Form 10-Q - Quarterly report [Sections 13 or 15(d)]

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023

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

Commission File Number 001-36818

TRACON Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)


Delaware		34-2037594
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

4350 La Jolla Village Drive, Suite 800, San Diego CA		92122
(Address of principal executive offices)		(Zip Code)

(858) 550-0780

(Registrant’s telephone number, including area code)

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


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	TCON	The Nasdaq Stock Market LLC

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 (§232.405 of this chapter) 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 an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “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 number of outstanding shares of the registrant’s common stock as of November 3, 2023 was 31,144,335.

FORM 10-Q

TABLE OF CONTENTS


PART I FINANCIAL INFORMATION


Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets	3
	Unaudited Condensed Consolidated Statements of Operations	4
	Unaudited Condensed Consolidated Statements of Stockholders’ (Deficit) Equity	5
	Unaudited Condensed Consolidated Statements of Cash Flows	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	63
Item 3.	Defaults Upon Senior Securities	63
Item 4.	Mine Safety Disclosures	64
Item 5.	Other Information	64
Item 6.	Exhibits	65

Signatures		67

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TRACON Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)


	September 30,			December 31,
	2023			2022
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	7,763		$	17,433
Prepaid and other assets		577			795
Total current assets		8,340			18,228
Property and equipment, net		40			51
Restricted cash		72			67
Other assets		961			1,123
Total assets	$	9,413		$	19,469
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable and accrued expenses	$	10,622		$	11,107
Accrued compensation and related expenses		1,080			1,457
Long-term debt, current portion		—			9,807
Total current liabilities		11,702			22,371
Other long-term liabilities		795			969
Arbitration financing payable		—			3,280
Commitments and contingencies (Note 4)
Stockholders’ deficit:
Preferred stock, $0.001 par value, authorized shares — 10,000,000 at September 30, 2023 and December 31, 2022; issued and outstanding shares — none		—			—
Common stock, $0.001 par value; authorized shares — 60,000,000 and 40,000,000 at September 30, 2023 and December 31, 2022, respectively; issued and outstanding shares — 31,130,335 and 23,125,250 at September 30, 2023 and December 31, 2022, respectively		31			23
Additional paid-in capital		237,823			229,737
Accumulated deficit		(240,938	)		(236,911	)
Total stockholders’ deficit		(3,084	)		(7,151	)
Total liabilities and stockholders’ deficit	$	9,413		$	19,469

See accompanying notes.

TRACON Pharmaceuticals, Inc.

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2023			2022			2023			2022
Collaboration revenue	$	—		$	—		$	9,000		$	—
Operating expenses:
Research and development		2,326			4,097			10,783			10,013
General and administrative		1,262			2,280			5,522			12,049
Arbitration success fees		(2,000	)		—			2,375			—
Total operating expenses		1,588			6,377			18,680			22,062
Loss from operations		(1,588	)		(6,377	)		(9,680	)		(22,062	)
Other income (expense):
Interest expense, net		(646	)		(58	)		(7,341	)		(76	)
Other income, net		12,997			—			12,994			—
Total other income (expense)		12,351			(58	)		5,653			(76	)
Net income (loss)	$	10,763		$	(6,435	)	$	(4,027	)	$	(22,138	)

Earnings (Loss) per common share:
Basic	$	0.29		$	(0.30	)	$	(0.13	)	$	(1.08	)
Diluted	$	0.29		$	(0.30	)	$	(0.13	)	$	(1.08	)
Weighted-average number of common shares outstanding:
Basic		36,770,038			21,469,977			30,462,400			20,455,877
Diluted		36,856,064			21,469,977			30,462,400			20,455,877

See accompanying notes.

TRACON Pharmaceuticals, Inc.

Unaudited Condensed Consolidated Statements of Stockholders’ (Deficit) Equity

(in thousands, except share data)



					Additional					Total
	Common Stock				Paid-in		Accumulated			Stockholders’
	Shares		Amount		Capital		Deficit			(Deficit)
Balance at December 31, 2022		23,125,250	$	23	$	229,737	$	(236,911	)	$	(7,151	)
Stock-based compensation expense		—		—		484		—			484
Issuance of common stock and warrants, net of offering costs		902,641		1		4,098		—			4,099
Net loss		—		—		—		(8,504	)		(8,504	)
Balance at March 31, 2023		24,027,891		24		234,319		(245,415	)		(11,072	)
Stock-based compensation expense		—		—		502		—			502
Issuance of common stock under equity plans		31,569		—		43		—			43
Issuance of common stock, net of offering costs		2,570,133		3		1,071		—			1,074
Net loss		—		—		—		(6,286	)		(6,286	)
Balance at June 30, 2023		26,629,593		27		235,935		(251,701	)		(15,739	)
Stock-based compensation expense		—		—		493		—			493
Issuance of common stock, net of offering costs		4,500,742		4		1,395		—			1,399
Net income		—		—		—		10,763			10,763
Balance at September 30, 2023		31,130,335	$	31	$	237,823	$	(240,938	)	$	(3,084	)

					Additional					Total
	Common Stock				Paid-in		Accumulated			Stockholders’
	Shares		Amount		Capital		Deficit			Equity (Deficit)
Balance at December 31, 2021		19,445,903	$	19	$	219,471	$	(207,776	)	$	11,714
Stock-based compensation expense		—		—		548		—			548
Issuance of common stock, net of offering costs		10,389		—		—		—			—
Issuance of common stock upon cashless exercise of pre-funded warrants		170,668		1		—		—			1
Net loss		—		—		—		(9,473	)		(9,473	)
Balance at March 31, 2022		19,626,960		20		220,019		(217,249	)		2,790
Stock-based compensation expense		—		—		535		—			535
Issuance of common stock under equity plans		23,461		—		49		—			49
Issuance of common stock and warrants, net of offering costs		1,771,377		1		5,397		—			5,398
Net loss		—		—		—		(6,230	)		(6,230	)
Balance at June 30, 2022		21,421,798		21		226,000		(223,479	)		2,542
Stock-based compensation expense		—		—		481		—			481
Issuance of common stock, net of offering costs		328,126		1		517		—			518
Issuance of common stock warrants in connection with debt financing		—		—		259		—			259
Net loss		—		—		—		(6,435	)		(6,435	)
Balance at September 30, 2022		21,749,924	$	22	$	227,257	$	(229,914	)	$	(2,635	)

See accompanying notes.

TRACON Pharmaceuticals, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)


	Nine Months Ended
	September 30,
	2023			2022
Cash flows from operating activities
Net loss	$	(4,027	)	$	(22,138	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		1,479			1,564
Depreciation and amortization		11			12
Noncash interest		88			17
Amortization of debt discount		7,325			15
Lease asset amortization and liability accretion, net		16			47
Changes in assets and liabilities:
Prepaid expenses and other assets		218			(316	)
Accounts payable and accrued expenses		(535	)		(538	)
Accrued compensation and related expenses		(377	)		(249	)
Net cash provided by (used in) operating activities		4,198			(21,586	)
Cash flows from investing activities
Purchase of property and equipment		—			(13	)
Net cash used in investing activities		—			(13	)
Cash flows from financing activities
Proceeds from long-term debt		—			9,960
Repayment of long-term debt and arbitration financing payable		(20,500	)		(1,680	)
Proceeds from sale of common stock and warrants, net of offering costs		6,594			6,410
Proceeds from issuance of common stock under equity plans		43			49
Net cash (used in) provided by financing activities		(13,863	)		14,739
Change in cash, cash equivalents, and restricted cash		(9,665	)		(6,860	)
Cash, cash equivalents, and restricted cash at beginning of period		17,500			24,072
Cash, cash equivalents, and restricted cash at end of period	$	7,835		$	17,212

See accompanying notes.

TRACON Pharmaceuticals, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Organization and Summary of Significant Accounting Policies

Organization and Business

TRACON Pharmaceuticals, Inc. (TRACON or the Company) was incorporated in the state of Delaware on October 28, 2004. TRACON is a biopharmaceutical company focused on the development and commercialization of novel targeted therapeutics for cancer, and utilizes its cost efficient, contract research organization (CRO) independent product development platform to partner with other life science companies to develop and commercialize innovative products in the United States.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, TRACON Pharma Limited and TRACON Pharma International Limited, which were formed in September 2015 and January 2019, respectively, and are currently inactive. All significant intercompany accounts and transactions have been eliminated.

Basis of Presentation

As of September 30, 2023, the Company has devoted substantially all its efforts to product development, raising capital, and building infrastructure and has not realized revenues from its planned principal operations. The Company has incurred operating losses since inception. As of September 30, 2023, the Company had an accumulated deficit of $240.9 million. The Company anticipates that it will continue to incur net losses into the foreseeable future as it continues the development and commercialization of its product candidates and works to develop additional product candidates through research and development programs. At September 30, 2023, the Company had cash and cash equivalents of $7.8 million, of which $0.1 million is classified as restricted cash as it is pledged as collateral for the Company’s obligations under its corporate headquarters facility lease. The Company’s ability to execute its operating plan through 2024 and beyond depends on its ability to obtain additional funding through equity offerings, debt financings, or potential licensing and collaboration arrangements. The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business. However, based on the Company’s current working capital, business plan, anticipated operating expenses and net losses, and the uncertainties surrounding its ability to raise additional capital as needed, as discussed below, management believes that there is substantial doubt about its ability to continue as a going concern for a period of 12 months following the date that these unaudited condensed consolidated financial statements are issued. The unaudited condensed consolidated financial statements do not include any adjustments for the recovery and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

The Company plans to continue to fund its losses from operations through its existing cash and cash equivalents, as well as through future equity offerings, debt financings, other third-party funding, and potential licensing or collaboration arrangements. In addition, the Company may fund its losses from operations through the Capital on DemandTM Sales Agreement (the Sales Agreement) the Company entered into with JonesTrading in December 2020, as amended in March 2022, pursuant to which the Company may sell, at its option, up to an aggregate of $50.0 million of the Company’s common stock, $42.9 million of which remained available for sale as of September 30, 2023, and the common stock purchase agreement (the LPC Purchase Agreement) the Company entered into with Lincoln Park Capital Fund, LLC (Lincoln Park) in May 2023, pursuant to which the Company may sell, at its option, up to an aggregate of $26.0 million of the Company’s common stock, $25.0 million of which remained available for sale as of September 30, 2023. There can be no assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to the Company. As a result of adverse macroeconomic and geopolitical developments, such as the ongoing military conflict between Ukraine and Russia or the recent state of war between Israel and Hamas and the related risk of a larger regional conflict, recent and potential future bank failures, actual or anticipated changes in interest rates, economic inflation and the responses by central banking authorities to control such inflation, the global credit and financial markets have experienced volatility and disruptions, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. If the equity and credit markets deteriorate in the future, it may make any additional debt or equity financing more difficult, more costly, and more dilutive. Even if the Company raises additional capital, it may also be required to modify, delay or abandon some of its plans, which could have a material adverse effect on the Company’s business, operating results and financial condition, and the Company’s ability to achieve its intended business objectives. Any of these actions could materially harm the Company’s business, results of operations, and future prospects.

Unaudited Interim Financial Information

The unaudited condensed consolidated financial statements as of September 30, 2023, and for the three and nine months ended September 30, 2023 and 2022, have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (SEC), and with accounting principles generally accepted in the United States (GAAP) applicable to interim financial statements. These unaudited condensed consolidated financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, consisting of only normal recurring accruals, which in the opinion of management are necessary to present fairly the Company’s financial position as of the interim date and results of operations for the interim periods presented. Interim results are not necessarily indicative of results for a full year or future periods. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2022, included in its Annual Report on Form 10-K filed with the SEC on March 8, 2023.

Use of Estimates

The Company’s unaudited condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of the Company’s unaudited condensed consolidated financial statements requires it to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenue, and expenses. The most significant estimates in the Company’s unaudited condensed consolidated financial statements relate to expenses incurred for clinical trials. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions. The Company is not aware of any specific event or circumstance that would require an update to its estimates, judgments and assumptions or a revision of the carrying value of the Company’s assets or liabilities as of the date of this filing.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and highly liquid investments with original maturities of three months or less at the date of purchase. The carrying amounts approximate fair value due to the short maturities of these investments. Cash and cash equivalents include cash in readily available checking and money market funds.

Restricted Cash

Restricted cash consists of money market funds held by the Company’s financial institution as collateral for the Company’s obligations under its facility lease for the Company’s corporate headquarters in San Diego, California.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.

Property and Equipment

Property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful life of the related assets, which is generally five years. Leasehold improvements are amortized over the shorter of the lease term or estimated useful life of the related assets. Repairs and maintenance costs are charged to expense as incurred.

Leases

The Company determines if an arrangement contains a lease at inception. For arrangements where the Company is the lessee, operating leases are recorded as other assets, accounts payable and accrued expenses, and other long-term liabilities within the unaudited condensed consolidated balance sheets. The Company currently does not have any finance leases.

Operating lease right-of-use (ROU) assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. ROU assets also include any initial direct costs incurred and any lease payments made at or before the lease commencement date, less lease incentives received. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the lease liabilities as the Company’s leases generally do not provide an implicit rate. Lease terms may include options to extend or terminate when the Company is reasonably certain that the option will be exercised. Lease expense is recognized on a straight-line basis over the lease term.

Revenue Recognition

To date, substantially all the Company’s revenue has been derived from license and collaboration agreements. The terms of these arrangements included payments to the Company for the following: non-refundable, up-front license fees; development, regulatory and commercial milestone payments; payments for manufacturing supply services the Company provides through its contract manufacturers; and royalties on net sales of licensed products. In accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers (ASC 606), the Company performs the following five steps in determining the appropriate amount of revenue to be recognized as it fulfills its obligations under each of these agreements: (i) identification of the contract(s) with a customer; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including any constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when, or as, the Company satisfies each performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services transferred to the customer. Once a contract is determined to be within the scope of ASC 606, at contract inception the Company assesses the goods or services promised within the contract to determine those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when, or as, the performance obligation is satisfied.

