but do not participate in losses as discussed in Note 2, “Net Loss per Common Share”. The Series A Preferred Stock has no voting rights, except as required by law and except that the consent of the Series A Preferred Stockholders will be required to amend the terms of the Series A Preferred Stock. Based on the guidance in ASC 470-20-20, the Company determined that a BCF existed, as the effective conversion price for the Series A Preferred Stock at issuance was less than the fair value of the common stock which the preferred shares are convertible into. The BCF based on the intrinsic value of the date of issuances for the Series A Preferred Stock was $0.7 million.

In July 2020, the Company raised gross proceeds of approximately $50.0 million and net proceeds of $48.5 million through at-the-market sales (“ATM”) of its common stock pursuant to its ATM facility. The Company sold approximately 3.6 million shares of the Company’s common stock at a purchase price of $12.00 per share and 0.5 million shares at a purchase price of $12.70, in each case the market price at the time of sale. These sales constituted the full available dollar amount under the Company’s current ATM facility, and with such completion, its current ATM facility has terminated.

On August 7, 2020, the Company filed with the Securities and Exchange Commission (“SEC”) a registration statement on Form S-3 for $300.0 million of securities (the “Shelf Registration Statement”), inclusive of a $100.0 million ATM program. This Shelf Registration Statement is in replacement of the Company’s existing registration statement on Form S-3 and incorporates the unsold balance remaining thereto. The SEC declared the Shelf Registration Statement effective on August 17, 2020 and the Company may make sales of securities from time to time, depending on market conditions, pursuant to the Shelf Registration Statement.

Subsequent Common Stock Warrants

On February 28, 2018, in connection with the Perceptive Credit Facility, the Company issued warrants to purchase 190,000 shares of the Company’s common stock with an exercise price of $9.58 (the “2018 Warrants”). The 2018 Warrants are exercisable for a period of seven years from the date of issuance, subject to certain adjustments as specified in the Warrants. The 2018 Warrants were classified as equity and recorded in additional paid-in capital. They were valued at $1.5 million using the Black-Scholes model. The Black-Scholes inputs used were: expected dividend rate of 0%, expected volatility of 105%, risk free interest rate of 2.8%, and expected term of 7.0 years.  See Note 8, “Borrowing Arrangements”, for further detail about the Perceptive Credit Facility.  

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Equity Incentive Plans and Stock Based Compensation

12 Months Ended

Dec. 31, 2020

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Equity Incentive Plans and Stock Based Compensation

NOTE 12—EQUITY INCENTIVE PLANS AND STOCK-BASED COMPENSATION

2018 Equity Incentive Plan

In May 2018, the Company adopted the 2018 Equity Incentive Plan (“2018 Plan”). The 2018 Plan serves as a successor to the 2004 Amended and Restated Equity Incentive Plan (“2004 Plan”), 2009 Stock Plan, as amended (“2009 Plan”) and 2014 Equity Incentive Plan (“2014 Plan”) with any forfeited, expired or cancelled awards under those plans being absorbed into the 2018 Plan for future issuance. The terms of the 2018 Plan provide for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, other stock awards, and performance awards that may be settled in cash, stock, or other property. Stock options may be granted under the 2018 Plan with an exercise price not less than 100% of the fair market value of the common stock on the date of grant. Stock options under the 2018 Plan may be granted with terms of up to ten years and generally vest over a period of four years, with the exception of grants to non-employee directors and consultants where the vesting period is or may be shorter. The total number of shares of the Company’s common stock initially reserved for issuance under the 2018 Plan was equal to the sum of (i) 2,000,000 newly reserved shares, which included, as of April 30, 2018, 104,184 shares reserved and unallocated under the 2009 Stock Plan, as amended, and 335,040 shares reserved and unallocated under the 2014 Equity Incentive Plan, as amended, plus (ii) up to 2,885,121 additional shares that may be added to the 2018 Plan in connection with the forfeiture, expiration or cancellation of awards outstanding under the 2014 Plan, the 2009 Plan and the 2004 Plan as of May 31, 2018. Additionally, the number of shares of common stock that may be issued under the 2018 Plan shall increase on each January 1, beginning with January 1, 2019, and continuing through and including January 1, 2028 by an amount equal to the lesser of (i) 4% of the number of outstanding shares of common stock on that date and (ii) an amount determined by the Company’s board of directors or compensation committee; provided, however, that in no event will the number of shares available for issuance under the 2018 Plan be increased to the extent such increase, in addition to any other increases proposed by the board of directors in the number of shares available for issuance under all other employee or director stock plan would result in the total number of shares then available for issuance under all employee and director stock plans exceeding 20% of the outstanding shares of the Company’s common stock on the first day of the applicable fiscal year. As of December 31, 2020 options to purchase 679,187 shares of common stock were available for future grants under the 2018 Plan.

2004 Employee Stock Purchase Plan

On January 1, 2017 an additional 9,091 shares were authorized for issuance under the 2004 Employee Stock Purchase Plan (“2004 Purchase Plan”) pursuant to the annual automatic increase to the authorized shares under the 2004 Purchase Plan. The 2004 Purchase Plan contains consecutive, overlapping 24 month offering periods. Each offering period includes four six-month purchase periods. The price of the common stock purchased will be the lower of 85% of the fair market value of the common stock at the beginning of an offering period or at the end of the purchase period. For the years ended December 31, 2020 and December 31, 2019, no shares were purchased by employees under the 2004 Purchase Plan. At December 31, 2020 and 2019, there were 8,636 were authorized and available for issuance under the 2004 Purchase Plan.

Equity Incentive Plan

The following table summarizes information about stock option activity for years ended December 31, 2020 and 2019:

	Outstanding Options Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value (in millions):
Balances, December 31, 2018		4,002,999		$	10.43		6.40	$	1.50
Granted		2,023,600		$	6.00
Exercised		(286,479	)	$	6.10
Cancelled		(977,058	)	$	22.39
Balances, December 31, 2019		4,763,062		$	6.36		8.10	$	36.63
Granted		2,453,506		$	14.06
Exercised		(261,260	)	$	3.99
Cancelled		(257,381	)	$	9.99
Balances, December 31, 2020		6,697,927		$	9.13		7.76	$	13.79
Vested and expected to vest, December 31, 2020		6,697,927		$	9.13		7.76	$	13.79
Exercisable at December 31, 2020		2,845,501		$	6.66		6.68	$	8.85

At December 31, 2020, stock options outstanding and exercisable by exercise price were as follows:

		Options Outstanding						Options Exercisable
Range of Exercise Prices		Number Outstanding		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$	0.71-4.28		402,543		3.32	$	1.22		399,639	$	1.20
$	4.66-4.66		920,356		7.79	$	4.66		408,708	$	4.66
$	4.74-5.81		335,019		7.84	$	5.07		158,293	$	5.10
$	6.31-6.31		1,189,849		7.25	$	6.31		790,675	$	6.31
$	6.54-8.95		698,912		8.04	$	7.91		359,276	$	7.91
$	9.28-10.78		733,969		6.67	$	9.74		598,957	$	9.71
$	10.92-13.99		676,300		9.14	$	12.64		46,076	$	13.16
$	14.50-14.50		1,322,971		8.87	$	14.50		75,469	$	14.50
$	14.94-61.27		416,190		9.12	$	15.94		6,590	$	42.74
$	70.29-70.29		1,818		1.37	$	70.29		1,818	$	70.29
$	0.71-70.29		6,697,927		7.76	$	9.13		2,845,501	$	6.66

The total intrinsic value of stock options exercised during the years ended December 31, 2020 and December 31, 2019 was $2.5 million and $0.6 million respectively, as determined at the date of the option exercise.

Cash received from stock option exercises was $1.0 million and $1.7 million for the years ended December 31, 2020 and December 31, 2019, respectively. The Company issues new shares of common stock upon exercise of options. In connection with the exercises, there is no tax benefit realized by the Company due to the Company’s current loss position.

Equity-Based Compensation Expense

Stock-based compensation expense, which consists of the compensation cost for employee stock options and the value of options issued to non-employees for services rendered, was allocated to research and development and general and administrative in the consolidated statements of operations as follows (in thousands):

	Year Ended December 31,
	2020		2019
Research and development	$	6,387	$	2,398
General and administrative		5,430		3,461
Total stock-based compensation	$	11,817	$	5,859

At December 31, 2020, the total unrecognized compensation cost related to unvested stock-based awards granted to employees under the Company’s equity incentive plan was approximately $30.0 million. This cost will be recorded as compensation expense on a ratable basis over the remaining weighted average requisite service period of approximately 2.53 years.

Valuation Assumptions

The Company estimated the fair value of stock options granted using the Black-Scholes option-pricing formula and a single option award approach. This fair value is being amortized ratably over the requisite service periods of the awards, which is generally the vesting period.

The fair value of employee stock options was estimated using the following weighted-average assumptions:

	Year Ended December 31,
	2020			2019
Employee Stock Options:
Risk-free interest rate		1.44	%		2.37	%
Expected term (in years)		6.08			6.08
Dividend yield		—			—
Volatility		110.90	%		108.70	%
Weighted-average fair value of stock options granted	$	11.75		$	5.00

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Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 13—INCOME TAXES

For the years ended December 31, 2020 and 2019, the Company recorded an income tax provision expense of $5.00 thousand and $0.00, respectively, as reflected in the table below.

A reconciliation of income taxes at the statutory federal income tax rate to net income taxes included in the accompanying statements of operations is as follows (in thousands):

	2020			2019
U.S. federal taxes (benefit) at statutory rate	$	(22,032	)	$	(14,578	)
State federal income tax benefit		(895	)		(528	)
Permanent differences		(46	)		34
Stock compensation		524			4,112
Research and development credits		(4,043	)		(1,677	)
Change in valuation allowance due to operations		26,484			12,756
Expiring state carryovers and other		13			(119	)
Total	$	5		$	—

The tax effects of temporary differences that give rise to significant components of the net deferred tax assets are as follows (in thousands):

	December 31,
	2020			2019
Deferred tax assets
Net operating loss carryforward	$	42,029		$	26,554
Research and development credits		9,066			4,147
Deferred stock compensation		3,260			1,571
Deferred revenue		5,195			1,956
Lease liability		3,045			2,835
Other		1,301			736
Total deferred tax assets		63,896			37,799
Total deferred tax liabilities
Depreciable and amortizable assets		(1,677	)		(1,340	)
Right-of-use asset		(2,344	)		(2,112	)
R&D intangible assets		—			(956	)
Total deferred tax liabilities		(4,021	)		(4,408	)
Less: Valuation allowance		(59,875	)		(33,391	)
Net deferred tax assets	$	—		$	—

At December 31, 2020, the Company had federal net operating loss carryforwards of approximately $198.8 million available to offset future taxable income and state net operating loss carryforwards of approximately $0.4 million available to offset future taxable income. The Company’s federal net operating loss carryforwards of $62.8 million which will begin to expire in 2024 if not used before such time to offset future taxable income or tax liabilities. The Company’s federal net operating loss carryforwards of $136.0 million which do not expire. A portion of the Company’s net operating loss carryforward is subject to certain limitations on annual utilization in case of changes in ownership, as defined by federal and state tax laws. The annual limitation may result in the expiration of the net operating loss before utilization.

At December 31, 2020, the Company had federal research and development tax credits available to offset future taxes of approximately $7.6 million, which expire in the year beginning 2022, and state research and development tax credits of approximately $1.9 million, which expire beginning 2033.

The Company has established a valuation allowance against its deferred tax assets due to the uncertainty surrounding the realization of such assets. The valuation allowance increased by $26.5 million from continuing operations.

The Company has no uncertain tax positions as of December 31, 2020 and 2019. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company currently has no federal or state tax examinations in progress nor has it had any federal or state tax examinations since its inception. As a result of the Company’s net operating loss carryforwards, all of its tax years are subject to federal and state tax examination.

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Employee Benefit Plan

12 Months Ended

Dec. 31, 2020

Compensation And Retirement Disclosure [Abstract]

Employee Benefit Plan

NOTE 14—EMPLOYEE BENEFIT PLAN

The Company sponsors a defined-contribution savings plan under Section 401(k) of the Internal Revenue Code covering all full-time employees (“Molecular Templates 401(k) Plan”). Participants meeting certain criteria, as defined in the plan document, are eligible for a matching contribution, in amounts determined at the discretion of the Company. Contributions to the Molecular Templates 401(k) Plan by the Company were $0.5 million and $0.2 million for the years ended December 31, 2020 and 2019, respectively.

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In-Process Research and Development

12 Months Ended

Dec. 31, 2020

Research And Development [Abstract]

In-Process Research and Development

NOTE 15 – IN-PROCESS RESEARCH AND DEVELOPMENT

In December 2020, the Company completed the sale of Evofosfamide which was previously classified as In-process research and development - held for sale. In connection with sale, the Company recorded a loss on assets held for sale of $2.0 million which is the difference between the carrying value and the consideration received.

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Subsequent Events

12 Months Ended

Dec. 31, 2020

Subsequent Events [Abstract]

Subsequent Events

NOTE 16—SUBSEQUENT EVENTS

Bristol Myers Squibb Company Collaboration Agreement

In February 2021, the Company, entered into a Collaboration Agreement (the “BMS Collaboration Agreement”) with Bristol Myers Squibb Company (“Bristol Myers Squibb”) to perform strategic research collaboration leveraging the Company’s ETB technology platform to discover and develop novel products containing ETBs directed to multiple targets.

Pursuant to the terms of the BMS Collaboration Agreement, the Company granted Bristol Myers Squibb a series of exclusive options to obtain one or more exclusive licenses under the Company’s intellectual property to exploit products containing ETBs directed against certain targets designated by Bristol Myers Squibb.

Bristol Myers Squibb will pay the Company an upfront payment of $70.0 million. In addition to the upfront payment, the Company may receive near term and development and regulatory milestone payments of up to $874.5 million. The Company will also be eligible to receive up to an additional $450.0 million in payments upon the achievement of certain sales milestones, and subject to certain reductions, tiered royalties ranging from mid-single digits up to mid-teens as percentages of calendar year net sales, if any, on any licensed product.

The Company will be responsible for conducting the research activities through the designation, if any, of one or more development candidates. Upon the exercise of its option for a development candidate, Bristol Myers Squibb will be responsible for all development, manufacturing, regulatory and commercialization activities with respect to that development candidate.

Unless earlier terminated, the BMS Collaboration Agreement will expire (i) on a country-by-country basis and licensed product-by-licensed product basis, on the date of expiration of the royalty payment obligations under the BMS Collaboration Agreement with respect to such licensed product in such country and (ii) in its entirety upon the earlier of (a) the expiration of the royalty payment obligations under the BMS Collaboration Agreement with respect to all licensed products in all countries or (b) upon Bristol Myers Squibb’s decision not to exercise any option on or prior to the applicable option deadlines. Bristol Myers Squibb has the right to terminate the BMS Collaboration Agreement for convenience upon prior written notice to the Company. Either party has the right to terminate the BMS Collaboration Agreement (a) for the insolvency of the other party or (b) subject to specified cure periods, in the event of the other party’s uncured material breach. The Company has the right upon prior written notice to terminate the BMS Collaboration Agreement in the event that Bristol Myers Squibb or any of its affiliates asserts a challenge against the Company’s patents.

February 2021 Public Offering

In February 2021, the Company, completed a public offering of 6,000,000 shares of common stock at an offering price of $12.65 per share. The approximately net proceeds to the Company were $71.0 million, after deducting underwriting discounts, commissions and other estimated offering expenses payable by the Company.

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Organization and Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2020

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include the accounts of the Company and its wholly owned subsidiary and reflect the elimination of intercompany accounts and transactions.

Reclassifications

Reclassifications

Certain amounts in the prior year’s presentation have been reclassified to conform to the current presentation. The condensed consolidated balance sheet at December 31, 2019 included herein was derived from the audited financial statements at that date, but includes a reclassification of $8.8 million from Deferred revenue, current to Deferred revenue, current, related party and $0.4 million from Deferred revenue, non-current to Deferred revenue, non-current, related party in order to conform to current period presentation. The condensed consolidated statements of cash flows for the year ended December 31, 2019, included herein includes a reclassification of $19.7 million from Deferred revenue to Deferred revenue, related party.

Accounting Estimates

Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America as defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

Net Loss per Share

Net Loss per Share

Basic net loss per share is calculated by dividing the net loss applicable to common stockholders by the weighted average number of shares of Common Stock outstanding during the period without consideration of Common Stock equivalents. Since the Company was in a loss position for all periods presented, diluted net loss per share is the same as basic net loss per share for all periods, as the inclusion of all potential common shares outstanding is anti-dilutive.

Cash and Cash Equivalents

Cash and Cash Equivalents

The Company considers temporary investments with original maturities of three months or less from date of purchase to be cash equivalents. Restricted cash is recorded in other assets, based on when the restrictions expire. Other assets include $3.7 million and $3.0 million of restricted cash at December 31, 2020 and December 31, 2019, respectively.

Fair Value Measurement

Fair Value Measurement

The Company accounts for its marketable securities in accordance with ASC 820 “Fair Value Measurements and Disclosures.” ASC 820 defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. For Level 2 securities that have market prices from multiples sources, a “consensus price” or a weighted average price for each of these securities can be derived from a distribution-curve-based algorithm which includes market prices obtained from a variety of industrial standard data providers (e.g. Bloomberg), security master files from large financial institutions, and other third-party sources. Level 2 securities with short maturities and infrequent secondary market trades are typically priced using mathematical calculations adjusted for observable inputs when available.

Marketable Securities

Marketable Securities

The Company classifies its marketable securities as “available-for-sale.” Such marketable securities are recorded at fair value and unrealized gains and losses are recorded as a separate component of stockholders’ equity until realized. Realized gains and losses on sale of all such securities are reported in net loss, computed using the specific identification cost method. The Company places its marketable securities primarily in U.S. government securities, money market funds, corporate debt securities, commercial paper and certificates of deposit.

The Company’s investments are subject to a periodic impairment review. The Company recognizes an impairment charge when a decline in the fair value of its investments below the cost basis is judged to be other-than-temporary. The Company considers various factors in determining whether to recognize an impairment charge, including the length of time and extent to which the fair value has been less than the Company’s cost basis, the financial condition and near-term prospects of the investee, and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in the market value.

Concentration of Credit Risk and Other Risks and Uncertainties

Concentration of Credit Risk and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to concentrations of risk consist principally of cash and cash equivalents, investments, long term debt and accounts receivable.

The Company’s cash and cash equivalents are with two major financial institutions in the United States.

The Company performs an ongoing credit evaluation of its strategic partners’ financial conditions and generally does not require collateral to secure accounts receivable from its strategic partners. The Company’s exposure to credit risk associated with non-payment will be affected principally by conditions or occurrences within Millennium Pharmaceuticals, Inc., a wholly-owned subsidiary of Takeda Pharmaceutical Company Ltd. (“Takeda”) and Vertex Pharmaceuticals Incorporated (“Vertex”). Takeda accounted for approximately 35% and 88% of total revenues for the years ended December 31, 2020 and December 31, 2019, respectively. Vertex accounted for approximately 48% and 0% of total revenues for the years ended December 31, 2020 and December 31, 2019, respectively.

In July 2020, the Company became aware of one potentially non-conforming batch of a single Company product fill. In February 2021, the batch was deemed non-conforming due to visible particulates identified in the release samples. This could result in a reversal of revenue in future periods as the Company recognizes collaboration revenue over time by measuring progress toward completion to satisfy the performance obligation. The Company does not believe this non-conforming batch will result in an increased timeline for its ongoing projects nor does it affect any other batches, production, or manufacturing. The Company expects to be able to meet the supply needs for all of its active clinical trials.

Drug or biologic candidates developed by the Company may require approvals or clearances from the U.S. Food and Drug Administration (“FDA”) or international regulatory agencies prior to commercial sales. There can be no assurance that the Company’s drug or biologic candidates will receive any of the required approvals or clearances. If the Company were to be denied approval or clearance or any such approval or clearance were to be delayed, it would have a material adverse impact on the Company.

Property and Equipment

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Major additions and improvements are capitalized while maintenance and repairs that do not improve or extend the useful life of the respective asset are expensed. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets, which range from three to seven years. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the assets.

Patents

Patents

The gross value of Patents was $1.2 million and $1.3 million at December 31, 2020 and December 31, 2019, respectively, and are recorded in Other assets. The Company recorded $0.1 million of amortization expense for the years ended December 31, 2020 and December 31, 2019, with estimated expense to remain $0.1 million for each of the four successive years subsequent to December 31, 2020.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

When events, circumstances and/or operating results indicate that the carrying values of long-lived assets might not be recoverable through future operations, the Company prepares projections of the undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the projections indicate that the recorded amounts are not expected to be recoverable, such amounts are reduced to estimated fair value. Fair value is estimated based upon internal evaluation of each asset that includes quantitative analyses of net revenue and cash flows, review of recent sales of similar assets and market responses based upon discussions in connection with offers received from potential buyers. Certain factors used for these types of nonrecurring fair value measurements are considered Level 3 inputs. The Company recognized impairment of $22.1 million during the year ended December 31, 2019 related to its In-process research and development, which was sold during the year ended December 31, 2020. See Note 15, “In-Process Research and Development” for further details on the asset.

Long-term Debt

Long-term debt

The Company records debt issuance costs related to its long-term debt as a deduction from the carrying amount. The costs are amortized to interest expense over the life of the debt.

Revenue Recognition

Revenue Recognition

The Company’s revenue has consisted principally of collaboration agreements for research and development revenue and grant revenue.

Grant revenue relates to the grants the Company has received from governmental bodies that are conditional cost reimbursement grants and we recognize revenue as allowable costs are incurred. Amounts collected in excess of revenue recognized are recorded as deferred revenue.

The Company’s collaborative arrangements may include one or more of the following: licenses, or options to obtain licenses; up-front fees; research and development activities and associated costs; milestone payments related to the achievement of development, regulatory, or commercial goals; and royalties on net sales of licensed products. Each of these payments may result in collaboration revenues or an offset against research and development expense.

The Company analyzes its collaboration arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements (“ASC 808”) to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards. This assessment is performed throughout the life of the arrangement based on changes to the arrangements. For collaboration arrangements within the scope of ASC 808 the company may analogize to ASC 606 for certain elements.

The Company identifies the goods or services promised within each collaboration agreement and assesses whether each promised good or service is distinct for the purpose of identifying the performance obligations in the contract. This assessment involves subjective determinations and requires management to make judgments about the individual promised goods or services and whether such are separable from the other aspects of the contractual relationship. Promised goods and services are considered distinct provided that: (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and (ii) the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. In assessing whether a promised good or service is distinct, the Company considers factors such as the research, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. If a promised good or service is not distinct, an entity is required to combine that promised good or service with other promised goods or services until it identifies a bundle of goods or services that is distinct.

The allocation of the transaction price to the performance obligations in proportion to their standalone selling prices is determined at contract inception. If the consideration promised in a contract includes a variable amount, the Company estimates the amount of consideration to which it will be entitled in exchange for transferring the promised goods or services to a customer. The Company determines the amount of variable consideration by using the expected value method or the most likely amount method. The Company includes the unconstrained amount of estimated variable consideration in the transaction price. The amount included in the transaction price is the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. At the end of each subsequent reporting period, the Company re-evaluates the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment.