As part of the accounting for these arrangements, the Company develops assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract. The Company uses key assumptions to determine the stand-alone selling price, which may include development timelines, reimbursement rates for personnel costs, discount rates, and probabilities of technical and regulatory success.

Licenses of intellectual property: If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are bundled with other promised goods or services, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Milestone Payments: At the inception of each arrangement that includes development, commercialization, and regulatory milestone payments, the Company evaluates whether the achievement of the milestones is considered probable and estimates the amount to be included in the transaction price using the most likely amount method. Performance milestone payments represent a form of variable consideration. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Achievement of milestones that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable until the approvals are achieved. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis and the Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achieving such milestones 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, which would affect revenues and earnings in the period of adjustment.

Manufacturing Supply Services: Arrangements that include a promise for future supply of drug substance or drug product for either clinical development or commercial supply at the customer’s discretion are generally considered options. The Company assesses if these options provide a material right to the licensee and if so, they are accounted for as separate performance obligations at the outset of the arrangement.

Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any royalty revenue resulting from any of its out-licensing arrangements.

The Company receives payments from its collaborators based on billing schedules established in each contract. Up-front and other payments may require deferral of revenue recognition to a future period until the Company performs its obligations under its collaboration arrangements. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less.

Clinical Trial Expense Accruals

As part of the process of preparing the Company’s unaudited condensed consolidated financial statements, the Company is required to estimate expenses resulting from its obligations under contracts with vendors, clinical sites, and consultants in connection with conducting clinical trials. The financial terms of these contracts vary and may result in payment flows that do not match the periods over which materials or services are provided under such contracts.

The Company’s objective is to reflect the appropriate trial expenses in its unaudited condensed consolidated financial statements by recording those expenses in the period in which services are performed and efforts are expended. The Company accounts for these expenses according to the progress of the clinical trial as measured by patient progression and the timing of various aspects of the trial. The Company determines accrual estimates through discussion with the clinical sites and applicable personnel and outside service providers as to the progress or state of consummation of trials. During a clinical trial, the Company adjusts the clinical expense recognition if actual results differ from its estimates. The Company makes estimates of accrued expenses as of each balance sheet date based on the facts and circumstances known at that time. The Company’s clinical trial accruals are dependent upon accurate reporting by clinical sites and other third-party vendors. Although the Company does not expect its estimates to differ materially from amounts actually incurred, its understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low for any particular period. For the three and nine months ended September 30, 2023 and 2022, there were no material adjustments to the Company’s prior period estimates of accrued expenses for clinical trials.

Research and Development Costs

Research and development costs, including license fees, are expensed as incurred.

Comprehensive Loss

Comprehensive loss is defined as a change in equity during a period from transactions and other events and circumstances from non-owner sources. Net loss and comprehensive loss were the same for all periods presented.

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted-average shares of common stock outstanding for the period, without consideration for common stock equivalents and adjusted for the weighted average number of shares of common stock outstanding that are subject to repurchase. Diluted net loss per share is calculated by dividing the net loss by the weighted-average number of common stock equivalents outstanding for the period determined using the treasury-stock method.

For the nine months ended September 30, 2023 and for the three and nine months ended September 30, 2022, there is no difference in the weighted-average number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position. Potentially dilutive securities not included in the calculation of diluted net loss per share for those periods because to do so would be anti-dilutive are as follows (in common stock equivalent shares):


	September 30,
	2023		2022
Warrants to purchase common stock		1,534,261		6,987,785
Common stock options		3,121,152		2,246,310
ESPP shares		218,825		16,315
		4,874,238		9,250,410

For the three months ended September 30, 2023, the weighted-average number of common shares outstanding included in the calculation of basic and diluted EPS are as follows (in common stock equivalent shares):


	Three Months Ended
	September 30, 2023
Weighted-average common shares outstanding, basic		36,770,038
Dilutive securities		86,026
Weighted-average common shares outstanding, diluted		36,856,064

Dilutive securities included employee stock purchase plan contributions. Outstanding common stock options and warrants to purchase common stock in the amount of 3,121,152 and 1,534,261, respectively, were excluded from the calculation of diluted EPS under the treasury stock method because to do so would be anti-dilutive.

Financial Instruments and Fair Value Measurements

Cash equivalents, which are classified as equity securities, and restricted cash consisted of the following (in thousands):


	September 30, 2023								December 31, 2022
	Cost		Unrealized Gain		Unrealized (Loss)		Estimated Fair Value		Cost		Unrealized Gain		Unrealized (Loss)		Estimated Fair Value
Money market funds	$	2,300	$	—	$	—	$	2,300	$	10,150	$	—	$	—	$	10,150

Classified as:
Cash equivalents							$	2,228							$	10,083
Restricted cash								72								67
Total cash equivalents and restricted cash							$	2,300							$	10,150

At September 30, 2023 and December 31, 2022, the Company had no investments.

The carrying amounts of cash and cash equivalents, prepaid and other assets, accounts payable and accrued liabilities are considered to be representative of their respective fair values because of the short-term nature of those instruments.

The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:


Level 1:	Observable inputs such as quoted prices in active markets.

Level 2:	Inputs, other than the quoted prices in active markets that are observable either directly or indirectly.

Level 3:	Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements.

None of the Company’s non-financial assets or liabilities are recorded at fair value on a non-recurring basis. No transfers between levels have occurred during the periods presented.

The fair values of the Company’s assets and liabilities, which are measured at fair value on a recurring basis, were determined using the following inputs (in thousands):


			Fair Value Measurements at
			Reporting Date Using
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
At September 30, 2023
Money market funds	$	2,300	$	—	$	2,300	$	—

At December 31, 2022
Money market funds	$	10,150	$	—	$	10,150	$	—

Long-Term Debt

Arbitration Financing Investment Agreement

In December 2022, the Company entered into a non-recourse financing agreement (the Investment Agreement) with certain investors (collectively, the Investors) pursuant to which the Investors agreed to pay the Company a maximum aggregate amount (Maximum Capital) equal to $30.0 million or a lesser amount based on the amount awarded (Arbitration Award), if any, to the Company in connection with its arbitration proceeding (the Arbitration) with I-Mab Biopharma (I-Mab). Of the Maximum Capital, (i) $3.5 million (Initial Capital) was paid to the Company shortly after execution, (ii) 25% was to be paid to the Company within 15 business days of issuance of an Arbitration Award, subject to the Arbitration Award size exceeding a prespecified threshold and satisfaction of other conditions set forth in the Investment Agreement, and (iii) the remainder was to be paid to the Company in tranches over a multi-year period, subject to the issuance of an Arbitration Award and the Arbitration Award size exceeding a prespecified threshold and satisfaction of other conditions set forth in the Investment Agreement. In connection with the execution of the Investment Agreement and funding of the Initial Capital amount, the Company paid a closing fee in the amount of 2%. In April 2023, the Company received notification of the Arbitration Award resulting from the Arbitration. As the Arbitration Award did not exceed the prespecified thresholds under the Investment Agreement, the Company will not receive any additional funds under the Investment Agreement such that, as of date of the Arbitration Award, the Maximum Capital is equal to the Initial Capital.

Subject to and contingent on the Company’s actual recovery of proceeds from an Arbitration Award or any contemporaneously resolved settlements with I-Mab and following the payment of applicable attorney’s fees (the Proceeds), the Company was required to pay the Investors an amount (Repayment Amount) equal to the sum of (i) all amounts paid by the Investors to or on behalf of the Company pursuant to the Investment Agreement, plus (ii) a low sub-single digit to low single digit multiple calculated on each tranche of Maximum Capital actually paid by the Investors to or on behalf of the Company with the applicable multiple being based on the timing of payment from the Company and whether certain events relating to the Arbitration occurred, plus (iii) a mid-teen percentage annual rate of return on the amounts set forth in clauses (i) and (ii) that begins to accrue if the amounts are not paid by the Company to the Investors within a multi-month period specified in the Investment Agreement. If the amount of Proceeds are less than the Repayment Amount, then the Company was only required to pay to the Investors the Proceeds recovered (other than in circumstances in which the Company accepts a settlement offer that resolves the Arbitration for an amount less than the Repayment Amount without the prior written consent of the Investors), and in the circumstance in which there are no Proceeds then the Company was not required to pay the Investors any Repayment Amounts and the Investors have no right of recourse or right of action against the Company.

In December 2022, the Investors funded the Initial Capital amount of $3.5 million which was recorded as arbitration financing payable on the unaudited condensed consolidated balance sheets, net of debt discount, including the Initial Capital closing fee, and amortized over the estimated term of the agreement using the effective interest method.

In July 2023, the Company agreed to and collected a settlement of $22.0 million in full satisfaction of the Arbitration Award. The Company determined an effective interest rate and term over which the related debt discount was amortized based on the known timing of collection of the proceeds from the Arbitration Award resulting in $0.7 million and $7.2 million of noncash interest being recognized during the three and nine months ended September 30, 2023, respectively. The arbitration financing payable was paid in full in July 2023.

Runway Growth Finance Corp. Loan and Security Agreement

In September 2022, the Company entered into a loan and security agreement (the RGC Loan Agreement) with Runway Growth Finance Corp. (RGC). The RGC Loan Agreement was a long-term debt facility that provided a term loan commitment in an aggregate principal amount of up to $35.0 million in three tranches: (i) a Term A loan in an aggregate principal amount of $10.0 million, with the full amount funded in a single disbursement on closing of the RGC Loan Agreement and repaid in January 2023 in connection with the Investment Agreement; (ii) a Term B loan in an aggregate principal amount of up to $15.0 million to be funded in one or more disbursements at the request of the Company on or prior to June 30, 2024, subject to certain conditions being met; and (iii) a Term C loan in an aggregate principal amount of up to $10.0 million that may be disbursed in a single disbursement in the lender’s sole discretion upon the Company’s request at any time from closing of the RGC Loan Agreement through and including December 31, 2024. In December 2022, the Company and RGC amended the RGC Loan Agreement (the RGC Loan Amendment) under which: (i) the Company repaid all amounts of principal and accrued but unpaid interest in respect of the Term A Loan (as defined in the RGC Loan Agreement) on January 3, 2023 without the obligation for the Company to pay the final payment fee or the prepayment fee described in the RGC Loan Agreement; (ii) on or before March 31, 2023, at the Company’s request, if the Company has raised at least $25.0 million in net cash proceeds from certain equity or debt transactions (including amounts raised in connection with the Investment Agreement) prior to making such request, RGC will loan to the Company an aggregate principal amount of $10.0 million, with the full amount funded in a single disbursement; (iii) the Company will not issue an additional warrant to RGC in connection with the loan, if any, described in clause (ii) above; and (iv) RGC’s security interest in Specific Collateral was subordinated to the arbitration financing Investors’ security interest in the Specific Collateral. If the loan described in clause (ii) above is not made by March 31, 2023, the RGC Loan Agreement will terminate on that date, and the Company will not be obligated to pay the prepayment fee described in the RGC Loan Agreement but the final payment fee of 4.25% of the aggregate principal amount of the funded term loans as described in the RCG Loan Agreement will become immediately due and payable. All other material terms and conditions of the RGC Loan Agreement remained unchanged and the transaction was accounted for as a debt modification. On April 5, 2023, the Company and RGC amended the RGC Loan Agreement effective March 31, 2023 such that the Company would have until April 15, 2023 to raise at least $25.0 million in net cash proceeds from certain equity or debt transactions prior to making a request of RGC to redraw an aggregate principal amount of $10.0 million under the RGC Loan Agreement, which RGC may, in its sole and absolute discretion, allow or deny. On April 20, 2023, the Company and RGC amended the RGC Loan Agreement effective April 15, 2023 to extend the time period described in the foregoing sentence from April 15, 2023 to April 28, 2023. The Company did not redraw the $10.0 million under the RGC Loan Agreement, as amended, by April 28, 2023, resulting in the RGC Loan Agreement terminating and the final payment fee becoming immediately due and payable on that date.

In connection with the funding of the Term A loan, the Company issued RGC warrants to purchase 150,753 shares of its common stock (the RGC Term A Warrants) at an exercise price of $1.99 per underlying share of the Company’s common stock. The RGC Term A Warrants are fully exercisable in whole or in part at the option of the holder, payable in cash or on a cashless basis according to the formula set forth in the RGC Term A Warrants, and expire September 2, 2032. The fair value of the warrant at the grant date was determined utilizing a Black-Scholes pricing model, recorded as a component of the total debt discount and stockholders’ deficit within additional paid-in capital on the unaudited condensed consolidated balance sheets, and will be amortized to interest expense using the effective interest method over the term of the debt.

As of December 31, 2022, long-term debt and unamortized debt discount balances associated with the RGC Loan Agreement were as follows (in thousands):


	December 31,
	2022
Long-term debt	$	10,000
Less debt discount, net of current portion		—
Long-term debt, net of debt discount		10,000
Less current portion of long-term debt		(10,000	)
Long-term debt, net of current portion	$	—
Current portion of long-term debt	$	10,000
Current portion of debt discount		(193	)
Current portion of long-term debt, net	$	9,807

No future principal and interest payments, including a final payment, were owed under the RGC Loan Agreement as of September 30, 2023.

Silicon Valley Bank Loan and Security Agreement

In May 2018, the Company entered into a third amendment to its Amended and Restated Loan and Security Agreement with Silicon Valley Bank (the 2018 Amended SVB Loan) under which the Company borrowed $7.0 million, all of which was immediately used to repay the Company’s then existing loan with SVB.

The 2018 Amended SVB Loan matured in June 2022 and in accordance with its terms, the Company paid a final payment of $0.3 million associated with the payoff of the 2018 Amended SVB Loan. In August 2022, the Company terminated the 2018 Amended SVB Loan.

At September 30, 2023, the Company had the following exercisable outstanding warrants for the purchase of common stock issued in connection with the Company’s loan agreements with SVB:


Expiration	Number of shares		Exercise price
November 14, 2023 through June 4, 2024		3,874		$	77.40
January 25, 2024		4,669		$	51.40
May 3, 2025		5,363		$	26.10
		13,906

Commitments and Contingencies

License Agreements

The Company has entered into various license agreements pursuant to which the Company acquired licenses to certain intellectual property. The agreements generally required an upfront license fee and, in some cases, reimbursement of patent costs. Additionally, under each agreement, the Company may be required to pay annual maintenance fees, royalties, milestone payments and sublicensing fees. Each license agreement is generally cancelable by the Company, given appropriate prior written notice. At September 30, 2023, potential future milestone payments under these agreements totaled an aggregate of $9.6 million.

Loss Contingencies

The Company accounts for contingent liabilities in accordance with ASC Topic 450, Contingencies. This guidance requires management to assess potential contingent liabilities that may exist as of the date of the financial statements to determine the probability and amount of loss that may have occurred, which inherently involves an exercise of judgment. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed. For loss contingencies considered remote, no accrual or disclosures are generally made.

In connection with the Arbitration, the Company entered into a contingency fee arrangement with its legal counsels whereby counsels agreed to defer a portion of their legal fees (Success Fees) and would receive payment of the Success Fees in full or at a low single digit multiple depending on the amount awarded and contingent upon actual recovery of proceeds from an Arbitration Award. Success Fees in the amount of $4.4 million were being disputed and had been held in a client trust account upon collection of the Arbitration Award. In September 2023, the Company received payment of $2.0 million from the client trust account and the Company’s legal counsel received $2.4 million, which has been included within arbitration success fees within the accompanying unaudited condensed consolidated statements of operations. The Company also received the write-off of approximately $0.3 million in related legal invoices.

Gain Contingencies

Under ASC 450, Contingencies, the recognition of a gain contingency occurs at the earlier of when the gain has been realized or the gain is realizable. The $13.0 million gain contingency associated with the collection of the Arbitration Award in July 2023 was recognized in the third quarter of 2023 and consists of the $22.0 million collected amount less the $9.0 million termination fee recognized as collaboration revenue in the second quarter of 2023. The gain contingency has been included within other income, net within the accompanying unaudited condensed consolidated statements of operations.

Stockholders’ Deficit

Lincoln Park Common Stock Purchase Agreement

In May 2023, the Company and Lincoln Park entered into the LPC Purchase Agreement, which provides that, upon the terms and subject to the conditions and limitations set forth therein, Lincoln Park is committed to purchase up to an aggregate of $26.0 million of the Company's shares of common stock from time to time and at the Company’s sole discretion over the term of the LPC Purchase Agreement, $25.0 million of which remained available for sale as of September 30, 2023. In consideration for entering into the LPC Purchase Agreement, concurrently with the execution of the LPC Purchase Agreement, the Company issued to Lincoln Park 599,216 shares of its common stock as a commitment fee, which was recorded as a component of stockholders’ deficit within additional paid-in capital on the unaudited condensed consolidated balance sheets. Concurrently with entering into the LPC Purchase Agreement, the Company also entered into a Registration Rights Agreement in which the Company agreed to file one or more registration statements as permissible and necessary to register under the Securities Act for resale of the shares of its common stock that may be issued to Lincoln Park under the LPC Purchase Agreement, which occurred in May 2023. In May 2023, the Company also issued and sold 1,735,207 shares (the Initial Purchase Shares) of the Company’s common stock to Lincoln Park pursuant to the LPC Purchase Agreement at a purchase price of $0.5763 per Initial Purchase Share resulting in net proceeds of $1.0 million. At the Company's special meeting of stockholders held in September 2023, stockholder approval, in accordance with applicable rules of the Nasdaq Stock Market, was obtained for the potential future sale and issuance of shares of the Company’s common stock to Lincoln Park in accordance with the pricing terms set forth in the LPC Purchase Agreement that could result in Lincoln Park owning in excess of 19.99% of the shares of the Company’s common stock outstanding immediately after giving effect to such sale.

Sale of Common Stock and Pre-Funded Warrants

In March 2023, the Company issued and sold 174,508 shares of its common stock at a purchase price of $1.38 per share and pre-funded warrants to purchase 2,013,999 shares of its common stock at a purchase price of $1.37 per share of underlying common stock with an exercise price of $0.01 per share of underlying common stock (the 2023 Pre-Funded Warrants) for net proceeds of approximately $3.0 million in a private placement (the Private Placement) with an accredited institutional healthcare-focused fund. In accordance with their terms, the 2023 Pre-Funded Warrants may not be exercised if the holder’s ownership of the Company’s common stock would exceed 19.99% of the shares of the Company’s common stock outstanding immediately after giving effect to such exercise, unless approval by the Company's stockholders is obtained as required under the Nasdaq listing standards, including Nasdaq Listing Rules 5635(b) and (d). At the Company's 2023 Annual Meeting held in April 2023, stockholder approval, in accordance with applicable rules of the Nasdaq Stock Market, was obtained for the issuance of shares of common stock upon the potential future exercise of certain outstanding warrants held by this accredited institutional healthcare-focused fund, including the 2023 Pre-Funded Warrants, that would result in it and its affiliates owning in excess of 19.99% of the shares of common stock outstanding immediately after giving effect to such exercise. The 2023 Pre-Funded Warrants were recorded as a component of stockholders’ deficit within additional paid-in capital on the unaudited condensed consolidated balance sheets and are considered exercisable for little to no consideration and therefore, included in weighted-average shares outstanding, basic and diluted, as of the 2023 Annual Meeting date.

At-The-Market Issuance Sales Agreement

In December 2020, as amended in March 2022, the Company entered into a Capital on DemandTM Sales Agreement (the Sales Agreement) with JonesTrading, pursuant to which it may sell from time to time, at its option, up to an aggregate of $50.0 million of the Company’s common stock through JonesTrading, as sales agent or principal, $42.9 million of which remained available for sale as of September 30, 2023. Sales of the Company’s common stock made pursuant to the Sales Agreement with JonesTrading, if any, will be made on the Nasdaq Capital Market under the Company’s effective registration statement on Form S-3, subject to limitations on the amount of securities the Company may sell pursuant to its effective registration statement on Form S-3 within any 12-month period, by means of ordinary brokers’ transactions at market prices. Additionally, under the terms of the Sales Agreement, the Company may also sell shares of its common stock through JonesTrading, on the Nasdaq Capital Market or otherwise, at negotiated prices or at prices related to the prevailing market price. JonesTrading will use its commercially reasonable efforts to sell the Company’s common stock from time to time, based upon the Company’s instructions (including any price, time or size limits or other customary parameters or conditions the Company may impose). The Company is required to pay JonesTrading 2.5% of gross proceeds for the common stock sold through the Sales Agreement.

Equity Plan Activity

During the three and nine months ended September 30, 2023, the Company issued no shares of common stock upon the exercise of outstanding stock options and no shares of common stock upon the vesting of restricted stock units. During the three and nine months ended September 30, 2023, the Company issued no shares and 31,569 shares of common stock in connection with the employee stock purchase plan (the ESPP). During the year ended December 31, 2022, the Company issued no shares of common stock upon the exercise of outstanding stock options, no shares of common stock upon the vesting of restricted stock units, and 56,261 shares of common stock in connection with the ESPP.

Common Stock Warrants

As of September 30, 2023, the Company had the following outstanding warrants for the purchase of common stock:


Expiration	Number of shares		Exercise price
November 14, 2023 through June 4, 2024		3,874	$	77.40
January 25, 2024		4,669	$	51.40
March 27, 2024		1,369,602	$	27.00
May 3, 2025		5,363	$	26.10
August 27, 2030		1,889,513	$	0.01
August 31, 2030		1,137,454	$	0.01
June 21, 2032		2,205,018	$	0.01
September 2, 2032		150,753	$	1.99
March 10, 2033		2,013,999	$	0.01
		8,780,245

During the three and nine months ended September 30, 2023, the Company issued no shares of its common stock upon the exercise of warrants. During the three and nine months ended September 30, 2022, the Company issued no shares and 170,668 shares of its common stock upon the cashless exercise of 176,554 pre-funded warrants, respectively.

Stock-Based Compensation Expense

The weighted-average assumptions used in the Black-Scholes option pricing model to determine the fair value of the employee stock option grants were as follows:


	Nine Months Ended
	September 30,
	2023			2022
Risk-free interest rate		3.5	%		1.9	%
Expected volatility		90	%		90	%
Expected term (in years)		6.2			6.2
Expected dividend yield		—	%		—	%

There were no employee stock option grants during the three months ended September 30, 2023 and 2022.

Stock compensation expense for the ESPP was immaterial for the three and nine months ended September 30, 2023 and 2022.

The allocation of stock-based compensation expense was as follows (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Research and development	$	237	$	211	$	699	$	620
General and administrative		256		270		780		944
	$	493	$	481	$	1,479	$	1,564

Collaborations

I-Mab Collaboration Agreements

In November 2018, the Company and I-Mab entered into separate strategic collaboration and clinical trial agreements (the I-Mab Collaboration Agreements) for the development of programs for multiple immuno-oncology product candidates, including I-Mab’s proprietary CD73 antibody TJ004309 (the TJ004309 Agreement) as well as up to five proprietary bispecific antibodies currently under development by I-Mab (the Bispecific Agreement).

Pursuant to the TJ004309 Agreement, the Company and I-Mab were collaborating on developing the TJ004309 antibody, with the Company bearing the costs of filing an IND and for Phase 1 clinical trials, with the parties sharing costs equally for Phase 2 clinical trials, and with the Company and I-Mab bearing 40% and 60%, respectively, of the costs for pivotal clinical trials. I-Mab was responsible for the cost of certain non-clinical activities, the drug supply of TJ004309, and any reference drugs used in the clinical trials.

The Company would be entitled to receive escalating portions of royalty and non-royalty consideration and a royalty based on net sales if I-Mab licenses TJ004309 in certain territories or commercializes TJ004309, respectively.

The TJ004309 Agreement was terminatable by either party in the event of an uncured material breach by the other party or bankruptcy of the other party, for safety reasons related to TJ004309 or by I-Mab if the Company causes certain delays in completing a Phase 1 clinical trial. In addition, the TJ004309 Agreement was terminatable by I-Mab for any reason within 90 days following the completion of the first Phase 1 clinical trial, in which case the Company would be entitled to a minimum termination fee of $9.0 million, or following the completion of the first Phase 2 clinical trial, in which case the Company would be entitled to a pre-specified termination fee of $15.0 million and either a percentage of non-royalty consideration I-Mab may receive as part of a license to a third party or an additional payment if TJ004309 is approved for marketing outside Greater China before a third-party license is executed, in addition to a double digit percentage of royalty consideration.

As previously disclosed, in June 2020, I-Mab commenced an arbitration proceeding under the Rules of Arbitration of the International Chamber of Commerce before an arbitration tribunal seated in New York City (the Tribunal) after the Company invoked contractual dispute resolution provisions asserting that I-Mab had breached its contractual obligations under the TJ004309 Agreement and the Bispecific Agreement. In April 2023, the Company received notification from the Tribunal of the Arbitration Award. The Tribunal found in favor of the Company for certain claims and declared the Phase 1 clinical trial of TJ004309 Agreement “Complete,” as that term is defined in the TJ004309 Agreement as of January 2022. The Arbitration Award included the $9.0 million prespecified termination fee payable by I-Mab under the TJ004309 Agreement, which was collected in July 2023.

The Company re-evaluated the transaction price as of the end of the reporting period and concluded the $9.0 million variable consideration associated with the prespecified termination fee was no longer fully constrained as it was determined to be probable that a significant reversal would not occur if the Company recognized the variable consideration as revenue in the current period. Accordingly, the Company recognized the $9.0 million as collaboration revenue within the accompanying unaudited condensed consolidated statements of operations for the nine month period ended September 30, 2023.

In connection with the resolution of the arbitration, the TJ004309 Agreement and the Bispecific Agreement have been terminated and no further revenue will be recognized associated with these agreements.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, timing of future events and future financial performance, includes forward-looking statements that are based upon current beliefs, plans and expectations and involve risks, uncertainties and assumptions. You should review the “Risk Factors” section of this Quarterly Report for a discussion of important factors that could cause our actual results and the timing of selected events to differ materially from those described in or implied by the forward-looking statements contained in this Quarterly Report. We undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this Quarterly Report or to reflect actual outcomes.

Overview

We are a biopharmaceutical company focused on the development and commercialization of novel targeted therapeutics for cancer and utilizing our cost efficient, contract research organization (CRO) independent product development platform to partner with other life science companies to develop and commercialize innovative products in the United States.

In December 2019, we entered into a collaboration and clinical trial agreement (the Envafolimab Collaboration Agreement) with 3D Medicines Co., Ltd. (3D Medicines) and Jiangsu Alphamab Biopharmaceuticals Co., Ltd. (Alphamab) for the development of envafolimab, also known as KN035, an investigational PD-L1 single-domain antibody (sdAb) administered by rapid subcutaneous injection for the treatment of sarcoma in North America. The ENVASARC Phase 2 pivotal trial (the ENVASARC trial) was designed to enroll a total of 160 patients at 600mg of envafolimab, with 80 patients enrolling at 600mg of envafolimab every three weeks in cohort C, and 80 patients enrolling at 600mg of envafolimab every three weeks in combination with Yervoy® at 1mg/kg every three weeks for four doses in cohort D, in the sarcoma subtypes of undifferentiated pleomorphic sarcoma (UPS) and myxofibrosarcoma (MFS). Nine of 80 responses (11.25%) by blinded independent central review (BICR) in either cohort are needed to satisfy the primary objective of the trial which is to statistically exceed the known 4% objective response rate (ORR) of Votrient® (pazopanib), the only U.S. Food and Drug Administration (FDA)-approved treatment for patients with refractory UPS or MFS. Achieving the primary endpoint of exceeding the known 4% ORR could be the basis for accelerated approval of envafolimab by the FDA. The trial will provide at least 86% power to demonstrate the lower bound of the 95% confidence interval is greater than 5% in each cohort, which would be greater than the 4% ORR of Votrient reported in soft tissue sarcoma in its package insert. We presented a poster on the design and endpoints of the ENVASARC trial at the Connective Tissue Oncology Society meeting in November 2023.