In determining the transaction price, the Company adjusts consideration for the effects of the time value of money if there is a significant benefit of financing. The Company assessed its collaboration agreements and concluded that no significant financing components were present.

If an arrangement contains customer options that allow the customer to acquire additional goods or services, including an exclusive license to the Company’s intellectual property, the goods and services underlying the customer options are evaluated to determine whether they are deemed to represent a material right. In determining whether the customer option has a material right, the Company assesses whether there is an option to acquire additional goods or services at a discount. If the customer option is determined not to represent a material right, the option is not considered to be performance obligations at the outset of the arrangement. If the customer option is determined to represent a material right, the material right is recognized as a separate performance obligation at the outset of the arrangement. The Company allocates the transaction price to material rights based on the relative standalone selling price, which is determined based on the identified discount and the probability that the customer will exercise the option. Amounts allocated to a material right are not recognized as revenue until the option is exercised.

The Company recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation as each performance obligation is satisfied over time, with progress toward completion measured based on actual costs incurred relative to total estimated costs to be incurred over the life of the contract. Recorded revenue and costs are subject to revision as the contract progresses. Such revisions may result in increases or decreases to revenue and income and are reflected in the consolidated financial statements in the periods in which they are first identified. Estimating costs under the Company’s collaboration agreements is complex and involves significant judgment. Factors that must be considered in making estimates include labor productivity and availability, the nature and technical complexity of the work to be performed, potential performance delays, availability and timing of funding from the customer and progress toward completion. Adjustments to original estimates are often required as work progresses and additional information becomes known, even though the scope of the work required under the contract may not change. Any adjustment as a result of a change in estimates is made when facts develop, events become known, or an adjustment is otherwise warranted, such as in the case of contract change orders. The Company has procedures and processes in place to monitor the actual progress of a project against estimates and the Company’s estimates are updated if circumstances are warranted.

Performance obligations may include research and development services to be performed by the Company on behalf of the collaboration partner. Revenue is recognized on research and development efforts as the services are performed and presented on a gross basis, since the Company is the principal.

Under collaboration agreements, the timing of revenue recognition and contract billings may differ, and result in contract assets and contract liabilities. Contract assets represent revenues recognized in excess of amounts billed under collaboration agreements and are transferred to accounts receivable when billed or billing rights become unconditional. Contract liabilities represent billings in excess of revenues recognized under collaboration agreements. 

Lease Accounting

Lease Accounting

In February 2016, the Financial Accounting Standards Board ("FASB") established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which supersedes ASC 840, Leases, and requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. Topic 842, as amended, (the "new lease standard") establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the consolidated balance sheets for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the consolidated statements of operation.

The Company adopted the new lease standard on January 1, 2019 using the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. Consequently, financial information was not updated, and the disclosures required under the new standard were not provided for dates and periods prior to the first quarter of fiscal 2019.

The Company has completed a qualitative and quantitative assessment of its lease portfolio, in which the standard had a material impact on the condensed consolidated balance sheets but did not have an impact on the condensed consolidated statement of operations. Upon adoption, the Company recognized lease liabilities of approximately $4.7 million based on the present value of the remaining minimum rental payments under current leasing standards for our existing operating leases. The corresponding ROU assets of $4.2 million recognized upon adoption are net of deferred rent.

The new standard provides a number of optional practical expedients in transition. The Company elected the practical expedients, which permits lessees not to reassess under the new standard prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to the Company. The new standard also provides practical expedients for an entity's ongoing accounting. The Company elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, ROU assets or lease liabilities will not be recognized, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. The Company also elected the practical expedient to not separate lease and non-lease components for office leases.

At inception of a contract, the Company determines whether an arrangement is or contains a lease. For all leases, the Company determines the classification as either operating leases or finance leases. Operating leases are included in Operating lease right-of-use assets and Operating lease liabilities in our condensed consolidated balance sheets.

Lease recognition occurs at the commencement date and lease liability amounts are based on the present value of lease payments over the lease term. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. If a lease does not provide information to determine an implicit interest rate, the Company uses our incremental borrowing rate in determining the present value of lease payments. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments under the lease. ROU assets also include any lease payments made prior to the commencement date and exclude lease incentives received. Operating lease expense is recognized on a straight-line basis over the lease term. The depreciable life of assets and leasehold improvements are limited by the expected lease term unless there is a transfer of title or purchase option reasonably certain of exercise. Lease agreements with both lease and non-lease components, are generally accounted for together as a single lease component.

As a result of applying the modified retrospective method to adopt the lease guidance, the following adjustments were made to accounts on the condensed consolidated balance sheet at January 1, 2019 (in thousands):

Balance Sheet	December 31, 2018		Effect of adoption of ASC 842			January 1, 2019
Assets
Operating lease right-of-use assets, non-current	$	—	$	4,180		$	4,180
Total assets	$	—	$	4,180		$	4,180
Liabilities
Operating lease liabilities, current	$	—	$	976		$	976
Deferred rent1		525		(525	)		—
Operating lease liabilities, non-current		—		3,729			3,729
Total liabilities	$	525	$	4,180		$	4,705

(1) Included in Other liabilities on the balance sheet.

The Company has operating leases for administrative offices and R&D facilities, and certain finance leases for equipment. The operating leases have remaining terms of less than two years to less than eight years , and the finance lease have a remaining term of less than one year. Leases with an initial term of 12 months or less will not be recorded on the consolidated balance sheets as operating leases or finance leases, and the Company will recognize lease expense for these leases on a straight-line basis over the lease term. For leases commenced in 2019 and later, the Company accounts for lease components (e.g., fixed payments including rent, real estate taxes, and insurance costs) with non-lease components (e.g. common area maintenance costs). Certain leases include options to renew, with renewal terms that can extend the lease term from three to five years. The exercise of lease renewal options for our existing leases is at our sole discretion and not included in the measurement of lease liability and ROU asset as they are not reasonably certain to be exercised. Certain finance leases also include options to purchase the leased equipment. The depreciable life of assets and leasehold improvements are limited by the expected lease term unless there is a transfer of title or purchase option reasonably certain of exercise. The leases do not contain any residual value guarantees or material restrictive covenants.

Income Taxes

Income Taxes

Income taxes are recorded in accordance with ASC 740, Accounting for Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. The Company determines its deferred tax assets and liabilities based on differences between financial reporting and tax bases of assets and liabilities, which are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are provided if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

ASC 740 clarifies the accounting for uncertainty in income taxes recognized in the financial statements and provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. The Company’s policy for recording interest and penalties associated with uncertain tax positions is to record such items as a component of tax expense.

Stock-Based Compensation

Stock-Based Compensation

The Company recognizes stock-based compensation in accordance with ASC 718, “Compensation—Stock Compensation.” Under this guidance, stock-based compensation cost is based on the recognition of the grant date fair value estimated over the service period, which is generally the vesting period. The Company accounts for forfeitures as they occur. The Company accounts for its stock-based compensation awards to employees, including grants of employee stock options, to be recognized in the statements of operations based on their grant date fair values. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

The Company estimates the grant date fair value of each option award using the Black-Scholes option-pricing model. The use of the Black-Scholes option-pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the common stock. To determine the expected term of the Company’s employee stock options granted, the Company utilized the simplified approach as defined by SEC Staff Accounting Bulletin No. 107, “Share-Based Payment”. To determine the risk-free interest rate, the Company utilized an average interest rate based on U.S. Treasury instruments with a term consistent with the expected term of the Company’s stock-based awards. To determine the expected stock price volatility for the Company’s stock-based awards, the Company considers its historical volatility and its industry peers. The fair value of all the Company’s stock-based awards assumes no dividends as the Company does not anticipate paying cash dividends on its common stock.

Warrants

Warrants

In conjunction with certain financing transactions, the Company issued warrants to purchase the Company’s common stock. The Company determines whether the warrants should be classified as a liability or equity according to ASC 480, “Distinguishing Liabilities from Equity”. For warrants classified as equity, the Company records the value of the warrants in additional paid-in capital on the balance sheet. The Company will continue to evaluate the classification of the equity warrants on a quarterly basis, to determine whether the warrants continue to meet equity classification requirement.

Research and Development Costs

Research and Development Costs

Research and development expenses consist of costs such as salaries and benefits, laboratory supplies, facility costs, consulting fees and fees paid to contract research organizations, clinical trial sites, laboratories, other clinical service providers and contract manufacturing organizations. Research and development costs are expensed as incurred.

Comprehensive Loss

Comprehensive loss

Comprehensive loss is comprised of the Company’s net loss and other comprehensive income (loss). Unrealized gain (loss) on available-for-sale marketable securities represents the only component of other comprehensive income (loss).

Clinical Trial Accruals

Clinical Trial Accruals

The Company’s preclinical and clinical trials are performed by third party contract research organizations (CROs) and/or clinical investigators, and clinical supplies are manufactured by contract manufacturing organizations (CMOs). Invoicing from these third parties may be monthly based upon services performed or based upon milestones achieved. The Company accrues these expenses based upon its assessment of the status of each clinical trial and the work completed, and upon information obtained from the CROs and CMOs. The Company’s estimates are dependent upon the timeliness and accuracy of data provided by the CROs and CMOs regarding the status and cost of the studies as well as management’s best estimate and may not match the actual services performed by the organizations. This could result in adjustments to the Company’s research and development expenses in future periods. To date the Company has had no significant adjustments.

Bonus Accruals

Bonus Accruals

The Company has bonus programs for eligible employees. Bonuses are determined based on various criteria, including the achievement of corporate, departmental and individual goals. Bonus accruals are estimated based on various factors, including target bonus percentages per level of employee and probability of achieving the goals upon which bonuses are based. The Company’s management periodically reviews the progress made towards the goals under the bonus programs. As bonus accruals are dependent upon management’s judgments of the likelihood of achieving the various goals, it is possible for bonus expense to vary significantly in future periods if changes occur in those management estimates.

Segments

Segments

The Company has one reportable segment and uses one measurement of results of operations to manage its business. All long-lived assets are maintained in the United States of America.

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 is intended to improve the effectiveness of disclosures in the notes to financial statements related to fair value measurements in Topic 820. This ASU was effective for annual periods beginning after December 15, 2019, including interim periods within that period. The impact of the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). ASU 2018-15 aligns the accounting for implementation costs incurred in a hosting arrangement that is a service contract with the guidance on capitalizing costs associated with developing or obtaining internal-use software. This ASU was effective for annual periods beginning after December 15, 2019, including interim periods within that period, and early adoption is permitted. The impact of the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, which clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC Topic 606 when the counterparty is a customer. In addition, Topic 808 precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. This guidance was effective for the Company beginning January 1, 2020. The impact of the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which requires recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The new guidance applies to loans, accounts receivable, trade receivables, other financial assets measured at amortized cost, loan commitments and other off-balance sheet credit exposures. The new guidance also applies to debt securities and other financial assets measured at fair value through other comprehensive income. This guidance was effective for the Company beginning January 1, 2020. The impact of the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740: Simplifying the Accounting for Income Taxes), which removes certain exceptions to the general principles in Topic 740. ASU 2019-12 is effective for the fiscal years beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848: Facilitation of the Effects of Reference Rate Reform on Financial Reporting). The new guidance provides optional guidance for a limited period of time for applying U.S. GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The guidance will be effective prospectively as of March 12, 2020 through December 31, 2022 and interim periods within those fiscal years. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (Subtopic 470-20: Debt with Conversion and Other Options and Subtopic 815-40: Derivatives and Hedging - Contracts in Entity’s Own Equity). The new guidance simplifies accounting for convertible instruments by removing major separation models, removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. The amendment is effective for the Company for fiscal years beginning after December 15, 2023. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

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Organization and Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2020

Accounting Policies [Abstract]

Schedule of Adjustments Made to Accounts on Condensed Consolidated Balance Sheet

As a result of applying the modified retrospective method to adopt the lease guidance, the following adjustments were made to accounts on the condensed consolidated balance sheet at January 1, 2019 (in thousands):

Balance Sheet	December 31, 2018		Effect of adoption of ASC 842			January 1, 2019
Assets
Operating lease right-of-use assets, non-current	$	—	$	4,180		$	4,180
Total assets	$	—	$	4,180		$	4,180
Liabilities
Operating lease liabilities, current	$	—	$	976		$	976
Deferred rent1		525		(525	)		—
Operating lease liabilities, non-current		—		3,729			3,729
Total liabilities	$	525	$	4,180		$	4,705

(1) Included in Other liabilities on the balance sheet.