In September 2023, we announced that the ENVASARC Phase 2 pivotal trial more than satisfied the futility threshold of 3 responses out of 46 by BICR and based on the results of the second and final mandated independent data monitoring committee (IDMC) efficacy review, the trial would continue as planned. The IDMC reviewed interim safety and efficacy data from 46 patients enrolled into cohort C of treatment with single agent envafolimab who completed two on-treatment scans, which are a minimum of 12 weeks of efficacy evaluations. The ORR in the initial 46 patients treated with single agent envafolimab was 13% by investigator review and 8.7% by BICR. Envafolimab monotherapy was generally well tolerated and median duration of response by BICR was greater than six months. The primary endpoint of the study is achievement of an ORR in nine of 80 patients (11.25%) treated with envafolimab by BICR and median duration of response of greater than six months is a key secondary endpoint. The trial has enrolled more than 65 of the planned 80 patients and full accrual of the ENVASARC pivotal trial is on track to be completed by the end of 2023 with updated response rate data expected later this year and final data anticipated in mid-2024.

In June 2023, IDMC performed an ad hoc review of interim safety and efficacy data from more than 80 patients equally randomized into cohort C of single agent envafolimab or cohort D of envafolimab given in combination with Yervoy. The combination of envafolimab with Yervoy did not demonstrate synergy when compared to single agent envafolimab and we terminated enrollment in cohort D, which is expected to result in a reduction in trial costs.

We expect to have final response assessment data including duration of response in all patients from the ENVASARC trial in mid-2024, and, assuming positive data, to submit a biologics license application (BLA) to the FDA seeking accelerated approval in 2024. At any time that we reach nine responses in cohort C and meet the endpoint, we expect to discuss the submission process with the FDA.

Our other clinical stage oncology product candidates include YH001, which is a monospecific investigational cytotoxic T-lymphocyte-associated protein 4 (CTLA-4) antibody, that we licensed from Eucure (Beijing) Biopharma Co., Ltd. (Eucure) and Biocytogen Pharmaceuticals (Beijing) Co., Ltd. (Biocytogen) in October 2021, and TRC102, which is a small molecule that has been studied in Phase 1 and Phase 2 trials for the treatment of mesothelioma, lung cancer, glioblastoma and solid tumors.

YH001 is an investigational humanized CTLA-4 IgG1 monoclonal antibody that completed dosing in two Phase 1 trials sponsored by Eucure for the treatment of various cancer types. CTLA-4 is a protein expressed on T-cells and expressed at high levels specifically on regulatory T-cells that act as a checkpoint to inhibit effector T-cell immune responses to cancer cells. The CTLA-4 inhibitor Yervoy (ipilimumab) marketed by BMS has been approved as a single agent in melanoma and approved in combination with other therapies in multiple indications including non-small cell lung cancer, renal cell carcinoma (RCC) and microsatellite instability-high (MSI-H) or mismatch repair deficient (dMMR) cancer. Data from the Phase 1 dose escalation trial in Australia of YH001 in combination with the PD-1 antibody, toripalimab, were presented at the American Society of Clinical Oncology 2022 Annual Meeting. YH001 was well tolerated up to 4 mg/kg when combined with toripalimab in the 24 patients as of the December 31, 2021 data cut-off date. The Phase 1 dose escalation trial in China of YH001 as a single agent, recently completed enrollment and determined a recommended Phase 2 dose. No CTLA-4 therapy is approved by the FDA for the treatment of soft tissue sarcoma.

In August 2022, we announced that the FDA had cleared the Investigational New Drug (IND) application for the initiation of a Phase 1/2 clinical trial of YH001 dosed in combination with envafolimab and doxorubicin, an approved treatment for soft tissue sarcoma. In December 2022, we initiated dosing in the Phase 1/2 clinical trial to assess the safety and efficacy of the triplet combination of YH001, envafolimab and doxorubicin in the common sarcoma subtypes of leiomyosarcoma and dedifferentiated liposarcoma and of the doublet combination of YH001 and envafolimab in patients with the rare sarcoma subtypes of alveolar soft part sarcoma and chondrosarcoma. Given the recommendation of the IDMC to terminate enrollment in Cohort D of the ENVASARC trial of dosing envafolimab with the CTLA-4 antibody Yervoy, we reviewed safety and efficacy data from more than ten patients who received envafolimab with the CTLA-4 antibody YH001. Following the data review and discussions with principal investigators, we discontinued enrollment in the Phase 1/2 clinical trial of YH001 in combination with envafolimab and doxorubicin. We presented data from the 15 patients enrolled into the Phase 1/2 clinical trial in a poster in November 2023 at the Connective Tissue Oncology Society meeting. We plan to continue the development of envafolimab with doxorubicin in soft tissue sarcoma in a separate trial and also plan to initiate trials of YH001 as a single agent or in combination with immunotherapies in other tumor types.

TRC102 is a small molecule in clinical development to reverse resistance to specific chemotherapeutics by inhibiting DNA base excision repair (BER). In initial clinical trials of more than 100 patients, TRC102 has shown good tolerability and we believe promising anti-tumor activity in combination with alkylating and antimetabolite chemotherapy for the treatment of cancer patients. TRC102 has been studied in Phase 1 or Phase 2 trials in mesothelioma patients in combination with the approved chemotherapeutic Alimta® (pemetrexed), in glioblastoma, ovarian cancer, lung and colorectal cancer patients in combination with the approved chemotherapeutic Temodar® (temozolomide) and in lung cancer patients in combination with the approved chemotherapeutics Alimta and cisplatin as well as external beam radiation (i.e., chemoradiation). A poster on the Phase 2 trial of TRC102 with temozolomide (TMZ) in patients with granulosa cell ovarian cancer was presented by investigators at the National Cancer Institute (NCI) at the American Society of Clinical Oncology (ASCO) 2023 annual meeting held in June 2023. The authors concluded that TRC102 combined with TMZ was well tolerated in patients with granulosa cell ovarian cancer (GCOC). Durable disease control was observed in four of eight patients, which the authors considered as promising activity in this heavily pretreated GCOC cohort.

All current TRC102 trials are sponsored and funded by the NCI. We retain global rights to develop and commercialize TRC102 in all indications. In October 2020, we received orphan drug designation (ODD) from the FDA for TRC102 for the treatment of patients with malignant glioma, including glioblastoma. O6-methylguanine DNA methyltransferase (MGMT) deficiency is observed in about one-third of glioblastoma patients, and a prior study of TMZ and TRC102 reported at the Society for Neuro-Oncology in 2018 demonstrated that two MGMT deficient glioblastoma patients had prolonged survival when treated with TMZ and TRC102 after progressing previously on TMZ and radiation therapy. A December 2020 publication in Cancer Cell also demonstrated TMZ and TRC102 were active in MGMT deficient patients with colorectal cancer. Based on these data, we believe a trial in first line glioblastoma patients of TMZ, radiation therapy and TRC102 is warranted and are discussing further development with investigators at this time. In addition, based on data presented at the ASCO 2020 virtual meeting that the combination of chemoradiation and TRC102 produced objective responses in all 15 evaluable patients with advanced localized lung cancer treated in a Phase 1 trial, in January 2022, the NCI initiated a randomized Phase 2 trial of chemoradiation with or without TRC102, followed by consolidative durvalumab treatment. The primary objective is to improve the 56% one-year progression free survival (PFS) rate with current standard of care to 75% with current standard of care plus TRC102. The trial began enrollment in June 2022 and is expected to be complete in 2025.

The following table summarizes key information regarding ongoing and planned development of our clinical stage product candidates:


	Phase	Data Expected
Envafolimab
Soft Tissue Sarcoma (UPS and MFS)	Pivotal Phase 2	Updated Response Rate Data – Q4 2023 Final Data – mid-2024
TRC102
Lung Cancer	Randomized Phase 2	2025

We utilize a product development platform (PDP) that emphasizes capital efficiency. Our experienced clinical operations, data management, quality assurance, product development and regulatory affairs groups manage significant aspects of our clinical trials with internal resources. We use these internal resources to reduce the costs associated with utilizing CROs to conduct clinical trials. In our experience, this model has resulted in capital efficiencies and improved communication with clinical trial sites, which can expedite patient enrollment and improve the quality of patient data as compared to a CRO-managed model. We have leveraged this platform in all of our sponsored clinical trials. We have also leveraged our PDP to diversify our product pipeline without payment of upfront license fees through license agreements with Eucure and Biocytogen, 3D Medicines and Alphamab, and Janssen. We continue to evaluate life science companies that would benefit from a rapid and capital-efficient U.S. drug development solution that includes U.S. and European Union (EU) clinical development expertise, or that wish to license our PDP to enable them to run CRO-independent clinical trials. We believe we will continue to be recognized as a preferred U.S. clinical development partner through a cost- and risk-sharing partnership structure, which may include U.S. commercialization.

Our goal is to be a leader in the development of targeted therapies for patients with cancer and other diseases of high unmet medical need.

Since our inception in 2004, we have devoted substantially all of our resources to research and development efforts relating to our product candidates, including conducting clinical trials, in-licensing related intellectual property, providing general and administrative support for these operations, and protecting our intellectual property. To date, we have not generated any revenue from product sales and instead, have funded our operations from the sales of equity securities, payments received in connection with our collaboration agreements, and commercial bank debt. At September 30, 2023, we had cash and cash equivalents totaling $7.8 million, of which $0.1 million is pledged as collateral for our obligations under our corporate headquarters facility lease.

We do not own or operate, nor do we expect to own or operate, facilities for product manufacturing, storage, distribution or testing. We contract with third parties or our collaboration partners for the manufacture of our product candidates and we intend to continue to do so in the future.

We have incurred losses from operations in each year since our inception. Our net losses were $4.0 million and $22.1 million for the nine months ended September 30, 2023 and 2022, respectively. At September 30, 2023, we had an accumulated deficit of $240.9 million.

We expect to continue to incur significant expenses and operating losses for at least the next several years. Our net losses may fluctuate significantly from quarter to quarter and year to year. We expect our current level of research and development expenses to decrease for the remainder of 2023 due to the termination of enrollment in cohort D of the ENVASARC trial. We will continue to incur research and development expenses as we:

•

complete enrollment of Cohort C of the ENVASARC trial;

•

continue our research and development efforts; and

•

seek regulatory approvals for product candidates that successfully complete clinical trials.

We do not expect to generate any revenues from product sales until we successfully complete development and obtain regulatory approval for one or more product candidates, which we expect will take a number of years. If we obtain regulatory approval for any product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, and distribution. Accordingly, we will need to raise substantial additional capital. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our preclinical and clinical development efforts, developments under our collaboration agreements, including whether and when we receive milestone and other potential payments, and the timing and nature of the regulatory approval process for product candidates. We anticipate that we will seek to fund our operations through public or private equity or debt financings or other sources. Debt financing, if available, may involve covenants further restricting our operations or our ability to incur additional debt. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders. Further, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. As a result of adverse macroeconomic and geopolitical developments, such as the ongoing military conflict between Ukraine and Russia or the recent state of war between Israel and Hamas and the related risk of a larger regional conflict, recent and potential future disruptions in access to bank deposits or lending commitments due to bank failures, actual and anticipated changes in interest rates, economic inflation and the responses by central banking authorities to control such inflation, the global credit and financial markets have experienced extreme volatility and disruptions, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. If the equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly and more dilutive. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and ability to develop product candidates.

Collaboration and License Agreements

Collaboration Agreement with 3D Medicines and Alphamab

In December 2019, we, 3D Medicines, and Alphamab entered into the Envafolimab Collaboration Agreement for the development of envafolimab, an investigational PD-L1 sdAb, or nanobody, administered by rapid subcutaneous injection, for the treatment of sarcoma in North America.

Pursuant to the Envafolimab Collaboration Agreement, we were granted an exclusive license to develop and commercialize envafolimab for the treatment of sarcoma in North America. We are responsible for conducting and will bear the costs of any Phase 1, Phase 2, and Phase 3 or post-approval clinical trial in North America for envafolimab in the indications of refractory and first line treatment of sarcoma. 3D Medicines and Alphamab are responsible for conducting and will bear the costs of investigational new drug (IND)-enabling studies (other than those specific to the sarcoma indication) and the preparation of the chemistry, manufacturing and controls (CMC) activities sections of an IND application for envafolimab. 3D Medicines and Alphamab have agreed to manufacture and supply, or to arrange for a third-party manufacturer to manufacture and supply, envafolimab to us at pre-negotiated prices that vary based on clinical or commercial use. 3D Medicines and Alphamab retained the right to develop envafolimab in all territories outside of North America as well as within North America for all indications other than sarcoma.

We will be responsible for commercializing envafolimab for sarcoma in North America, including booking of sales revenue, unless (a) envafolimab is first approved in North America for an indication other than sarcoma and launched in North America, or (b) envafolimab is first approved in North America for sarcoma and subsequently approved in North America for an additional non-orphan indication and sold commercially by 3D Medicines and/or Alphamab, or licensee, in which case 3D Medicines and Alphamab will be responsible for commercializing envafolimab for sarcoma in North America, including booking of sales revenue. If 3D Medicines and Alphamab become responsible for commercialization under the Envafolimab Collaboration Agreement, we have the option to co-market envafolimab for sarcoma in North America. In the event that envafolimab is first approved in North America for sarcoma and within three years of the commercial launch of envafolimab in North America for sarcoma 3D Medicines and Alphamab replace us as the party responsible for commercialization, and we elect and 3D Medicines and Alphamab agree for us to not co-market envafolimab for sarcoma in North America, then 3D Medicines and Alphamab will be required to compensate us for our costs associated with preparing for and conducting commercial activities.

If we have the responsibility for commercialization under the Envafolimab Collaboration Agreement, we will owe 3D Medicines and Alphamab tiered double digit royalties on net sales of envafolimab for sarcoma in North America ranging from the teens to mid-double digits. If 3D Medicines and Alphamab have responsibility for commercialization under the Envafolimab Collaboration Agreement, we will be entitled to (a) tiered double digit royalties on net sales of envafolimab for sarcoma in North America ranging from the teens to mid-double digits if we have elected to not co-market envafolimab in sarcoma or (b) a 50% royalty on net sales of envafolimab for sarcoma in North America if we have chosen to co-market envafolimab in sarcoma. Payment obligations under the Envafolimab Collaboration Agreement continue on a country-by-country basis until the last to expire licensed patent covering envafolimab expires.

3D Medicines and Alphamab retain the right to reacquire the rights to envafolimab for sarcoma in North America in connection with an arm’s length sale to a third party of the rights to develop and commercialize envafolimab in North America for all indications, provided that the sale may not occur prior to completion of a pivotal trial of envafolimab in sarcoma without our written consent and the parties must negotiate in good faith and agree to fair compensation be paid to us for the value of and opportunity represented by the reacquired rights.

Each party agreed that during the term of the Envafolimab Collaboration Agreement, it would not develop or license from any third party a monospecific inhibitor to PD-L1 or PD-1 in sarcoma.

The term of the Envafolimab Collaboration Agreement continues until the later of the date the parties cease further development and commercialization of envafolimab for sarcoma in North America or the expiration of all payment obligations. The Envafolimab Collaboration Agreement may be terminated earlier by a party in the event of an uncured material breach by the other party or bankruptcy of the other party, or for safety reasons related to envafolimab. In the event we elect, or a joint steering committee (JSC) determines, to cease further development or commercialization of envafolimab, or if we fail to use commercially reasonable efforts to develop (including progress in clinical trials) and commercialize envafolimab and do not cure such failure within a specified time period, then our rights and obligations under the Envafolimab Collaboration Agreement will revert to 3D Medicines and Alphamab.

Collaboration Agreement with Eucure and Biocytogen

In October 2021, we, Eucure and Biocytogen entered into a collaborative development and commercialization agreement (the YH001 Collaboration Agreement) for the development of YH001, a monospecific investigational CTLA-4 antibody. Pursuant to the YH001 Collaboration Agreement, we were granted an exclusive (including with respect to Eucure and its affiliates), nontransferable, license to develop and commercialize YH001 in North America for the treatment, through administration of YH001 by intravenous or subcutaneous means, of multiple human indications, including sarcoma, microsatellite stable colorectal cancer, RCC, and K-ras positive non-small cell lung cancer (collectively, the Initial Indications) or one or more of bladder cancer, endometrial cancer, and melanoma as substitute indications, which may be substituted for Initial Indications at our discretion (each upon such substitution, a Substitute Indication). We are responsible for, and will bear the costs of, preparing and filing all regulatory submissions and conducting any Phase 1, Phase 2, Phase 3, or post-approval clinical trials in North America for YH001 in the Initial Indications and potentially the Substitute Indications, while Eucure is responsible for conducting, and will bear the costs of, the preparation of CMC activities for YH001. Eucure has agreed to manufacture and supply, or to arrange for a third-party manufacturer to manufacture and supply, YH001 to us for clinical trials pursuant to the terms of a clinical supply and quality agreement that will be separately negotiated and agreed in good faith between the parties.

Eucure may pursue clinical trials for YH001 in North America outside of the Initial Indications or Substitute Indications, and also within the Initial Indications or Substitute Indications as part of a combination therapy of YH001 and an additional Eucure product. During a specified period, we have the option, subject to Eucure’s prior written approval, to expand the license to include the development and commercialization of YH001 for the treatment, through administration by intravenous or subcutaneous means, of all human and veterinary therapeutic indications in North America for a payment to Eucure in the low single digit millions (the Company Option).

Pursuant to the YH001 Collaboration Agreement, we granted Eucure an irrevocable, perpetual, royalty-free, exclusive license, with the right to grant sublicenses to develop, register, sell, offer to sell, have sold, market and distribute YH001 in all territories outside of North America as well as within North America for all indications other than the Initial Indications and the Substitute Indications.

We will be responsible for commercializing YH001 in North America, including booking of sales revenue in the Initial and Substitute Indications. We will owe Eucure escalating double digit royalties on net sales of YH001 in North America ranging from the mid-twenties to mid-double digits; provided that until the end of the first full calendar year following the first commercial sale of YH001, royalties will range from the lower double digits to the mid-double digits. If sales of YH001 exceed a pre-determined sales threshold in the first full year of sales following first commercial sale, we will owe a milestone to Eucure in the high single digit millions. Payment obligations under the YH001 Collaboration Agreement continue on a country-by-country basis until the latest of (i) expiration of the last to expire licensed patent covering YH001, (ii) expiration of marketing or regulatory exclusivity covering YH001 and (iii) 10 years from the first commercial sale of YH001 in such country in North America. Eucure has agreed to manufacture and supply, or to arrange for a third-party manufacturer to manufacture and supply, YH001 to us at cost plus a low double-digit markup for commercial sales pursuant to the terms of a commercial supply and quality agreement that will be separately negotiated and agreed in good faith between the parties within 180 days prior to the anticipated first commercial sale in North America.

Pursuant to the YH001 Collaboration Agreement, each party agreed that during the term of the YH001 Collaboration Agreement, it would not develop, manufacture, commercialize or license from any third party a monospecific inhibitor to CTLA-4.

The term of the YH001 Collaboration Agreement continues until the earlier of (i) the date that the parties cease further development and commercialization of YH001 in North America or (ii) on a country-by-county basis, the expiration of the royalty obligations in such country. The YH001 Collaboration Agreement may be terminated earlier by a party in the event of an uncured material breach by the other party or bankruptcy of the other party, or for safety reasons related to YH001. In the event of a termination of the YH001 Collaboration Agreement, other than by us as a result of Eucure’s material uncured breach or bankruptcy, (i) our license shall terminate and (ii) we would be obligated to grant Eucure an irrevocable, perpetual, royalty-free, non-exclusive license with the right to grant sublicenses under its rights in all development data and intellectual property to develop, register, sell, offer to sell, have sold, market and distribute YH001 in North America. In the event of a termination of the YH001 Collaboration Agreement by us as a result of Eucure’s material uncured breach or bankruptcy, the license shall continue in the Initial Indications in North America, provided that (i) such license shall remain exclusive during the royalty term and non-exclusive thereafter; (ii) we shall have the right to have YH001 manufactured for its development and commercialization requirements in the Initial Indications in North America; and (iii) the license shall terminate in the event of an uncured material breach by us of any provision (including payment obligations) that survives termination of the YH001 Collaboration Agreement. In the event the YH001 Collaboration Agreement terminates for safety reasons related to YH001, by mutual agreement of the parties or by Eucure in the event of an uncured material breach or bankruptcy by us, then our rights and obligations under the YH001 Collaboration Agreement will revert to Eucure. In the event Eucure does not approve the Company Option, we may terminate the YH001 Collaboration Agreement for convenience with a 30-day notice to Eucure, provided that such termination is given within 12 months of the effective date of the YH001 Collaboration Agreement (the Company Option Termination). In the event of a Company Option Termination, Eucure would be obligated to reimburse us for all costs and expenses that we incurred in performing the development activities.

License Agreement with Case Western

Under our license agreement with Case Western, we may be required to pay up to an aggregate of approximately $9.8 million in milestone payments, of which $0.7 million relates to the initiation of certain development activities ($0.2 million of which has been paid) and approximately $9.1 million relates to the submission of certain regulatory filings and receipt of certain regulatory approvals. If products utilizing certain intellectual property licensed from Case Western (the TRC102 Technology) are successfully commercialized, we will be required to pay Case Western a single-digit royalty on net sales, subject to adjustments in certain circumstances. Beginning on the earlier of a specified number of years from the effective date of the agreement and the anniversary of the effective date following the occurrence of a specified event, we will be required to make a minimum annual royalty payment of $75,000, adjusted annually based on the Consumer Price Index, which will be credited against our royalty obligations. In the event we sublicense any of our rights under the agreement relating to the TRC102 Technology, we will be obligated to pay Case Western a portion of certain fees we may receive under the sublicense. Our royalty obligations will continue on a country-by-country basis through the later of the expiration of the last valid claim under the TRC102 Technology or 14 years after the first commercial sale of a product utilizing the TRC102 Technology in a given country.

Financial Operations Overview

Research and Development Expenses

Research and development expenses consist of costs associated with the preclinical and clinical development of product candidates. These costs consist primarily of:

•

salaries and employee-related expenses, including stock-based compensation and benefits for personnel in research and development functions;

•

costs incurred under clinical trial agreements with investigative sites;

•

costs to acquire preclinical study and clinical trial materials;

•

costs associated with conducting our preclinical, development and regulatory activities, including fees paid to third party professional consultants, service providers and our scientific advisory board;

•

payments related to licensed products and technologies; and

•

facilities, depreciation and other expenses, including allocated expenses for rent and maintenance of facilities.

Research and development costs, including third party costs reimbursed in connection with our collaboration agreements, are expensed as incurred. We account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received.

The following table summarizes our research and development expenses by product candidate for the periods indicated.


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
	(in thousands)
Third-party research and development expenses:
Envafolimab	$	684	$	2,626	$	4,917	$	5,599
YH001		273		89		2,199		158
TRC102		110		202		118		313
TJ004309		9		58		21		304
Total third-party research and development expenses		1,076		2,975		7,255		6,374
Unallocated expenses		1,250		1,122		3,528		3,639
Total research and development expenses	$	2,326	$	4,097	$	10,783	$	10,013

Unallocated expenses consist primarily of our internal personnel and facility related costs.

We expect our current level of research and development expenses to decrease for the remainder of 2023 due to the termination of enrollment in cohort D of the ENVASARC trial.

We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or future preclinical studies and clinical trials of product candidates due to the inherently unpredictable nature of preclinical and clinical development. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations. We anticipate that we will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product candidate’s commercial potential. We will need to raise substantial additional capital in the future. In addition, we cannot forecast which product candidates 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.

The costs of clinical trials to us and the timing of such costs may vary significantly based on factors such as:

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the extent to which costs for comparator drugs are borne by third parties;

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per patient trial costs;

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the number of sites included in the trials;

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the countries in which the trials are conducted;

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the length of time required to enroll eligible patients;

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the number of patients that participate in the trials;

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the number of doses that patients receive;

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the drop-out or discontinuation rates of patients;

•

potential additional safety monitoring or other studies requested by regulatory agencies;

•

the duration of patient participation in the trials and follow-up;

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the effects of macroeconomic and geopolitical developments;

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the phase of development of the product candidate;

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the efficacy and safety profile of the product candidate; and

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the extent to which costs are borne by third parties such as the NCI.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related costs for employees in executive, finance and administration, corporate development and administrative support functions, including stock-based compensation expenses and benefits. Other significant general and administrative expenses include legal services, including those previously incurred associated with the TJ004309 Agreement and Bispecific Agreement arbitration, insurance, occupancy costs, accounting services, and the cost of various consultants.

We anticipate that our general and administrative expenses will remain relatively consistent for the remainder of 2023.

Other Income (Expense)

In 2023, other income primarily consists of the arbitration award collected in July 2023, partially offset by interest related to our arbitration financing agreement, which was paid off in full in July 2023. In 2022, other expense primarily consists of interest related to our loan agreements with SVB, which was terminated in June 2022, and RGC, which was terminated in April 2023, offset in part by interest income from our cash equivalents and investing activities.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the reported revenues and expenses during the reporting periods. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on our historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ materially from these estimates under different assumptions or conditions. There have been no material changes to our critical accounting policies and estimates from the information provided in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies Involving Management Estimates and Assumptions,” included in our Annual Report on Form 10-K for the year ended December 31, 2022.

Results of Operations

Comparison of the Three Months Ended September 30, 2023 and 2022

The following table summarizes our results of operations for the three months ended September 30, 2023 and 2022:


	Three Months Ended
	September 30,
	2023			2022			Change
	(in thousands)
Research and development expenses	$	2,326		$	4,097		$	(1,771	)
General and administrative expenses		1,262			2,280			(1,018	)
Arbitration success fees		(2,000	)		—			(2,000	)
Total other income (expense)		12,351			(58	)		12,409

Research and development expenses. Research and development expenses were $2.3 million and $4.1 million for the three months ended September 30, 2023 and 2022, respectively. The decrease of $1.8 million was primarily due to the termination of enrollment in cohort D of the ENVASARC trial. We expect our current level of research and development expenses to decrease for the remainder of 2023 due to the termination of enrollment in cohort D of the ENVASARC trial.

General and administrative expenses. General and administrative expenses were $1.3 million and $2.3 million for the three months ended September 30, 2023 and 2022, respectively. The decrease of $1.0 million was primarily due to lower legal expenses. We expect general and administrative expenses to remain relatively consistent for the remainder of 2023.

Arbitration success fees. Arbitration success fees were ($2.0) million for the three months ended September 30, 2023 and were related to the settlement of our legal fee arrangement with our attorneys from the I-Mab arbitration.

Total other income (expense). Total other income was $12.4 million for the three months ended September 30, 2023, primarily related to the $13.0 million gain contingency associated with the collection of the arbitration award in July 2023, which consisted of the $22.0 million collected amount less the $9.0 million termination fee recognized as collaboration revenue in the second quarter of 2023, partially offset by $0.7 million in interest related to our arbitration financing agreement. Total other expense was $0.1 million for the three months ended September 30, 2022 and primarily consisted of interest related to our loan agreement with RGC, which was terminated in April 2023.

Comparison of the Nine Months Ended September 30, 2023 and 2022

The following table summarizes our results of operations for the nine months ended September 30, 2023 and 2022:


	Nine Months Ended
	September 30,
	2023		2022			Change
	(in thousands)
Collaboration revenue	$	9,000	$	—		$	9,000
Research and development expenses		10,783		10,013			770
General and administrative expenses		5,522		12,049			(6,527	)
Arbitration success fees		2,375		—			2,375
Total other income (expense)		5,653		(76	)		5,729

Collaboration revenue. Collaboration revenue was $9.0 million for the nine months ended September 30, 2023 and was from the termination of the TJ004309 Agreement.

Research and development expenses. Research and development expenses were $10.8 million and $10.0 million for the nine months ended September 30, 2023 and 2022, respectively. The increase of $0.8 million was primarily due to envafolimab drug product purchased in 2023 for clinical trials and the continued enrollment of the ENVASARC trial. We expect our current level of research and development expenses to decrease for the remainder of 2023 due to the termination of enrollment in cohort D of the ENVASARC trial.