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Research and Development Agreements (Tables)

12 Months Ended

Dec. 31, 2020

Schedule of Research and Development Revenues Disaggregated by Location

Research and Development revenue is attributable to regions based on the location of our collaboration partner's parent company headquarters. Research and Development revenues disaggregated by location were as follows (in thousands):

	Year Ended December 31,
	2020		2019
Japan	$	6,567	$	19,499
United States		9,068		—
Total research and development revenue	$	15,635	$	19,499

Millennium Pharmaceuticals Inc

Schedule of Research and Development Revenue from Related Party Relates to Revenue from Research and Development Agreements

Research and development revenue from related party relates to revenue from research and development agreements with Millennium Pharmaceuticals, Inc., a wholly owned subsidiary of Takeda and were as follows (in thousands):

	Year Ended December 31,
	2020		2019
Takeda Individual Project Agreement	$	—	$	48
Takeda Development and License Agreement		6,068		18,468
Takeda Multi-Target Agreement		499		983
Total research and development revenue, related party	$	6,567	$	19,499

Takeda Pharmaceuticals Inc

Schedule of Deferred Revenue, Other Liabilities for Co-share Payments and Accounts Receivable Balances from Research and Development Agreements

At December 31, 2020 and December 31, 2019, the Company had deferred revenue, other liabilities for co-share payments and accounts receivable balances from the research and development agreements with Takeda, who is a related party. These amounts were as follows (in thousands):  

	December 31, 2020		December 31, 2019
Assets
Accounts receivable	$	234	$	408
Liabilities
Other current liabilities	$	5,614		—
Deferred revenue, current		789		8,780
Deferred revenue, non-current		3,106		441
Other liabilities		6,711		—
Total liabilities	$	16,220	$	9,221

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Marketable Securities and Fair Value Measurements (Tables)

12 Months Ended

Dec. 31, 2020

Fair Value Disclosures [Abstract]

Financial Assets at Fair Value on Recurring Basis

The following table sets forth the Company’s financial assets (cash equivalents and available-for-sale marketable securities) at fair value on a recurring basis as of December 31, 2020 and 2019:

			Basis of Fair Value Measurements
	December 31, 2020		Level 1		Level 2		Level 3
Money market funds	$	23,794	$	23,794	$	—	$	—
Commercial paper		42,863		—		42,863		—
United States Treasury Bills		21,794		—		21,794		—
United States government-related debt securities		4,009		—		4,009		—
Total	$	92,460	$	23,794	$	68,666	$	—
Amounts included in:
Cash and cash equivalents	$	23,793
Marketable securities, current		68,667
Total cash equivalents and marketable securities	$	92,460

			Basis of Fair Value Measurements
	December 31, 2019		Level 1		Level 2		Level 3
Money market funds	$	79,970	$	79,970	$	—	$	—
Commercial paper		20,436		—		20,436		—
United States Treasury Bills		16,738		—		16,738		—
United States government-related debt securities		7,010		—		7,010		—
Corporate bonds		1,351		—		1,351		—
Total	$	125,505	$	79,970	$	45,535	$	—
Amounts included in:
Cash and cash equivalents	$	84,362
Marketable securities, current		39,633
Marketable securities, non-current		1,510
Total cash equivalents and marketable securities	$	125,505

Summary of Company's Available-for-Sale Securities

The Company invests in highly-liquid, investment-grade securities. The following is a summary of the Company’s available-for-sale securities at December 31, 2020 and 2019:

	December 31, 2020
	Cost Basis		Unrealized Gain		Unrealized Loss			Fair Value
Cash equivalents - money market funds, commercial    paper and corporate bonds	$	23,793	$	—	$	—		$	23,793
Marketable securities, current - commercial paper,    Treasury bills and corporate bonds		68,650		19		(2	)		68,667

	December 31, 2019
	Cost Basis		Unrealized Gain		Unrealized Loss		Fair Value
Cash equivalents - money market funds, commercial    paper and corporate bonds	$	84,361	$	1	$	—	$	84,362
Marketable securities, current - commercial paper,    Treasury bills and corporate bonds		39,616		17		—		39,633
Marketable securities, non-current - Treasury bills		1,510		—		—		1,510

Summary of Contractual Maturities of Available-for-Sale-Investments

The following summarized the contractual maturities of the Company’s available-for-sale investments at December 31, 2020 2019:

	December 31, 2020
	Cost Basis		Fair Value
Due in one year or less	$	92,443	$	92,460
Due after one year through five years		—		—
Total	$	92,443	$	92,460

	December 31, 2019
	Cost Basis		Fair Value
Due in one year or less	$	123,977	$	123,995
Due after one year through five years		1,510		1,510
Total	$	125,487	$	125,505

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Property and Equipment (Tables)

12 Months Ended

Dec. 31, 2020

Property Plant And Equipment [Abstract]

Components of Property and Equipment

Property and equipment consists of the following (in thousands):

	December 31,
	2020			2019
Laboratory equipment	$	16,159		$	10,587
Leasehold improvements		12,391			10,383
Furniture and fixtures		474			150
Computer and equipment		615			331
		29,639			21,451
Less: Accumulated depreciation		(7,385	)		(3,293	)
Total property and equipment, net	$	22,254		$	18,158

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Balance Sheet Components (Tables)

12 Months Ended

Dec. 31, 2020

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Components of Accrued Liabilities

Accrued liabilities comprise the following (in thousands):

	December 31, 2020		December 31, 2019
Accrued liabilities:
General and administrative	$	1,577	$	4,521
Clinical trial related costs		1,743		1,383
Non-clinical research and manufacturing operations		4,321		5,774
Payroll related		4,908		2,849
Other accrued expenses		26		17
Total Accrued liabilities	$	12,575	$	14,544

Components of Other Accrued Liabilities

         Other current liabilities comprise the following (in thousands):

	December 31, 2020		December 31, 2019
Other Current liabilities:
Finance Lease Liability, current portion		1		18
Long Term Debt, Current Portion		—		800
Operating Lease Liability, current portion		2,210		1,683
Total Other Current liabilities	$	2,211	$	2,501

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Borrowing Arrangements (Tables)

12 Months Ended

Dec. 31, 2020

Debt Disclosure [Abstract]

Schedule of Required Future Principal Payments

Future required principal and final payments on the K2 Loan were as follows at December 31, 2020 ($ in thousands):

2021	—
2022	4,105
2023	7,537
2024	3,358
Total Principal Amounts	15,000
Final Fee Due at Maturity	861
Unamortized discount, deferred costs and final fee	(935	)
Total Long-Term Debt, net	14,926

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Leases (Tables)

12 Months Ended

Dec. 31, 2020

Leases [Abstract]

Changes in Carrying Amount of Company's AROs

Changes in the carrying amounts of the Company’s AROs for the years ended December 31, 2020 and 2019 are shown below (in thousands):

	2020		2019
Balance at beginning of year	$	1,365	$	344
Liabilities incurred in the current period		—		949
Accretion expense		125		72
Balance at end of year	$	1,490	$	1,365

Components of Lease Expense

The components of lease expense for the years ended December 31, 2020 and December 31, 2019 were as follows (in thousands):

	2020		2019
Operating leases
Operating lease expense	$	2,520	$	2,175
Variable lease expense		491		456
Total operating lease expense	$	3,011	$	2,631
Finance leases
Amortization of right-of-use asset	$	8	$	8
Interest on lease liabilities		1		2
Total finance lease expense	$	9	$	10

Schedule of Balance Sheets Classification of Leases

The following table summarizes the balance sheet classification of leases at December 31, 2020 (in thousands):

Operating leases
Operating lease right-of-use assets	$	11,104
Operating lease liabilities, current1	$	2,210
Operating lease liabilities, non-current		12,213
Total operating lease liabilities	$	14,423
Finance leases
Property and equipment, at cost	$	77
Less, Accumulated depreciation		49
Property and equipment, net	$	28
Finance lease liabilities, current1	$	1

1. Included in other current liabilities.

Schedule of Leases Information

The following table presents other information on leases as of December 31, 2020 and December 31, 2019 (in thousands):

	2020			2019
Weighted average remaining lease term, operating leases	6.1 years			7.2 years
Weighted average remaining lease term, finance leases	0.1 years			0.8 years
Weighted average discount rate, operating leases		7.04	%		6.72	%
Weighted average discount rate, finance leases		0.00	%		6.88	%
Right of use assets obtained in exchange for operating lease liabilities	$	2,735		$	7,501

Schedule of Future Minimum Payments Under Operating Leases

Future minimum payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2020 (in thousands):

	Operating Leases			Finance Leases
2021	$	3,142		$	1
2022		3,361			—
2023		2,689			—
2024		2,218			—
2025		2,147			—
Thereafter		4,244			—
Total lease payments		17,801			1
Less:
Imputed interest		(3,378	)		—
Total lease liabilities	$	14,423		$	1

Supplemental Cash Flow Information

Supplemental cash flow information related to the Company’s leases were as follows for the years ended December 31, 2020 and December 31, 2019 (in thousands):

	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows operating leases	$	2,453	$	1,278
Operating cash flows finance leases		1		3
Financing cash flows finance leases	$	18	$	31

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Equity Incentive Plans and Stock Based Compensation (Tables)

12 Months Ended

Dec. 31, 2020

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Summary of Stock Option Activity Under Equity Incentive Plan

The following table summarizes information about stock option activity for years ended December 31, 2020 and 2019:

	Outstanding Options Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value (in millions):
Balances, December 31, 2018		4,002,999		$	10.43		6.40	$	1.50
Granted		2,023,600		$	6.00
Exercised		(286,479	)	$	6.10
Cancelled		(977,058	)	$	22.39
Balances, December 31, 2019		4,763,062		$	6.36		8.10	$	36.63
Granted		2,453,506		$	14.06
Exercised		(261,260	)	$	3.99
Cancelled		(257,381	)	$	9.99
Balances, December 31, 2020		6,697,927		$	9.13		7.76	$	13.79
Vested and expected to vest, December 31, 2020		6,697,927		$	9.13		7.76	$	13.79
Exercisable at December 31, 2020		2,845,501		$	6.66		6.68	$	8.85

Stock Options Outstanding and Exercisable by Exercise Price

At December 31, 2020, stock options outstanding and exercisable by exercise price were as follows:

		Options Outstanding						Options Exercisable
Range of Exercise Prices		Number Outstanding		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$	0.71-4.28		402,543		3.32	$	1.22		399,639	$	1.20
$	4.66-4.66		920,356		7.79	$	4.66		408,708	$	4.66
$	4.74-5.81		335,019		7.84	$	5.07		158,293	$	5.10
$	6.31-6.31		1,189,849		7.25	$	6.31		790,675	$	6.31
$	6.54-8.95		698,912		8.04	$	7.91		359,276	$	7.91
$	9.28-10.78		733,969		6.67	$	9.74		598,957	$	9.71
$	10.92-13.99		676,300		9.14	$	12.64		46,076	$	13.16
$	14.50-14.50		1,322,971		8.87	$	14.50		75,469	$	14.50
$	14.94-61.27		416,190		9.12	$	15.94		6,590	$	42.74
$	70.29-70.29		1,818		1.37	$	70.29		1,818	$	70.29
$	0.71-70.29		6,697,927		7.76	$	9.13		2,845,501	$	6.66