General and administrative expenses. General and administrative expenses were $5.5 million and $12.0 million for the nine months ended September 30, 2023 and 2022, respectively. The decrease of $6.5 million was primarily due to lower legal expenses. We expect general and administrative expenses to remain relatively consistent for the remainder of 2023.

Arbitration success fees. Arbitration success fees were $2.4 million for the nine months ended September 30, 2023 and were related to our legal fee arrangement with our attorneys from the I-Mab arbitration.

Total other income (expense). Total other income was $5.7 million for the nine months ended September 30, 2023, primarily related to the $13.0 million gain contingency associated with the collection of the arbitration award in July 2023, which consisted of the $22.0 million collected amount less the $9.0 million termination fee recognized as collaboration revenue in the second quarter of 2023, partially offset by $7.2 million in interest related to our arbitration financing agreement. Total other expense was $0.1 million for the nine months ended September 30, 2022 and primarily consisted of interest related to our loan agreements with SVB, which was terminated in June 2022, and RGC, which was terminated in April 2023.

Liquidity and Capital Resources

Our sources of liquidity include our cash and cash equivalents. We believe that our cash and cash equivalents as of September 30, 2023 will be sufficient to fund the current requirements of working capital and other financial commitments, including our arbitration financing and operating lease obligations, into early 2024.

We may fund our future liquidity needs by selling shares of our common stock under our existing Capital on DemandTM sales agreement with JonesTrading Institutional Services LLC (JonesTrading) and our common stock purchase agreement (the LPC Purchase Agreement) with Lincoln Park Capital Fund, LLC (Lincoln Park). In addition, we periodically consider various other financing alternatives, including debt financings, or potentially other capital sources, such as collaboration or licensing arrangements with third parties or other strategic transactions, in order to meet our liquidity needs and may, from time to time, seek to take advantage of favorable interest rate environments, if any, or other market conditions.

We have incurred losses and negative cash flows from operations since our inception. As of September 30, 2023, we had an accumulated deficit of $240.9 million, and we expect to continue to incur net losses for the foreseeable future. We expect our current level of research and development expenses to decrease for the remainder of 2023 due to the conclusion to terminate enrollment in cohort D of the ENVASARC trial. Given we do not anticipate any revenues from product sales in the foreseeable future, we will need additional capital to fund our operations, which we may seek to obtain through one or more equity offerings, debt financings, government or other third-party funding, and licensing or collaboration arrangements.

Lincoln Park Capital Fund, LLC (Lincoln Park) Common Stock Purchase Agreement

In May 2023, we and Lincoln Park entered into the LPC Purchase Agreement, which provides that, upon the terms and subject to the conditions and limitations set forth therein, Lincoln Park is committed to purchase up to an aggregate of $26.0 million of shares of our common stock from time to time and our sole discretion over the term of the LPC Purchase Agreement, $25.0 million of which remains available for sale as of September 30, 2023.

Common Stock and Pre-Funded Warrants Offerings

In March 2023, we issued and sold 174,508 shares of our common stock at a purchase price of $1.38 per share and pre-funded warrants to purchase 2,013,999 shares of our common stock at a purchase price of $1.37 per share of underlying common stock with an exercise price of $0.01 per share of underlying common stock (the 2023 Pre-Funded Warrants) for net proceeds of approximately $3.0 million in a private placement (the Private Placement) with an accredited institutional healthcare-focused fund. In accordance with their terms, the 2023 Pre-Funded Warrants may not be exercised if the holder’s ownership of our common stock would exceed 19.99% of the shares of our common stock outstanding immediately after giving effect to such exercise.

In June 2022, we issued and sold 841,989 shares of our common stock at a purchase price of $1.32 per share and pre-funded warrants to purchase 2,205,018 shares of our common stock at a purchase price of $1.31 per share of underlying common stock with an exercise price of $0.01 per share of underlying common stock (the 2022 Pre-Funded Warrants) for net proceeds of approximately $3.9 million in a registered direct offering (the Offering) with an accredited institutional healthcare-focused fund. In accordance with their terms, the 2022 Pre-Funded Warrants may not be exercised if the holder’s ownership of our common stock would exceed 19.99% of the shares of our common stock outstanding immediately after giving effect to such exercise. In connection with the Offering, we amended two existing pre-funded warrants to purchase shares of our common stock held by the same institutional healthcare-focused fund to extend the exercise periods and to permit exercise in excess of a similar 19.99% limit following approval of our stockholders of such exercise.

At our 2023 Annual Meeting held on April 19, 2023, stockholder approval, in accordance with applicable rules of the Nasdaq Stock Market, was obtained for the issuance of shares of common stock upon the potential future exercise of certain outstanding warrants held by such accredited institutional healthcare-focused fund that would result in it and its affiliates owning in excess of 19.99% of the shares of common stock outstanding immediately after giving effect to such exercise.

ATM Facility

In December 2020, as amended in March 2022, we entered into a Capital on DemandTM Sales Agreement (the Sales Agreement) with JonesTrading pursuant to which we could sell from time to time, at our option, up to an aggregate of $50.0 million of shares of our common stock through JonesTrading, as sales agent or principal, $42.9 million of which remains available for sale as of September 30, 2023. Sales of our common stock made pursuant to the Sales Agreement, if any, will be made on the Nasdaq Capital Market under our effective registration statement on Form S-3, subject to limitations on the amount of securities we may sell pursuant to its effective registration statement on Form S-3 within any 12 month period, by means of ordinary brokers’ transactions at market prices. Additionally, under the terms of the Sales Agreement, we may also sell shares of our common stock through JonesTrading, on the Nasdaq Capital Market or otherwise, at negotiated prices or at prices related to the prevailing market price. JonesTrading will use its commercially reasonable efforts to sell our common stock from time to time, based upon our instructions (including any price, time or size limits or other customary parameters or conditions we may impose). We are required to pay JonesTrading 2.5% of gross proceeds from the common stock sold through the Sales Agreement.

Operating Lease Obligations

Our operating lease obligations relate to our corporate headquarters in San Diego, California, which expires in April 2027. As of September 30, 2023, future minimum lease payments under this lease were $0.3 million and $0.7 million for each of the next 12 and 24 months, respectively.

Other Obligations

We enter into contracts in the normal course of business with clinical trial sites and clinical supply manufacturing organizations and with vendors for preclinical safety and research studies, research supplies and other services and products for operating purposes. These contracts generally provide for termination on notice, and therefore are cancelable contracts.

Cash Flows

The following table summarizes our net cash flow activity for each of the periods set forth below:


	Nine Months Ended
	September 30,
	2023			2022
	(in thousands)
Net cash provided by (used in):
Operating activities	$	4,198		$	(21,586	)
Investing activities		—			(13	)
Financing activities		(13,863	)		14,739
Change in cash, cash equivalents, and restricted cash	$	(9,665	)	$	(6,860	)

Operating activities. Net cash provided by operating activities was $4.2 million for the nine months ended September 30, 2023 and was primarily due to collection of the $22.0 million arbitration award and changes in our working capital, partially offset by non-cash charges including stock-based compensation. Net cash used in operating activities was $21.6 million for the nine months ended September 30, 2022 and was primarily due to our net loss and changes in our working capital, partially offset by non-cash charges including stock-based compensation.

Investing activities. Net cash used in investing activities was $0 and $13,000 for the nine months ended September 30, 2023 and 2022, respectively.

Financing activities. Net cash used in financing activities was $13.9 million for the nine months ended September 30, 2023 and primarily resulted from our repayment of $10.5 million and $10.0 million under the terms of our arbitration financing agreement and loan agreement with RGC, respectively, partially offset by $3.0 million in net proceeds from the March 2023 Private Placement and $3.6 million in periodic issuances and sales of our common stock under the LPC Purchase Agreement and Sales Agreement with JonesTrading. Net cash provided by financing activities was $14.7 million for the nine months ended September 30, 2022 and primarily resulted from our $10.0 million debt financing with RGC, $6.4 million in net proceeds received from the Offering and periodic issuances and sales of our common stock under the Sales Agreement with JonesTrading, partially offset by $1.7 million in SVB loan repayments.

Funding Requirements

Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. Our future capital requirements are difficult to forecast and will depend on many factors, including:

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our ability to initiate, and the progress and results of, our ongoing and planned clinical trials;

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the ability and willingness of our collaboration partners and licensees to continue clinical development of product candidates;

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our ability to enter into and maintain our collaborations;

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our ability to achieve, and our obligations to make, milestone payments under our collaboration and license agreements;

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the costs and timing of procuring supplies of product candidates for clinical trials and regulatory submissions;

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the scope, progress, results and costs of preclinical development, and clinical trials of our product candidates;

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the extent to which adverse macroeconomic and geopolitical developments, including as a result of recent and potential future bank failures, delay our clinical development activities or those of our collaborators;

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the costs, timing and outcome of regulatory review of product candidates;

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the revenue, if any, received from commercial sales of our product candidates for which we or any of our partners, including Eucure and Biocytogen or 3D Medicines and Alphamab, may receive marketing approval;

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the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;

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the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any product candidates for which we receive marketing approval and do not partner for commercialization; and

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the extent to which we acquire or in-license other products and technologies.

Until we can generate substantial product revenues, if ever, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, and licensing arrangements. There can be no assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us. As a result of adverse macroeconomic and geopolitical developments, such as the ongoing military conflict between Ukraine and Russia or the recent state of war between Israel and Hamas and the related risk of a larger regional conflict, recent and potential future disruptions in access to bank deposits or lending commitments due to bank failures, actual or anticipated changes in interest rates, economic inflation and the responses by central banking authorities to control such inflation, the global credit and financial markets have experienced extreme volatility and disruptions, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. If the equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly and more dilutive. Even if we raise additional capital, we may also be required to modify, delay or abandon some of our plans or programs which could have a material adverse effect on our business, operating results and financial condition and our ability to achieve our intended business objectives. Any of these actions could materially harm our business, results of operations and future prospects.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified and pursuant to the requirements of the Securities and Exchange Commission’s (SEC) rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer (who are our principal executive officer and principal financial officer, respectively), to allow for timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Rule 13a-15(b) promulgated under the Exchange Act, we carried out an evaluation, with the participation of our management, including our Chief Executive Officer and Chief Financial Officer (who are our principal executive officer and principal financial officer, respectively), of the effectiveness of our disclosure controls and procedures as of September 30, 2023, the end of the period covered by this Quarterly Report. Based upon the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Except with respect to our dispute and related proceedings with I-Mab referenced below, we are not currently a party to any material legal proceedings. From time to time, we may be involved in various claims and legal proceedings relating to claims arising out of our operations. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. For a description of our dispute and related proceedings with I-Mab, see the section entitled "Management’s Discussion and Analysis of Financial Condition and Results of Operations" included in Item 2 of this Quarterly Report on Form 10-Q.

ITEM 1A. RISK FACTORS

Certain factors may have a material adverse effect on our business, financial condition and results of operations, and you should carefully consider them. Accordingly, in evaluating our business, we encourage you to consider the following discussion of risk factors, in its entirety, together with the other information contained in this Quarterly Report and in our other public filings with the SEC. The risk factors set forth below with an asterisk (*) next to the title contain changes to the description of the risk factors associated with our business previously disclosed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022. Additional risks and uncertainties that we are unaware of may also become important factors that affect us. If any of the following risks actually occurs, our business, financial condition, results of operations and future growth prospects would likely be materially and adversely affected. In these circumstances, the market price of our common stock would likely decline.

Summary of Risk Factors

Our business is subject to numerous risks, as more fully described immediately below. You should read these risks before you invest in our common stock. We may be unable, for many reasons, including those that are beyond our control, to implement our business strategy. In particular, risks associated with our business include:

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We have incurred losses from operations since our inception and anticipate that we will continue to incur substantial operating losses for the foreseeable future. We may never achieve or sustain profitability.

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We will require substantial additional financing to achieve our goals, and failure to obtain additional financing when needed could force us to delay, limit, reduce or terminate our drug development efforts. There is substantial doubt as to our ability to continue as a going concern.

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Unfavorable U.S. and global economic conditions could adversely affect our business, financial condition or results of operations.

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We are heavily dependent on the success of our lead clinical stage product candidate envafolimab. We cannot give any assurance that envafolimab will successfully complete clinical development or receive regulatory approval, which is necessary before it can be commercialized.

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Clinical development is a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results. Failure can occur at any stage of clinical development.

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Delays in clinical trials are common and have many causes, and any delay could result in increased costs to us and jeopardize or delay our ability to obtain regulatory approval and commence product sales.

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The regulatory approval processes of the U.S. Food and Drug Administration (FDA), and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.

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We depend in part on NCI and other third-party sponsors to advance clinical development of TRC102. If these third-party sponsors ceased their support for our product candidates, our ability to advance clinical development of product candidates could be limited and we may not be able to pursue the number of different indications for our product candidates that are currently being pursued.

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We are dependent on our corporate partners for the advancement of our product candidates. Specifically, we are dependent on 3D Medicines Co., Ltd. (3D Medicines) and Jiangsu Alphamab Biopharmaceuticals Co., Ltd. (Alphamab) with respect to certain aspects of our development of envafolimab for sarcoma in North America. Similarly, we are dependent on Eucure (Beijing) Biopharma Co., Ltd. (Eucure) and Biocytogen Pharmaceuticals (Beijing) Co., Ltd. (Biocytogen) with respect to certain aspects of our development of YH001 in North America. The failure to maintain these collaboration agreements, the failure of our corporate partners to perform their obligations under the agreements, or the actions of our corporate partners or their other partners with respect to envafolimab and YH001 in other indications or outside North America could negatively impact our business.

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

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We face intense competition and rapid technological change and the possibility that our competitors may develop therapies that are more advanced or effective than ours, which may adversely affect our financial condition and our ability to successfully commercialize our product candidates.

Risks Related to our Financial Position and Need for Additional Capital

We are a clinical stage biopharmaceutical company with limited operating history. All the product candidates we are developing will require substantial additional development time and resources before we or our partners would be able to apply for or receive regulatory approvals and begin generating revenue from product sales. We have incurred losses from operations in each year since our inception, including net losses of $4.0 million and $22.1 million for the nine months ended September 30, 2023 and 2022, respectively. At September 30, 2023, we had an accumulated deficit of $240.9 million.

We expect to continue to incur substantial expenses as we expand our development activities and advance our clinical programs. To become and remain profitable, we or our partners must succeed in developing product candidates, obtaining regulatory approval for them, and manufacturing, marketing and selling those products for which we or our partners may obtain regulatory approval. We or they may not succeed in these activities, and we may never generate revenue from product sales that is significant enough to achieve profitability. Because of the numerous risks and uncertainties associated with pharmaceutical and biological product development, we are unable to predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. In addition, our expenses could increase if we are required by the FDA or comparable foreign regulatory authorities to perform studies or trials in addition to those currently expected, or if there are any delays in completing our clinical trials or the development of any product candidates. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our failure to become or remain profitable would depress our market value and could impair our ability to raise capital, expand our business, develop other product candidates or continue our operations.

Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is expensive. We expect our current level of research and development expenses to decrease for the remainder of 2023 due to the termination of enrollment in cohort D of the ENVASARC trial, however this is based on our current expectations which are subject to change.

At September 30, 2023, we had cash and cash equivalents totaling $7.8 million, of which $0.1 million is pledged as collateral for our obligations under our corporate headquarters facility lease. Based upon our current operating plan, we believe that our cash and cash equivalents as of September 30, 2023 will be sufficient to fund the current requirements of working capital and other financial commitments, including our operating lease obligations, into early 2024. We will need additional funding to complete the development and commercialization of product candidates, including envafolimab and YH001. In addition, in December 2019 we entered into a collaboration and clinical trial agreement with 3D Medicines and Alphamab, and in October 2021 we entered into a collaborative development and commercialization agreement with Eucure and Biocytogen. Under these agreements, we are responsible for various portions of the costs to conduct clinical trials, among other development obligations. We will need additional funds to advance the development of these programs and meet our cost-sharing obligations, and these requirements may be substantial depending on how many programs are selected for development and the stage of development each program reaches. As more fully discussed in Note 1 to the unaudited condensed consolidated financial statements included in this Quarterly Report, the uncertainties around our ability to obtain additional funding raise substantial doubt regarding our ability to continue as a going concern for a period of 12 months following the date these accompanying unaudited condensed consolidated financial statements were issued.

Regardless of our expectations, changing circumstances beyond our control, including the effects of adverse macroeconomic and geopolitical developments, such as the recent and potential future bank failures, rising inflation rates, the ongoing conflict between Ukraine and Russia and the recent state of war between Israel and Hamas and the related risk of a larger regional conflict may cause us to consume capital more rapidly than we currently anticipate. For example, our clinical trials may encounter technical, enrollment or other difficulties or we could encounter difficulties obtaining clinical trial material or other supplies that could increase our development costs more than we expect. We will require additional capital prior to completing clinical development, filing for regulatory approval, or commercializing any product candidates.

In December 2020, as amended in March 2022, we entered into a Sales Agreement with JonesTrading pursuant to which we could sell from time to time, at our option, up to an aggregate of $50.0 million of shares of our common stock through JonesTrading, as sales agent or principal, $42.9 million of which remains available for sale as of September 30, 2023. In May 2023, we and Lincoln Park entered into the LPC Purchase Agreement, which provides that, upon the terms and subject to the conditions and limitations set forth therein, Lincoln Park is committed to purchase up to an aggregate of $26.0 million of shares of our common stock from time to time and our sole discretion over the term of the LPC Purchase Agreement, $25.0 million of which remains available for sale as of September 30, 2023. While the Sales Agreement and LPC Purchase Agreement provide us with an additional option to raise capital through issuances and sales of our common stock, there can be no guarantee that we will be able to sell shares under the agreements in the future, or that any sales will generate sufficient proceeds to meet our capital requirements. In particular, JonesTrading and Lincoln Park are under no obligation to sell any shares of our common stock that we may request to be sold under the agreements from time to time. If sales are made under the Sales Agreement and LPC Purchase Agreement, our existing stockholders may experience dilution and such sales, or the perception that such sales are or will be occurring, may cause the trading price of our common stock to decline.

Attempting to secure additional financing may divert our management from our day-to-day activities, which may adversely affect our ability to develop product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. As a result of adverse macroeconomic and geopolitical developments, such as recent and potential future bank failures, health epidemics, ongoing military conflict between Ukraine and Russia, the recent state of war between Israel and Hamas and the related risk of a larger regional conflict, actual or anticipated changes in interest rates, economic inflation and the responses by central banking authorities to control such inflation, the global credit and financial markets have experienced extreme volatility and disruptions, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. If the equity and credit markets deteriorate further, it may make any necessary debt or equity financing more difficult, more costly and more dilutive. If we are unable to raise additional capital when required or on acceptable terms, we may be required to significantly delay, scale back or discontinue the development or commercialization of product candidates or otherwise significantly curtail, or cease, operations. If we are unable to pursue or are forced to delay our planned drug development efforts due to lack of financing, it would have a material adverse effect on our business, financial condition, operating results and prospects.

Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to product candidates on unfavorable terms to us.

We may seek additional capital through a variety of means, including through equity offerings and debt financings. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through licensing or collaboration arrangements with third parties, we may have to relinquish valuable rights to product candidates, or grant licenses on terms that are not favorable to us.

Risks Related to Clinical Development and Regulatory Approval of Product Candidates

If the response rate of envafolimab as a single agent in UPS/MFS is not significantly higher than existing therapies, our strategy of pursuing accelerated approval of envafolimab on ORR as the primary endpoint could delay or prevent the approval of envafolimab in UPS/MFS.*

We are initially developing envafolimab in refractory UPS/MFS, where the PD-(L)1 inhibitors given as single agents demonstrated response rates which were significantly higher than the response rate demonstrated by the approved treatment Votrient or chemotherapy in UPS/MFS. Nine of 80 responses (11.25%) by blinded independent central review (BICR) are needed to satisfy the primary objective of the trial which is to statistically exceed the known 4% ORR of Votrient for patients with refractory UPS or MFS. In September 2023, we announced that the ENVASARC Phase 2 pivotal trial satisfied the futility threshold of 3 responses out of 46 (8.7%) by BICR. If, however, the response rate of envafolimab as a single agent in UPS/MFS does not exceed 11.25%, we will not be able to achieve the primary endpoint for our Phase 2 pivotal trial and our strategy of pursuing accelerated approval of envafolimab on ORR as the primary endpoint will be unlikely to succeed, which could delay or prevent the approval of envafolimab in UPS/MFS.

Clinical development is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. Even if product candidates demonstrate favorable results in ongoing or planned Phase 1 and 2 clinical trials, many product candidates fail to show desired safety and efficacy traits in late-stage clinical trials despite having progressed through earlier trials. In addition to the potential lack of safety or efficacy of product candidates, clinical trial failures may result from a multitude of factors including flaws in trial design, manufacture of clinical trial material, dose selection and patient enrollment criteria, or differences in determination of progression events by investigators compared to central radiographic reviewers. With respect to envafolimab and YH001, while results of trials conducted by others outside of the United States have been promising, they may not be predictive of results in U.S. trials due to differences in trial design, target indications, patient populations, availability of alternative treatments and other factors. Based upon the recommendation of the IDMC following an interim analysis of data from the ENVASARC trial, we have proceeded in the trial using a dose of envafolimab that is twice the dose administered to the first patients in the trial. While dosing at higher levels has shown promising results in other trials outside of the United States, we cannot be certain that we will observe similar results in the ENVASARC trial, including whether the higher dose will result in tolerability issues that were not encountered with the lower dose. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. Based upon negative or inconclusive results, we or our partners may decide, or regulators may require us, to conduct additional clinical trials or preclinical studies. In addition, data obtained from trials and studies are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we do, which may delay, limit or prevent regulatory approval. If patients drop out of our trials, miss scheduled doses or follow-up visits or otherwise fail to follow trial protocols, or if our trials are otherwise disrupted due to adverse macroeconomic and geopolitical developments, such as recent and potential future bank failures, the ongoing military conflict between Ukraine and Russia or the recent state of war between Israel and Hamas and the related risk of a larger regional conflict, the integrity of data from our trials may be compromised or not accepted by the FDA or other regulatory authorities, which would represent a significant setback for the applicable program.

If any product candidate is found to be unsafe or lack efficacy, we will not be able to obtain regulatory approval for it and our stock price would be materially and adversely affected.

Interim, topline and preliminary data from preclinical studies and clinical trials may change as more data become available, and are subject to audit and verification procedures that could result in material changes in the final data.

We and our collaboration partners publicly disclose from time to time, interim, topline or preliminary data from preclinical studies and clinical trials, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change as more data become available. We and our collaboration partners may also announce topline data following the completion of a preclinical study or clinical trial, which may be subject to change following a more comprehensive review of the data related to the particular study or trial. We and our collaboration partners also make assumptions, estimations, calculations and conclusions as part of the analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. In addition, the manner in which clinical data and results are reported may differ depending on the jurisdiction in which a trial is conducted or between us and our collaboration partners. As a result, the interim, topline or preliminary results that we or our collaboration partners report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the previously published preliminary data. As a result, interim, topline and preliminary data should be viewed with caution until the final data are available. Adverse differences between previous preliminary or interim data and future interim or final data could significantly harm our business prospects.

From time to time, we or our collaboration partners may also disclose interim data from clinical trials. Interim data from clinical trials 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 or as patients from clinical trials continue other treatments for their disease. Adverse differences between preliminary or interim data and final data could significantly harm our business prospects. Further, disclosure of interim data by us, our collaboration partners, or by our competitors could result in volatility in the price of our common stock.

Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product, our company in general and our common stock. In addition, the information we or our collaboration partners choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we or our collaboration partners determine to be material or otherwise appropriate information to include in such disclosure, and any information we or our collaboration partners determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular product candidate or our business. If the interim, topline, or preliminary data that is reported for our product candidates differ from future or more comprehensive data, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for and commercialize our product candidates, our business, operating results, prospects or financial condition may be harmed.

We may experience delays in clinical trials of product candidates. Our ongoing and planned clinical trials may not begin on time, have an effective design, enroll a sufficient number of patients or be completed on schedule, if at all. Our clinical trials can be delayed for a variety of reasons, including:

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inability to raise funding necessary to initiate or continue a trial;

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delays in obtaining regulatory approval to commence a trial;

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delays in reaching agreement with the FDA on final trial design;

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adverse findings in toxicology studies, including chronic toxicology studies;

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imposition of a clinical hold for safety reasons or following an inspection of our clinical trial operations or trial sites by the FDA or other regulatory authorities;

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delays in reaching agreement on acceptable terms with prospective clinical trial sites;

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delays in obtaining required institutional review board approval at each site;

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delays in recruiting suitable patients to participate in a trial;

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delays in enrollment caused by the availability of alternative treatments;

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delays in having patients complete participation in a trial or return for post-treatment follow-up;

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clinical sites dropping out of a trial to the detriment of enrollment;

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time required to add new clinical sites; or

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delays in our ability to acquire sufficient supply of clinical trial materials.

For example, the FDA may require additional or different data in order to move forward with a BLA submission for envafolimab for patients with local advanced, unresectable or metastatic UPS and MFS, which could ultimately delay regulatory approval and could have a material adverse effect on our business.

In addition, adverse macroeconomic and geopolitical developments have impacted clinical trials broadly, including our own with some sites pausing enrollment or not completing all assessments specified in the protocol, and some patients choosing not to enroll or continue participating in ongoing trials. We and our collaborators may continue to experience delays in site initiation and patient enrollment, failures to comply with trial protocols, delays in the manufacture of product candidates for clinical testing, supply chain disruptions and other difficulties in starting or competing our clinical trials due to macroeconomic and geopolitical developments.

If initiation or completion of our ongoing or planned clinical trials are delayed for any of the above reasons or other reasons, our development costs may increase, our approval process could be delayed and our ability to commercialize product candidates could be materially harmed, which could have a material adverse effect on our business.

Our product candidates or those of our partners may cause adverse events or have other properties that could delay or prevent their regulatory approval or limit the scope of any approved label or market acceptance.

Adverse events (AEs) caused by product candidates or other potentially harmful characteristics of product candidates could cause us, our partners, including Eucure, Biocytogen, 3D Medicines, Alphamab or the NCI, clinical trial sites or regulatory authorities to interrupt, delay or halt clinical trials and could result in the denial of regulatory approval.

Envafolimab has produced AEs consistent with other inhibitors of the PD-L1 and PD-1 pathways, including rare fatal immune related toxicities. Based on the August 9, 2021 data cutoff from the YH001 Phase 1 dose escalation clinical trial being conducted in Australia, no dose limiting toxicities had occurred and a single related serious adverse event of grade 3 colitis was reported, which led to treatment discontinuation. Phase 1 or Phase 2 clinical trials of TRC102 conducted to date have generated AEs related to the trial drug, some of which have been serious. The most common AE identified in our clinical trials of TRC102 has been anemia. There can be no assurance that AEs associated with product candidates will not be observed. As is typical in drug development, we have a program of ongoing toxicology studies in animals for clinical stage product candidates and cannot provide assurance that the findings from such studies or any ongoing or future clinical trials will not adversely affect our clinical development activities.

Further, if any approved products cause serious or unexpected side effects after receiving market approval, a number of potentially significant negative consequences could result, including:

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regulatory authorities may withdraw their approval of the product or impose restrictions on its distribution;

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regulatory authorities may require the addition of labeling statements, such as warnings or contraindications;

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we may be required to change the way the product is administered or conduct additional clinical trials;

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we could be sued and held liable for harm caused to patients; or

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our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of the affected product candidate and could substantially increase the costs of commercializing product candidates.

The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for product candidates, our business will be substantially harmed.

The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. For example, for certain oncology indications where the FDA has traditionally granted approval to therapies that can demonstrate progression-free survival, the agency may later require us to demonstrate overall survival, which would greatly extend the time and increase the capital required to complete clinical development. We have not obtained regulatory approval for any product candidate, and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval.