Stock-Based Compensation Expense

Stock-based compensation expense, which consists of the compensation cost for employee stock options and the value of options issued to non-employees for services rendered, was allocated to research and development and general and administrative in the consolidated statements of operations as follows (in thousands):

	Year Ended December 31,
	2020		2019
Research and development	$	6,387	$	2,398
General and administrative		5,430		3,461
Total stock-based compensation	$	11,817	$	5,859

Weighted-Average Fair Value Valuation Assumptions

The fair value of employee stock options was estimated using the following weighted-average assumptions:

	Year Ended December 31,
	2020			2019
Employee Stock Options:
Risk-free interest rate		1.44	%		2.37	%
Expected term (in years)		6.08			6.08
Dividend yield		—			—
Volatility		110.90	%		108.70	%
Weighted-average fair value of stock options granted	$	11.75		$	5.00

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Schedule of Reconciliation of Income Taxes at Statutory Federal Income Tax Rate to Net Income Taxes

A reconciliation of income taxes at the statutory federal income tax rate to net income taxes included in the accompanying statements of operations is as follows (in thousands):

	2020			2019
U.S. federal taxes (benefit) at statutory rate	$	(22,032	)	$	(14,578	)
State federal income tax benefit		(895	)		(528	)
Permanent differences		(46	)		34
Stock compensation		524			4,112
Research and development credits		(4,043	)		(1,677	)
Change in valuation allowance due to operations		26,484			12,756
Expiring state carryovers and other		13			(119	)
Total	$	5		$	—

Schedule of Significant Components of Net Deferred Tax Assets

The tax effects of temporary differences that give rise to significant components of the net deferred tax assets are as follows (in thousands):

	December 31,
	2020			2019
Deferred tax assets
Net operating loss carryforward	$	42,029		$	26,554
Research and development credits		9,066			4,147
Deferred stock compensation		3,260			1,571
Deferred revenue		5,195			1,956
Lease liability		3,045			2,835
Other		1,301			736
Total deferred tax assets		63,896			37,799
Total deferred tax liabilities
Depreciable and amortizable assets		(1,677	)		(1,340	)
Right-of-use asset		(2,344	)		(2,112	)
R&D intangible assets		—			(956	)
Total deferred tax liabilities		(4,021	)		(4,408	)
Less: Valuation allowance		(59,875	)		(33,391	)
Net deferred tax assets	$	—		$	—

XML

Organization and Summary of Significant Accounting Policies - Additional Information (Detail) $ in Thousands	12 Months Ended
	Dec. 31, 2020 USD ($) Segment	Dec. 31, 2019 USD ($)	Jan. 01, 2019 USD ($)
Organization And Summary Of Significant Accounting Policies [Line Items]
Deferred revenue, current, related party	$ 789	$ 8,780
Reclassification from deferred revenue, non-current to deferred revenue, non-current, related party		400
Reclassification from deferred revenue to deferred revenue, related party		19,700
Right-of-use asset	11,104	9,959	$ 4,180
Lease liabilities	$ 14,423
Reportable segment | Segment	1
ASU 2016-02
Organization And Summary Of Significant Accounting Policies [Line Items]
Right-of-use asset			4,180
Lease liabilities			$ 4,700
Patents
Organization And Summary Of Significant Accounting Policies [Line Items]
Amortization expense	$ 100	100
Estimated expense, next twelve months	100
Estimated expense, year two	100
Estimated expense, year three	100
Estimated expense, year four	$ 100
In-process Research and Development
Organization And Summary Of Significant Accounting Policies [Line Items]
Impairment of long lived assets		$ 22,100
Minimum
Organization And Summary Of Significant Accounting Policies [Line Items]
Lessee, operating leases remaining lease term.	2 years
Lessee, finance leases remaining lease term.	1 year
Lessee, operating leases renewal lease term	3 years
Maximum
Organization And Summary Of Significant Accounting Policies [Line Items]
Lessee, operating leases remaining lease term.	8 years
Lessee, operating leases renewal lease term	5 years
Leasehold Improvements | Minimum
Organization And Summary Of Significant Accounting Policies [Line Items]
Property and equipment, estimated useful lives	3 years
Leasehold Improvements | Maximum
Organization And Summary Of Significant Accounting Policies [Line Items]
Property and equipment, estimated useful lives	7 years
Revenue | Credit Risk | Takeda
Organization And Summary Of Significant Accounting Policies [Line Items]
Percentage of total revenues	35.00%	88.00%
Revenue | Credit Risk | Vertex Pharmaceuticals Inc
Organization And Summary Of Significant Accounting Policies [Line Items]
Percentage of total revenues	48.00%	0.00%
Other Assets
Organization And Summary Of Significant Accounting Policies [Line Items]
Restricted cash	$ 3,700	$ 3,000
Gross value of patents	$ 1,200	$ 1,300

XML

Organization and Summary of Significant Accounting Policies - Schedule of Adjustments Made to Accounts on Condensed Consolidated Balance Sheet (Detail) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019	Jan. 01, 2019	Dec. 31, 2018
Lessee Lease Description [Line Items]
Operating lease right-of-use assets, non-current	$ 11,104	$ 9,959	$ 4,180
Total assets	139,877	174,202	4,180
Operating lease liabilities, current	2,210	1,683	976
Operating lease liabilities, non-current	12,213	11,682	3,729
Total liabilities	$ 80,537	$ 71,174	4,705
Previously Reported
Lessee Lease Description [Line Items]
Operating lease right-of-use assets, non-current				$ 0
Total assets				0
Operating lease liabilities, current				0
Operating lease liabilities, non-current				0
Total liabilities				525
Other Noncurrent Liabilities
Lessee Lease Description [Line Items]
Deferred rent			0
Other Noncurrent Liabilities | Previously Reported
Lessee Lease Description [Line Items]
Deferred rent				$ 525
Effect of Adoption of ASC 842
Lessee Lease Description [Line Items]
Operating lease right-of-use assets, non-current			4,180
Total assets			4,180
Operating lease liabilities, current			976
Operating lease liabilities, non-current			3,729
Total liabilities			4,180
Effect of Adoption of ASC 842 | Other Noncurrent Liabilities
Lessee Lease Description [Line Items]
Deferred rent			$ (525)

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Net Loss Per Share - Additional Information (Detail) - shares	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Stock Options, Warrants and Convertible Preferred Stock
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Common shares excluded from the computation of diluted net loss per share on effect of anti-dilutive	10,095,000	8,516,000

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Research and Development Agreements - Schedule of Research and Development Revenues Disaggregated by Location (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Revenue Recognition [Line Items]
Total research and development revenue	$ 15,635	$ 19,499
JAPAN
Revenue Recognition [Line Items]
Total research and development revenue	6,567	19,499
UNITED STATES
Revenue Recognition [Line Items]
Total research and development revenue	$ 9,068	$ 0

XML

Research and Development Agreements - Schedule of Research and Development Revenue from Related Party Relates to Revenue from Research and Development Agreements (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Revenue Recognition [Line Items]
Total research and development revenue, related party	$ 15,635	$ 19,499
Millennium Pharmaceuticals Inc
Revenue Recognition [Line Items]
Total research and development revenue, related party	6,567	19,499
Millennium Pharmaceuticals Inc | Takeda Individual Project Agreement
Revenue Recognition [Line Items]
Total research and development revenue, related party	0	48
Millennium Pharmaceuticals Inc | Takeda Development Agreement
Revenue Recognition [Line Items]
Total research and development revenue, related party	6,068	18,468
Millennium Pharmaceuticals Inc | Takeda Multi Target Agreement
Revenue Recognition [Line Items]
Total research and development revenue, related party	$ 499	$ 983

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Research and Development Agreements - Schedule of Deferred Revenue, Other Liabilities for Co-share Payments and Accounts Receivable Balances from the Research and Development Agreements (Detail) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019	Jan. 01, 2019
Assets
Accounts receivable, related party	$ 234	$ 408
Liabilities
Other current liabilities	2,211	2,501
Other liabilities	1,490	1,366
Total liabilities	80,537	71,174	$ 4,705
Takeda Pharmaceuticals Inc
Assets
Accounts receivable, related party	234	408
Liabilities
Other current liabilities	5,614	0
Deferred revenue, current	789	8,780
Deferred revenue, non-current	3,106	441
Other liabilities	6,711	0
Total liabilities	$ 16,220	$ 9,221

XML

Research and Development Agreements - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended			3 Months Ended	12 Months Ended		107 Months Ended
	Nov. 30, 2019	Jul. 31, 2019	Sep. 30, 2018	Mar. 31, 2020	Dec. 31, 2020	Dec. 31, 2019	Nov. 30, 2019	Jun. 23, 2017
Research And Development Collaboration Agreements [Line Items]
Common stock, shares issued					49,984,333	45,589,157
Common stock, par value					$ 0.001	$ 0.001
Revenue from grant					$ 18,845	$ 22,270
Grant
Research And Development Collaboration Agreements [Line Items]
Revenue from grant					3,210	2,771
Takeda Pharmaceuticals Inc
Research And Development Collaboration Agreements [Line Items]
Purchase price per share								$ 6.8423
CPRIT Agreement | Cancer Prevention and Research Institute of Texas
Research And Development Collaboration Agreements [Line Items]
Product development grant awarded			$ 15,200
CPRIT Agreement | Cancer Prevention and Research Institute of Texas | ETB MT-3724
Research And Development Collaboration Agreements [Line Items]
Aggregate proceeds received from award granted							$ 10,600
Revenue from grant					20,000
Grants Receivable					0
Grant Agreements | Grants Revenue Receivable
Research And Development Collaboration Agreements [Line Items]
Reimbursement amounts submitted in excess of amounts received are recorded as receivables					0	7,100
Takeda Development Agreement
Research And Development Collaboration Agreements [Line Items]
Total transaction price					29,800
Upfront payment					30,000
Development milestone payment that is achievable				$ 10,000
Expected co-share payments payable					10,200
Deferred revenue					1,300	6,100
Takeda Development Agreement | Clinical Development and Regulatory Milestones
Research And Development Collaboration Agreements [Line Items]
Milestone payments receivable if option is exercised		$ 307,500
Takeda Development Agreement | Sales Milestone
Research And Development Collaboration Agreements [Line Items]
Milestone payments receivable if option is exercised		$ 325,000
Takeda Multi Target Agreement | Takeda Pharmaceuticals Inc
Research And Development Collaboration Agreements [Line Items]
Milestone payments receivable if option is exercised					397,000
Deferred revenue					2,600	3,100
Cumulative payments received					5,000
Aggregate milestone payments upon exercise of option to license ETBS					30,000
Takeda Multi Target Agreement | Takeda Pharmaceuticals Inc | Maximum
Research And Development Collaboration Agreements [Line Items]
Contractual contingency fees					10,000
Commercial milestone payment					150,000
Vertex Collaboration Agreement
Research And Development Collaboration Agreements [Line Items]
Milestone payments receivable if option is exercised	$ 180,000
Upfront payment	38,000
Deferred revenue					$ 18,400	$ 27,500
Upfront payment, cash	23,000
Upfront payment, equity method investments	$ 15,000						$ 15,000
Common stock, shares issued	1,666,666						1,666,666
Common stock, par value	$ 0.001						$ 0.001
Vertex Collaboration Agreement | Common Stock
Research And Development Collaboration Agreements [Line Items]
Purchase price per share	$ 9.00						$ 9.00
Fair value of allocated consideration	$ 4,500
Vertex Collaboration Agreement | ETBs
Research And Development Collaboration Agreements [Line Items]
Aggregate milestone payments upon exercise of option to license ETBS	22,000						$ 22,000
Vertex Collaboration Agreement | Sales Milestone
Research And Development Collaboration Agreements [Line Items]
Milestone payments receivable if option is exercised	$ 70,000

XML

Marketable Securities and Fair Value Measurements - Financial Assets at Fair Value on Recurring Basis (Detail) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total cash equivalents and marketable securities	$ 92,460	$ 125,505
Cash and cash equivalents	25,218	85,451
Marketable securities, current	68,667	39,633
Marketable securities, non-current		1,510
Cash Equivalents
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Cash and cash equivalents	23,793	84,362
Money Market Funds
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total cash equivalents and marketable securities	23,794	79,970
Commercial Paper
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total cash equivalents and marketable securities	42,863	20,436
United States Treasury Bills
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total cash equivalents and marketable securities	21,794	16,738
United States Government-Related Debt Securities
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total cash equivalents and marketable securities	4,009	7,010
Corporate Bonds
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total cash equivalents and marketable securities		1,351
Basis of Fair Value Measurements, Level 1
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total cash equivalents and marketable securities	23,794	79,970
Basis of Fair Value Measurements, Level 1 | Money Market Funds
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total cash equivalents and marketable securities	23,794	79,970
Basis of Fair Value Measurements, Level 1 | Commercial Paper
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total cash equivalents and marketable securities	0	0
Basis of Fair Value Measurements, Level 1 | United States Treasury Bills
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total cash equivalents and marketable securities	0	0
Basis of Fair Value Measurements, Level 1 | United States Government-Related Debt Securities
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total cash equivalents and marketable securities	0	0
Basis of Fair Value Measurements, Level 1 | Corporate Bonds
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total cash equivalents and marketable securities		0
Basis of Fair Value Measurements, Level 2
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total cash equivalents and marketable securities	68,666	45,535
Basis of Fair Value Measurements, Level 2 | Money Market Funds
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total cash equivalents and marketable securities	0	0
Basis of Fair Value Measurements, Level 2 | Commercial Paper
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total cash equivalents and marketable securities	42,863	20,436
Basis of Fair Value Measurements, Level 2 | United States Treasury Bills
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total cash equivalents and marketable securities	21,794	16,738
Basis of Fair Value Measurements, Level 2 | United States Government-Related Debt Securities
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total cash equivalents and marketable securities	4,009	7,010
Basis of Fair Value Measurements, Level 2 | Corporate Bonds
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total cash equivalents and marketable securities		1,351
Basis of Fair Value Measurements, Level 3
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total cash equivalents and marketable securities	0	0
Basis of Fair Value Measurements, Level 3 | Money Market Funds
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total cash equivalents and marketable securities	0	0
Basis of Fair Value Measurements, Level 3 | Commercial Paper
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total cash equivalents and marketable securities	0	0
Basis of Fair Value Measurements, Level 3 | United States Treasury Bills
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total cash equivalents and marketable securities	0	0
Basis of Fair Value Measurements, Level 3 | United States Government-Related Debt Securities
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total cash equivalents and marketable securities	$ 0	0
Basis of Fair Value Measurements, Level 3 | Corporate Bonds
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total cash equivalents and marketable securities		$ 0

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Marketable Securities and Fair Value Measurements - Summary of Company's Available-for-Sale Securities (Detail) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Schedule Of Available For Sale Securities [Line Items]
Cost Basis	$ 92,443	$ 125,487
Fair Value	68,667	39,633
Fair Value	0	1,510
Cash Equivalents - Money Market Funds, Commercial Paper and Corporate Bonds
Schedule Of Available For Sale Securities [Line Items]
Cost Basis	23,793	84,361
Unrealized Gain	0	1
Unrealized Loss	0	0
Fair Value	23,793	84,362
Marketable Securities, Current - Commercial Paper, Treasury Bills and Corporate Bonds
Schedule Of Available For Sale Securities [Line Items]
Cost Basis	68,650	39,616
Unrealized Gain	19	17
Unrealized Loss	(2)	0
Fair Value	68,667	39,633
Marketable Securities, Non-current - Treasury Bills
Schedule Of Available For Sale Securities [Line Items]
Unrealized Gain	0	0
Unrealized Loss	0	0
Cost Basis	0	1,510
Fair Value	$ 0	$ 1,510

XML

Marketable Securities and Fair Value Measurements - Summary of Contractual Maturities of Available-for-Sale-Investments (Detail) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Fair Value Disclosures [Abstract]
Cost Basis, Due in one year or less	$ 92,443	$ 123,977
Cost Basis, Due after one year through five years	0	1,510
Cost Basis	92,443	125,487
Fair Value, Due in one year or less	92,460	123,995
Fair Value, Due after one year through five years	0	1,510
Fair Value, Total	$ 92,460	$ 125,505

XML

Marketable Securities and Fair Value Measurements - Additional Information (Detail) - USD ($)	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Investments Debt And Equity Securities [Abstract]
Proceeds from sale of available-for-sale securities	$ 0	$ 1,300,000

XML

Property and Equipment - Components of Property and Equipment (Detail) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Property Plant And Equipment [Line Items]
Property and equipment, Gross	$ 29,639	$ 21,451
Less: Accumulated depreciation	(7,385)	(3,293)
Total property and equipment, net	22,254	18,158
Laboratory Equipment
Property Plant And Equipment [Line Items]
Property and equipment, Gross	16,159	10,587
Leasehold Improvements
Property Plant And Equipment [Line Items]
Property and equipment, Gross	12,391	10,383
Furniture and Fixtures
Property Plant And Equipment [Line Items]
Property and equipment, Gross	474	150
Computer and Equipment
Property Plant And Equipment [Line Items]
Property and equipment, Gross	$ 615	$ 331

XML

Property and Equipment - Additional Information (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Property Plant And Equipment [Line Items]
Depreciation expense	$ 4.1	$ 2.0
Leasehold Improvements
Property Plant And Equipment [Line Items]
Asset retirement obligation, asset	$ 0.8	$ 1.0

XML

Balance Sheet Components - Components of Accrued Liabilities (Detail) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Accrued Liabilities Current [Abstract]
General and administrative	$ 1,577	$ 4,521
Clinical trial related costs	1,743	1,383
Non-clinical research and manufacturing operations	4,321	5,774
Payroll related	4,908	2,849
Other accrued expenses	26	17
Total Accrued liabilities	$ 12,575	$ 14,544

XML

Balance Sheet Components - Components of Other Accrued Liabilities (Detail) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019	Jan. 01, 2019
Accrued Liabilities Current [Abstract]
Finance Lease Liability, current portion	$ 1	$ 18
Long Term Debt, Current Portion		800
Operating lease liabilities, current	2,210	1,683	$ 976
Total Other Current liabilities	$ 2,211	$ 2,501

XML

Related Party Transactions - Additional Information (Details) - shares			12 Months Ended
	Nov. 25, 2019	Sep. 25, 2018	Dec. 31, 2019
Series A Convertible Preferred Stock
Related Party Transaction [Line Items]
Shares issued under public offering	250
Common Stock
Related Party Transaction [Line Items]
Shares issued under public offering			6,900,000
Longitude Venture Partners III, L.P. | Public Offerings | Common Stock
Related Party Transaction [Line Items]
Shares issued under public offering	937,500	365,000
CDK Associates, L.L.C. | Public Offerings | Common Stock
Related Party Transaction [Line Items]
Shares issued under public offering	468,750	545,454

XML

Borrowing Arrangements - Additional Information (Detail) - USD ($)			3 Months Ended	12 Months Ended
	May 21, 2020	Feb. 27, 2018	Dec. 31, 2020	Dec. 31, 2020	Dec. 31, 2019
Debt Instrument [Line Items]
Loss on extinguishment of debt				$ (1,237,000)	$ 0
Long-term debt, carrying value			$ 14,900,000	$ 14,900,000	3,700,000
K2 Loan and Security Agreement
Debt Instrument [Line Items]
Loan and security agreement	$ 45,000.0
Interest rate			8.45%	8.45%
Debt net			$ 1,100	$ 1,100
Debt instrument, covenant compliance				The Company was in compliance with the debt covenants at December 31, 2020 and expects to be compliant with the debt covenants for the next 12 months.
Total debt			$ 15,000,000.0	$ 15,000,000.0	0.0
Tranche One | K2 Loan and Security Agreement
Debt Instrument [Line Items]
Loan and security agreement	15,000.0
Tranche Two | K2 Loan and Security Agreement
Debt Instrument [Line Items]
Loan and security agreement	20,000.0
Interest rate			0.20%	0.20%
Tranche Three | K2 Loan and Security Agreement
Debt Instrument [Line Items]
Loan and security agreement	$ 10,000.0
Prime Rate | K2 Loan and Security Agreement
Debt Instrument [Line Items]
Interest rate			5.20%	5.20%
Perceptive
Debt Instrument [Line Items]
Credit Facility, principal payments				$ 4,900,000
Credit Facility, interest expense				4,900,000
Exit fees and prepayment penalties			$ 100,000	100,000
Loss on extinguishment of debt				(1,200,000)
Total debt			0.0	$ 0.0	$ 5,000,000.0
Perceptive | Term Loan Facility
Debt Instrument [Line Items]
Maximum borrowing capacity under loan		$ 10,000,000.0
Increase in applicable margin percentage on event of default		4.00%
Period for which interest only payments will be made		24 months
Credit Facility, principal payments			$ 200,000
Deferred finance costs		$ 500,000
Debt issuance cost, net of discount		$ 1,500,000
Number of shares issued for each warrant		190,000
Warrant exercisable period		7 years
Warrant exercise price		$ 9.5792
Fair value of the warrant recorded as a debt discount		$ 1,500,000
Perceptive | Term Loan Facility | LIBOR
Debt Instrument [Line Items]
Applicable margin percentage		11.00%
Perceptive | Term Loan Facility | Term Loan Drawn on Effective Date of Credit Facility
Debt Instrument [Line Items]
Proceeds from initial term loan on closing date of Credit Facility		$ 5,000,000.0
Perceptive | Term Loan Facility | Additional Term Loan Drawn Six Months Following Effective Date of Credit Facility
Debt Instrument [Line Items]
Remaining available amount from credit facility did not draw down		$ 5,000,000.0

XML

Borrowing Arrangements - Schedule of Required Future Principal Payments (Detail) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Debt Instrument [Line Items]
Total Long-Term Debt, net	$ 14,900	$ 3,700
K2 Loan and Security Agreement
Debt Instrument [Line Items]
2021	0
2022	4,105
2023	7,537
2024	3,358
Total Principal Amounts	15,000
Final Fee Due at Maturity	861
Unamortized discount, deferred costs and final fee	(935)
Total Long-Term Debt, net	$ 14,926

XML

Leases - Additional Information (Detail) $ in Thousands	1 Months Ended
	Jun. 30, 2020 USD ($) ft²	Jan. 31, 2019 USD ($) ft²	Dec. 31, 2020 USD ($)	Dec. 31, 2019 USD ($)	Jan. 01, 2019 USD ($)	Dec. 31, 2018 USD ($)
Lessee Lease Description [Line Items]
Operating lease right-of-use-asset			$ 11,104	$ 9,959	$ 4,180
Operating lease, lease liability			14,423
Asset retirement obligation, lease			1,490	$ 1,365		$ 344
Texas
Lessee Lease Description [Line Items]
Area of administrative office and research and development space leased | ft²		57,000
Lease expiration period		2028-08
Operating lease right-of-use-asset		$ 7,200
Operating lease, lease liability		7,200
Letter of credit		$ 3,000
Asset retirement obligation, lease			$ 400
New York
Lessee Lease Description [Line Items]
Letter of credit	$ 200
Area of land | ft²	9,289
Area of land of additional facility lease agreement | ft²	3,000
Lease expiration date	Oct. 30, 2025

XML

Leases - Changes in Carrying Amount of AROs (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Asset Retirement Obligation Disclosure [Abstract]
Balance at beginning of year	$ 1,365	$ 344
Liabilities incurred in the current period	0	949
Accretion of asset retirement obligations	125	72
Balance at end of year	$ 1,490	$ 1,365

XML

Leases - Components of Lease Expense (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Leases [Abstract]
Operating lease expense	$ 2,520	$ 2,175
Variable lease expense	491	456
Total operating lease expense	3,011	2,631
Amortization of right-of-use asset	8	8
Interest on lease liabilities	1	2
Total finance lease expense	$ 9	$ 10

XML

Leases - Schedule of Balance Sheets Classification of Leases (Detail) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019	Jan. 01, 2019
Operating leases
Operating lease right-of-use assets	$ 11,104	$ 9,959	$ 4,180
Operating lease liabilities, current	$ 2,210	1,683	976
Operating Lease, Liability, Current, Statement of Financial Position [Extensible List]	us-gaap:OtherLiabilitiesCurrent
Operating lease liabilities, non-current	$ 12,213	11,682	$ 3,729
Total operating lease liabilities	14,423
Finance leases
Property and equipment, at cost	77
Less, Accumulated depreciation	49
Property and equipment, net	$ 28
Finance Lease, Right-of-Use Asset, Statement of Financial Position [Extensible List]	us-gaap:PropertyPlantAndEquipmentNet
Finance Lease Liability, current portion	$ 1	$ 18
Finance Lease Liability Current Statement Of Financial Position Extensible List	us-gaap:OtherLiabilitiesCurrent

XML

Leases - Schedule of Leases Information (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Leases [Abstract]
Weighted average remaining lease term, operating leases	6 years 1 month 6 days	7 years 2 months 12 days
Weighted average remaining lease term, finance leases	1 month 6 days	9 months 18 days
Weighted average discount rate, operating leases	7.04%	6.72%
Weighted average discount rate, finance leases	0.00%	6.88%
Right of use assets obtained in exchange for operating lease liabilities	$ 2,735	$ 7,501

XML

Leases - Schedule of Future Minimum Payments Under Operating Leases (Detail) $ in Thousands	Dec. 31, 2020 USD ($)
Lease payments
2021	$ 3,142
2022	3,361
2023	2,689
2024	2,218
2025	2,147
Thereafter	4,244
Total lease payments	17,801
Less: Imputed interest	(3,378)
Total lease liabilities	14,423
Finance Leases
2021	1
2022	0
2023	0
2024	0
2025	0
Thereafter	0
Total lease payments	1
Less: Imputed interest	0
Total lease liabilities	$ 1

XML

Leases - Supplemental Cash Flow Information (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows operating leases	$ 2,453	$ 1,278
Operating cash flows finance leases	1	3
Financing cash flows finance leases	$ 18	$ 31

XML

Commitments and Contingencies - Additional Information (Detail) $ in Millions	12 Months Ended
	Dec. 31, 2020 USD ($)
Other Commitments [Line Items]
Upfront fees unamortized balance included in prepaid asset	$ 1.1
Contractual obligation	$ 49.0
Percentage of right to share development costs exercised	50.00%
Minimum
Other Commitments [Line Items]
Estimated purchase obligation	$ 13.2
Maximum
Other Commitments [Line Items]
Estimated purchase obligation	$ 13.9

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Stockholders' Equity - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Thousands								1 Months Ended		12 Months Ended
	Aug. 07, 2020	Nov. 25, 2019	Sep. 25, 2018	Feb. 28, 2018	Feb. 27, 2018	Aug. 01, 2017	Jun. 23, 2017	Jul. 31, 2020	Dec. 31, 2017	Dec. 31, 2020	Dec. 31, 2019
Class Of Warrant Or Right [Line Items]
Net proceeds from common stock										$ 48,372	$ 53,449
Preferred stock, par value										$ 0.001	$ 0.001
Sale of securities	$ 300,000										$ 53,449
Term Loan Facility | Perceptive Credit Facility
Class Of Warrant Or Right [Line Items]
Warrant exercisable period					7 years
Common stock exercise price					$ 9.5792
Number of shares to be issued upon exercise of warrant					190,000
Series A Convertible Preferred Stock
Class Of Warrant Or Right [Line Items]
Number of shares sold		250
Shares issued, price per share		$ 8.00
Preferred stock, conversion basis		Each share of Series A Preferred Stock is convertible to 1,000 shares of Common Stock, provided that the holder of Series A Preferred Stock will be prohibited from converting the Series A Preferred Stock into shares of common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 9.99% of the total number of shares of the Company’s common stock then issued and outstanding.
Number of preferred stock converted into common stock		1,000
Minimum holding percentage of common stock issued and outstanding upon conversion		9.99%
Preferred stock, par value		$ 0.001
Preferred Stock , voting rights description										The Series A Preferred Stock has no voting rights, except as required by law and except that the consent of the Series A Preferred Stockholders will be required to amend the terms of the Series A Preferred Stock.
Preferred stock beneficial conversion feature intrinsic value		$ 700
Common Stock
Class Of Warrant Or Right [Line Items]
Number of shares sold											6,900,000
Sale of securities											$ 7
Common Stock | Term Loan Facility | Perceptive Credit Facility
Class Of Warrant Or Right [Line Items]
Warrant exercisable period				7 years
Common stock exercise price				$ 9.58
Valuation of equity classified warrants recorded in additional paid-n capital				$ 1,500
Expected dividend rate				0.00%
Expected volatility				105.00%
Risk free interest rate				2.80%
Expected term				7 years
Number of shares to be issued upon exercise of warrant				190,000
Wedbush Agreement
Class Of Warrant Or Right [Line Items]
Valuation of equity classified warrants recorded in additional paid-n capital									$ 400
Expected dividend rate									0.00%
Expected volatility									108.00%
Risk free interest rate									2.30%
Expected term									7 years
Takeda Pharmaceuticals Inc
Class Of Warrant Or Right [Line Items]
Aggregate purchase price							$ 20,000
Each unit of shares transaction of common stock							2,922,993
Purchase price per share							$ 6.8423
Vertex Pharmaceuticals Inc
Class Of Warrant Or Right [Line Items]
Aggregate purchase price							$ 15,000
Each unit of shares transaction of common stock							1,666,666
Purchase price per share							$ 9.00
Private Placement
Class Of Warrant Or Right [Line Items]
Sale of securities											$ 10,469
Private Placement | Common Stock
Class Of Warrant Or Right [Line Items]
Valuation of equity classified warrants recorded in additional paid-n capital						$ 16,300
Expected dividend rate						0.00%
Expected volatility						147.00%
Risk free interest rate						2.07%
Expected term						7 years
Number of shares sold											1,666,666
Sale of securities											$ 2
Private Placement | Longitude Venture Partners III, L.P.
Class Of Warrant Or Right [Line Items]
Number of aggregate units sold						5,793,063
Aggregate purchase price						$ 40,000
Each unit of shares transaction of common stock						1
Warrants to purchase shares of common stock						0.5
Sale of units, description and its composition										the Company sold an aggregate of 5,793,063 units (the “Units”) having an aggregate purchase price of $40.0 million (“PIPE Financing”), each such Unit consisting of (i) one (1) share (the “Shares”) of our common stock and (ii) a warrant (the “Private Placement Warrants”) to purchase 0.5 shares of our common stock (the “Private Placement”).
Purchase price per unit						$ 6.9048
Warrant exercisable period						7 years
Common stock exercise price						$ 6.8423
Private Placement | Longitude Venture Partners III, L.P. | Common Stock
Class Of Warrant Or Right [Line Items]
Warrants to purchase shares of common stock										2,896,528
Private Placement | Wedbush Agreement | Common Stock
Class Of Warrant Or Right [Line Items]
Warrants to purchase shares of common stock									57,930	57,930
Warrant exercisable period									7 years
Common stock exercise price									$ 6.8423
Underwritten Public Offering
Class Of Warrant Or Right [Line Items]
Number of shares sold			9,430,000
Shares issued, price per share			$ 5.50
Net proceeds from common stock			$ 48,100
Over Allotment Option
Class Of Warrant Or Right [Line Items]
Number of shares sold		900,000	1,230,000
2019 Underwritten Public Offering
Class Of Warrant Or Right [Line Items]
Number of shares sold		6,900,000
Shares issued, price per share		$ 8.00
Net proceeds from common stock		$ 53,400
At-the-market Sales (“ATM”)
Class Of Warrant Or Right [Line Items]
Net proceeds from common stock	$ 100,000							$ 48,500
Gross proceeds from common stock								$ 50,000
Sale of securities										$ 48,372
At-the-market Sales (“ATM”) | Common Stock
Class Of Warrant Or Right [Line Items]
Number of shares sold										4,133,916
Sale of securities										$ 4
At-the-market Sales (“ATM”) | Common Stock at Purchase Price of $12.00 Per Share
Class Of Warrant Or Right [Line Items]
Purchase price per share								$ 12.00
Number of shares sold								3,600,000
At-the-market Sales (“ATM”) | Common Stock at Purchase Price of $12.70 Per Share
Class Of Warrant Or Right [Line Items]
Purchase price per share								$ 12.70
Number of shares sold								500,000

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Equity Incentive Plans and Stock Based Compensation - Additional Information (Detail) - USD ($)		1 Months Ended	12 Months Ended
	Jan. 01, 2017	May 31, 2018	Dec. 31, 2020	Dec. 31, 2019	Apr. 30, 2018
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Total intrinsic value of stock options exercised			$ 2,500,000	$ 600,000
Cash received from stock option exercises			1,040,000	$ 1,748,000
Tax benefit realized upon exercise of option			0
Unrecognized compensation cost related to unvested stock-based awards granted to employees under the stock option plans			$ 30,000,000.0
Unrecognized compensation cost related to unvested stock-based awards granted to employees under the stock option plans, period for recognition			2 years 6 months 10 days
2018 Equity Incentive Plan
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Exercise price as a percentage of fair market value of common stock		100.00%
Terms of stock options granted			10 years
Terms of stock options vested			4 years
Options to purchase shares of common stock available for future grants			679,187
Options reserved for issuance transferred to 2018 Equity Incentive Plan					2,000,000
Common stock additional shares may be added to plan in connection in forfeiture or expiration of awards outstanding		2,885,121
2018 Equity incentive plan annual evergreen provision to increase available for issuance description			Additionally, the number of shares of common stock that may be issued under the 2018 Plan shall increase on each January 1, beginning with January 1, 2019, and continuing through and including January 1, 2028 by an amount equal to the lesser of (i) 4% of the number of outstanding shares of common stock on that date and (ii) an amount determined by the Company’s board of directors or compensation committee; provided, however, that in no event will the number of shares available for issuance under the 2018 Plan be increased to the extent such increase, in addition to any other increases proposed by the board of directors in the number of shares available for issuance under all other employee or director stock plan would result in the total number of shares then available for issuance under all employee and director stock plans exceeding 20% of the outstanding shares of the Company’s common stock on the first day of the applicable fiscal year.
Annual evergreen provision to increase available for issuance not to exceed percentage of common stock shares outstanding on date of increase		4.00%
2018 Equity Incentive Plan | Maximum
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Available for issuance for all plans not to exceed percentage of common stock outstanding on first day of fiscal year		20.00%
2009 Stock Plan
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Options reserved for issuance transferred to 2018 Equity Incentive Plan					104,184
2014 Equity Incentive Plan
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Options reserved for issuance transferred to 2018 Equity Incentive Plan					335,040
2004 Employee Stock Purchase Plan
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Options to purchase shares of common stock available for future grants			8,636	8,636
Additional shares authorized for issuance	9,091
Offering period			24 months
Purchase period			6 months
Discount available to eligible employees related to employee stock purchase plan			85.00%
Shares purchased by employees under purchase plan			0	0

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Equity Incentive Plans and Stock Based Compensation - Summary of Stock Option Activity Under Equity Incentive Plan (Detail) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Outstanding Options Number of Shares, Beginning Balance	4,763,062	4,002,999
Number of Shares, Options granted	2,453,506	2,023,600
Number of Shares, Options exercised	(261,260)	(286,479)
Number of shares, Options cancelled	(257,381)	(977,058)
Outstanding Options Number of Shares, Ending Balance	6,697,927	4,763,062	4,002,999
Outstanding Options Number of Shares, Vested and expected to vest, December 31, 2020	6,697,927
Outstanding Options Number of Shares, Exercisable at December 31, 2020	2,845,501
Weighted Average Exercise Price, Beginning Balance	$ 6.36	$ 10.43
Weighted Average Exercise Price, Options granted	14.06	6.00
Weighted Average Exercise Price, Options exercised	3.99	6.10
Weighted Average Exercise Price, Options cancelled	9.99	22.39
Weighted Average Exercise Price, Ending Balance	9.13	$ 6.36	$ 10.43
Weighted Average Exercise Price, Vested and expected to vest, December 31, 2020	9.13
Weighted Average Exercise Price, Exercisable at December 31, 2020	$ 6.66
Weighted-Average Remaining Contractual Term, Outstanding	7 years 9 months 3 days	8 years 1 month 6 days	6 years 4 months 24 days
Weighted-Average Remaining Contractual Term, Vested and expected to vest, December 31, 2020	7 years 9 months 3 days
Weighted-Average Remaining Contractual Term, Exercisable at December 31, 2020	6 years 8 months 4 days
Aggregate Intrinsic Value, Outstanding	$ 13,790	$ 36,630	$ 1,500
Aggregate Intrinsic Value, Vested and expected to vest, December 31, 2020	13,790
Aggregate Intrinsic Value, Exercisable at December 31, 2020	$ 8,850

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Equity Incentive Plans and Stock Based Compensation - Stock Options Outstanding and Exercisable by Exercise Price (Detail)	12 Months Ended
	Dec. 31, 2020 $ / shares shares
$0.71-4.28
Share Based Compensation Shares Authorized Under Stock Option Plans Exercise Price Range [Line Items]
Range of Exercise Prices	$ 0.71
Range of Exercise Prices	$ 4.28
Number Outstanding | shares	402,543
Weighted Average Remaining Contractual Life (Years)	3 years 3 months 25 days
Weighted Average Exercise Price	$ 1.22
Number Exercisable | shares	399,639
Weighted Average Exercise Price	$ 1.20
$4.66-4.66
Share Based Compensation Shares Authorized Under Stock Option Plans Exercise Price Range [Line Items]
Range of Exercise Prices	4.66
Range of Exercise Prices	$ 4.66
Number Outstanding | shares	920,356
Weighted Average Remaining Contractual Life (Years)	7 years 9 months 14 days
Weighted Average Exercise Price	$ 4.66
Number Exercisable | shares	408,708
Weighted Average Exercise Price	$ 4.66
$4.74-5.81
Share Based Compensation Shares Authorized Under Stock Option Plans Exercise Price Range [Line Items]
Range of Exercise Prices	4.74
Range of Exercise Prices	$ 5.81
Number Outstanding | shares	335,019
Weighted Average Remaining Contractual Life (Years)	7 years 10 months 2 days
Weighted Average Exercise Price	$ 5.07
Number Exercisable | shares	158,293
Weighted Average Exercise Price	$ 5.10
$6.31-6.31
Share Based Compensation Shares Authorized Under Stock Option Plans Exercise Price Range [Line Items]
Range of Exercise Prices	6.31
Range of Exercise Prices	$ 6.31
Number Outstanding | shares	1,189,849
Weighted Average Remaining Contractual Life (Years)	7 years 3 months
Weighted Average Exercise Price	$ 6.31
Number Exercisable | shares	790,675
Weighted Average Exercise Price	$ 6.31
$6.54-8.95
Share Based Compensation Shares Authorized Under Stock Option Plans Exercise Price Range [Line Items]
Range of Exercise Prices	6.54
Range of Exercise Prices	$ 8.95
Number Outstanding | shares	698,912
Weighted Average Remaining Contractual Life (Years)	8 years 14 days
Weighted Average Exercise Price	$ 7.91
Number Exercisable | shares	359,276
Weighted Average Exercise Price	$ 7.91
$9.28-10.78
Share Based Compensation Shares Authorized Under Stock Option Plans Exercise Price Range [Line Items]
Range of Exercise Prices	9.28
Range of Exercise Prices	$ 10.78
Number Outstanding | shares	733,969
Weighted Average Remaining Contractual Life (Years)	6 years 8 months 1 day
Weighted Average Exercise Price	$ 9.74
Number Exercisable | shares	598,957
Weighted Average Exercise Price	$ 9.71
$10.92-13.99
Share Based Compensation Shares Authorized Under Stock Option Plans Exercise Price Range [Line Items]
Range of Exercise Prices	10.92
Range of Exercise Prices	$ 13.99
Number Outstanding | shares	676,300
Weighted Average Remaining Contractual Life (Years)	9 years 1 month 20 days
Weighted Average Exercise Price	$ 12.64
Number Exercisable | shares	46,076
Weighted Average Exercise Price	$ 13.16
$14.50-14.50
Share Based Compensation Shares Authorized Under Stock Option Plans Exercise Price Range [Line Items]
Range of Exercise Prices	14.50
Range of Exercise Prices	$ 14.50
Number Outstanding | shares	1,322,971
Weighted Average Remaining Contractual Life (Years)	8 years 10 months 13 days
Weighted Average Exercise Price	$ 14.50
Number Exercisable | shares	75,469
Weighted Average Exercise Price	$ 14.50
$14.94-61.27
Share Based Compensation Shares Authorized Under Stock Option Plans Exercise Price Range [Line Items]
Range of Exercise Prices	14.94
Range of Exercise Prices	$ 61.27
Number Outstanding | shares	416,190
Weighted Average Remaining Contractual Life (Years)	9 years 1 month 13 days
Weighted Average Exercise Price	$ 15.94
Number Exercisable | shares	6,590
Weighted Average Exercise Price	$ 42.74
$70.29-70.29
Share Based Compensation Shares Authorized Under Stock Option Plans Exercise Price Range [Line Items]
Range of Exercise Prices	70.29
Range of Exercise Prices	$ 70.29
Number Outstanding | shares	1,818
Weighted Average Remaining Contractual Life (Years)	1 year 4 months 13 days
Weighted Average Exercise Price	$ 70.29
Number Exercisable | shares	1,818
Weighted Average Exercise Price	$ 70.29
$0.71-7.29
Share Based Compensation Shares Authorized Under Stock Option Plans Exercise Price Range [Line Items]
Range of Exercise Prices	0.71
Range of Exercise Prices	$ 7.29
Number Outstanding | shares	6,697,927
Weighted Average Remaining Contractual Life (Years)	7 years 9 months 3 days
Weighted Average Exercise Price	$ 9.13
Number Exercisable | shares	2,845,501
Weighted Average Exercise Price	$ 6.66

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Equity Incentive Plans and Stock Based Compensation - Stock-Based Compensation Expense (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Total stock-based compensation	$ 11,817	$ 5,859
Research and Development
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Total stock-based compensation	6,387	2,398
General and Administrative
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Total stock-based compensation	$ 5,430	$ 3,461

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Equity Incentive Plans and Stock Based Compensation - Weighted-Average Fair Value Valuation Assumptions (Detail) - Employee Stock Options - $ / shares	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Risk-free interest rate	1.44%	2.37%
Expected term (in years)	6 years 29 days	6 years 29 days
Dividend yield	0.00%	0.00%
Volatility	110.90%	108.70%
Weighted-average fair value of stock options granted	$ 11.75	$ 5.00

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Income Taxes - Additional Information (Detail) - USD ($)	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Income Taxes Disclosure [Line Items]
Income tax provision	$ 5,000.00	$ 0.00
Increase in valuation allowance	26,500,000
Unrecognized benefits	0	$ 0
State
Income Taxes Disclosure [Line Items]
Research and development credits	$ 1,900,000
Year research and development credits begin to expire	2033
State
Income Taxes Disclosure [Line Items]
Net operating loss carryforwards	$ 400,000
Federal
Income Taxes Disclosure [Line Items]
Net operating loss carryforwards	$ 198,800,000
Year net operating loss carryforwards begin to expire	2024
Operating loss carryforward subject to expire	$ 62,800,000
Operating loss carryforwards not subject to expire	136,000,000.0
Research and development credits	$ 7,600,000
Year research and development credits begin to expire	2022

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Income Taxes - Schedule of Reconciliation of Income Taxes at Statutory Federal Income Tax Rate to Net Income Taxes (Detail) - USD ($)	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Income Tax Disclosure [Abstract]
U.S. federal taxes (benefit) at statutory rate	$ (22,032,000)	$ (14,578,000)
State federal income tax benefit	(895,000)	(528,000)
Permanent differences	(46,000)	34,000
Stock compensation	524,000	4,112,000
Research and development credits	(4,043,000)	(1,677,000)
Change in valuation allowance due to operations	26,484,000	12,756,000
Expiring state carryovers and other	13,000	(119,000)
Total	$ 5,000.00	$ 0.00

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Income Taxes - Schedule of Significant Components of Net Deferred Tax Assets (Detail) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Deferred tax assets
Net operating loss carryforward	$ 42,029	$ 26,554
Research and development credits	9,066	4,147
Deferred stock compensation	3,260	1,571
Deferred revenue	5,195	1,956
Lease liability	3,045	2,835
Other	1,301	736
Total deferred tax assets	63,896	37,799
Total deferred tax liabilities
Depreciable and amortizable assets	(1,677)	(1,340)
Right-of-use asset	(2,344)	(2,112)
R&D intangible assets		(956)
Total deferred tax liabilities	(4,021)	(4,408)
Less: Valuation allowance	(59,875)	(33,391)
Net deferred tax assets	$ 0	$ 0

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Employee Benefit Plan - Additional Information (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Molecular Templates 401(k) Plan
Defined Contribution Plan Disclosure [Line Items]
Employer discretionary contribution amount	$ 0.5	$ 0.2

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In-Process Research and Development - Additional Information (Detail) $ in Millions	1 Months Ended
	Dec. 31, 2020 USD ($)
Research And Development [Abstract]
Loss on assets held for sale	$ 2.0

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Subsequent Event - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended	12 Months Ended
	Feb. 28, 2021	Dec. 31, 2020	Dec. 31, 2019
Subsequent Event [Line Items]
Net proceeds from common stock		$ 48,372	$ 53,449
Subsequent Event | Public Offering
Subsequent Event [Line Items]
Number of shares sold	6,000,000
Shares issued, price per share	$ 12.65
Net proceeds from common stock	$ 71,000
Bristol Myers Squibb | Subsequent Event
Subsequent Event [Line Items]
Upfront payment	70,000
Near term and development and regulatory milestones payment	874,500
Milestone payments upon achievement of certain development and regulatory milestones	$ 450,000