Product candidates could fail to receive regulatory approval for many reasons, including the following:

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the FDA or comparable foreign regulatory authorities may disagree with the design, scope or implementation of our clinical trials;

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we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication;

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the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;

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we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;

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the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;

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the data collected from clinical trials of product candidates may not be sufficient to support the submission of a BLA or a New Drug Application (NDA), or other submission or to obtain regulatory approval in the United States or elsewhere;

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the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third party manufacturers with which we contract for clinical and commercial supplies; and

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the approval policies or regulations of the FDA or comparable foreign regulatory authorities may change significantly in a manner rendering our clinical data insufficient for approval.

This lengthy approval process, as well as the unpredictability of future clinical trial results, may result in our failing to obtain regulatory approval to market product candidates, which would harm our business, results of operations and prospects significantly.

In addition, even if we were to obtain approval, regulatory authorities may approve any product candidates for fewer or more limited indications than we request, may not approve the price we intend to charge for our products, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could harm the commercial prospects for our product candidates or those of our partners.

We have not previously submitted a marketing application, or any similar drug approval filing to the FDA or any comparable foreign authority for any product candidate, and we cannot be certain that any product candidates will be successful in clinical trials or receive regulatory approval. Further, product candidates may not receive regulatory approval even if they are successful in clinical trials. If we do not receive regulatory approvals for product candidates, we may not be able to continue our operations. Even if we successfully obtain regulatory approvals to market one or more product candidates, our revenue will be dependent, to a significant extent, upon the size of the markets in the territories for which we gain regulatory approval. If the markets for patients or indications that we are targeting are not as significant as we estimate, we may not generate significant revenue from sales of such product candidates, if approved.

Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could negatively impact our business.

The ability of the FDA to review and approve proposed clinical trials or new products can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory, and policy changes, the FDA’s ability to hire and retain key personnel and accept the payment of user fees, and other events that may otherwise affect the FDA’s ability to perform routine functions. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of other government agencies 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 product candidates to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities. More recently, in response to the global COVID-19 pandemic, in March 2020, the FDA announced its intention to postpone most foreign and domestic inspections of manufacturing facilities and such delays continued for several months.

If a prolonged government shutdown occurs, or if global health concerns prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business.

We may attempt to secure approval from the FDA through the use of accelerated approval pathways. If we are unable to obtain such approval, we may be required to conduct additional clinical trials beyond those that we contemplate, which could increase the expense of obtaining, and delay the receipt of, necessary marketing approvals. Even if we receive accelerated approval from the FDA, if our confirmatory trials do not verify clinical benefit, or if we do not comply with rigorous post-marketing requirements, the FDA may seek to withdraw accelerated approval.

We may in the future seek accelerated approval for one or more of our product candidates, including envafolimab in UPS/MFS. Under the accelerated approval program, the FDA may grant accelerated approval to a product candidate designed to treat a serious or life-threatening condition that provides meaningful therapeutic benefit over available therapies upon a determination that the product candidate has an effect on a surrogate endpoint or intermediate clinical endpoint that is reasonably likely to predict clinical benefit. The FDA considers a clinical benefit to be a positive therapeutic effect that is clinically meaningful in the context of a given disease, such as irreversible morbidity or mortality. 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. An intermediate clinical endpoint is a clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit. The accelerated approval pathway may be used in cases in which the advantage of a new drug over available therapy may not be a direct therapeutic advantage, but is a clinically important improvement from a patient and public health perspective. If granted, accelerated approval is usually contingent on the sponsor’s agreement to conduct, in a diligent manner, additional post-approval confirmatory studies to verify and describe the drug’s clinical benefit. If such post-approval studies fail to confirm the drug’s clinical benefit, the FDA may withdraw its approval of the drug. In addition, the FDA currently requires pre-approval of promotional materials for accelerated approval products, once approved.

If we decide to submit an application for accelerated approval for our product candidates, there can be no assurance that such submission or application will be accepted or that any expedited development, review or approval will be granted on a timely basis, or at all. The FDA could require us to conduct further studies prior to considering our application or granting approval of any type. A failure to obtain accelerated approval or any other form of expedited development, review or approval for our product candidates would result in a longer time period to commercialization of such product candidate, if any, could increase the cost of development of such product candidate and could harm our competitive position in the marketplace.

We may not receive fast track designation for our product candidates from the FDA, or fast track designation may not actually lead to a faster development or regulatory review or approval process.

Fast track designation provides increased opportunities for sponsor meetings with the FDA during preclinical and clinical development, in addition to the potential for rolling review once a marketing application is filed. A new drug or biologic is eligible for fast track designation if it is intended to treat a serious or life-threatening disease or condition and the drug demonstrates the potential to address unmet medical needs for the disease or condition. While the FDA did grant us fast track designation for the development of envafolimab for patients with locally advanced, unresectable or metastatic UPS and MFS who have progressed on one or two prior lines of chemotherapy, it has broad discretion whether or not to grant this designation for our other product candidates. Even if we believe another particular product candidate is eligible for this designation, we cannot assure you that the FDA will grant it. Further, the FDA may withdraw fast track designation if it believes that the designation is no longer supported by data from our clinical development program.

We may be unsuccessful in our efforts to obtain orphan drug designations (ODDs) from the FDA for product candidates, and even if these designations are obtained, we may not ultimately realize the potential benefits of ODD.

Regulatory authorities in some jurisdictions, including the United States, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a drug as an orphan drug if it is intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 people in the United States, or a patient population of greater than 200,000 people in the United States, but for which there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. Orphan drugs do not require prescription drug user fees with a marketing application, may qualify the drug development sponsor for certain tax credits, and may be eligible for a market exclusivity period of seven years.

In June 2021, we received ODD for envafolimab for the treatment of soft tissue sarcoma subtypes and in October 2020, the FDA granted ODD for TRC102 for the treatment of patients with malignant glioma, including glioblastoma and in June 2021, we received ODD for envafolimab for the treatment of soft tissue sarcoma subtypes. Generally, if a drug with an ODD subsequently receives the first marketing approval for the indication for which it has such designation, the drug may be entitled to a period of marketing exclusivity, which precludes the FDA from approving another marketing application for the same drug for the same orphan designated indication for that time period. The applicable period is seven years in the United States, which may be extended by six months, in the case of product candidates that have complied with the respective regulatory agency’s agreed upon pediatric investigation plan. Orphan drug exclusivity may be lost if the FDA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition. In addition, even after a drug is granted orphan exclusivity and approved, the FDA can subsequently approve another drug for the same condition before the expiration of the seven-year exclusivity period if the FDA concludes that the later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. In addition, if an orphan designated product receives marketing approval for an indication broader than or different from what is designated, such product may not be entitled to orphan exclusivity. Even though the FDA has granted ODD, if we receive approval for a modified or different indication, our current orphan designations may not provide us with exclusivity.

ODD does not convey any advantage in, or shorten the duration of, the regulatory review or approval process. Also, regulatory approval for any product candidate may be withdrawn, and other product candidates may obtain approval before us and receive orphan drug exclusivity, which could block us from entering the market. For example, 3D Medicines has U.S. ODD for envafolimab for the treatment of BTC, an indication that is outside the scope of our current license agreement with 3D Medicines.

Orphan drug exclusivity also may not effectively protect us from competition because different drugs can be approved for the same condition and the same drug can be approved for different conditions before the expiration of any orphan drug exclusivity period.

If orphan drug exclusivity is lost and we were unable to successfully enforce any remaining patents covering our eligible product candidates, we could be subject to generic competition earlier than we anticipate. In addition, if a subsequent drug is approved for marketing for the same or a similar indication as any product candidates that receive marketing approval, we may face increased competition and lose market share regardless of orphan drug exclusivity.

Although we intend to seek breakthrough therapy designation for envafolimab for the treatment of soft tissue sarcoma subtypes, such designation may not be granted, and even if granted this may not lead to a faster development, regulatory review or approval process, and it does not increase the likelihood that envafolimab will receive marketing approval in the United States.

A breakthrough therapy is defined as a therapy that is intended, alone or in combination with one or more other therapies, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the therapy 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 therapies that have been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Therapies designated as breakthrough therapies by the FDA may also be eligible for priority review and accelerated approval. Although we intend to seek breakthrough therapy designation for envafolimab for the treatment of soft tissue sarcoma, we may not be granted such designation and even if designated this may not lead to a faster development, regulatory review or approval process, and it does not increase the likelihood that envafolimab will receive marketing approval in the United States. In addition, if granted breakthrough therapy designation, the FDA may later decide that envafolimab no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.

Obtaining and maintaining regulatory approval of product candidates in one jurisdiction does not mean that we will be successful in obtaining regulatory approval of product candidates in other jurisdictions.

Obtaining and maintaining regulatory approval of product candidates in one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval in any other jurisdiction, while a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. For example, even if the FDA grants marketing approval of a product candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the United States, including additional preclinical studies or clinical trials, as studies or trials conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we would intend to charge for our products is also subject to approval.

Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. If we fail to comply with the regulatory requirements in international markets and/or receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates or those of our partners will be harmed.

Even if we receive regulatory approval of product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense, and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with product candidates.

Any product candidates for which we receive regulatory approvals will require surveillance to monitor the safety and efficacy of the product candidate. The FDA may also require a Risk Evaluation and Mitigation Strategy (REMS) in order to approve product candidates, which could entail requirements for a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. In addition, if the FDA or a comparable foreign regulatory authority approves product candidates, the manufacturing processes, labeling, packaging, distribution, AE reporting, storage, advertising, promotion, import, export and recordkeeping for product candidates will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, establishment registration and drug listing, as well as continued compliance with regulatory requirements for current good manufacturing practices (cGMPs), and current good clinical practices (cGCPs), for any clinical trials that we conduct post-approval. Although physicians, in the practice of medicine, may prescribe an approved drug for unapproved indications, pharmaceutical companies are prohibited from promoting uses that are not approved by the FDA as reflected in the product’s approved labeling. However, companies may share truthful and not misleading information that is otherwise consistent with the labeling. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses of approved pharmaceutical products, and a company that is found to have improperly promoted off-label may be subject to significant liability. Later discovery of previously unknown problems with product candidates, including AEs of unanticipated severity or frequency, or with our third party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

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restrictions on the marketing or manufacturing of product candidates, withdrawal of the product from the market, or voluntary or mandatory product recalls;

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fines, warning letters or holds on clinical trials;

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refusal by the FDA to approve pending applications or supplements to approved applications filed by us or suspension or revocation of existing approvals;

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product seizure or detention, or refusal to permit the import or export of product candidates; and

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injunctions or the imposition of civil or criminal penalties.

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 product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. 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 may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability.

Risks Related to Our Reliance on Third Parties

We and our partners rely on third party manufacturers to make product candidates, and any failure by a third party manufacturer may delay or impair our ability to complete clinical trials or commercialize our product candidates.

Manufacturing drugs and biologics is complicated and is tightly regulated by regulatory authorities, including the FDA and foreign equivalents. We currently rely on third party manufacturers to supply us with drug substance for preclinical and clinical trials. Moreover, the market for contract manufacturing services for drug products is highly cyclical, with periods of relatively abundant capacity alternating with periods in which there is little available capacity. If our need for contract manufacturing services increases during a period of industry-wide tight capacity, we may not be able to access the required capacity on a timely basis or on commercially viable terms, which could result in delays in initiating or completing clinical trials or our ability to apply for or receive regulatory approvals.

We rely on other third parties for drug substance and to perform additional steps in the manufacturing process, including filling into vials, shipping and storage. For our clinical stage pipeline programs, there can be no guarantee that lack of clinical supplies will not force us or our partners to delay or terminate any ongoing or planned clinical trials.

We expect to continue to rely on third party manufacturers for any drug required for commercial supply and do not intend to build our own manufacturing capability. Successfully transferring complicated manufacturing techniques to contract manufacturing organizations and scaling up these techniques for commercial quantities is costly, time consuming and subject to potential difficulties and delays. With respect to envafolimab, pursuant to the Envafolimab Collaboration Agreement, 3D Medicines and Alphamab have agreed to manufacture and supply, or to arrange for a third party manufacturer to manufacture and supply, envafolimab to us at pre-negotiated prices that vary based on clinical or commercial use. With respect to YH001, Eucure has agreed to manufacture and supply, or to arrange for a third party manufacturer to manufacture and supply, YH001 to us for clinical trials pursuant to the terms of a clinical supply and quality agreement to be separately negotiated, but we cannot guarantee that we will successfully negotiate and enter into the contemplated clinical supply and quality agreement or do so on commercially favorable terms.

We do not have any long-term supply agreements for the manufacture of product candidates and cannot guarantee that any third party manufacturer would be willing to continue supplying drug product for clinical trials or commercial sale at a reasonable cost or at all. In addition, manufacturing agreements are often subject to early termination by the third party manufacturer under certain circumstances.

The facilities used by our current or future third party manufacturers to manufacture our product candidates must be approved by the FDA pursuant to inspections that will be conducted after we submit a BLA or an NDA to the FDA. While we work closely with our third party manufacturers on the manufacturing process for product candidates, we generally do not control the implementation of the manufacturing process of, and are completely dependent on, our third party manufacturers for compliance with cGMP regulatory requirements and for manufacture of both drug substances and finished drug products. If our third party manufacturers or those of our collaborators cannot successfully manufacture material that conforms to applicable specifications and the strict regulatory requirements of the FDA or other regulatory authorities, we may experience delays in initiating planned clinical trials and we may not be able to secure or maintain regulatory approval for their manufacturing facilities. In addition, we have no control over the ability of our contract manufacturers or other third party manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or commercialize product candidates.

We depend in part on NCI and other third party sponsors to advance clinical development of TRC102. If these third party sponsors ceased their support for our product candidates, our ability to advance clinical development of product candidates could be limited and we may not be able to pursue the number of different indications for our product candidates that are currently being pursued.

NCI is currently sponsoring and funding multiple clinical trials involving TRC102. In addition, Case Western has sponsored and funded two separate clinical trials involving TRC102. The advancement of TRC102 depends in part on the continued sponsorship and funding of clinical trials by these organizations, as our resources and capital would not be sufficient to conduct these trials on our own. None of these third party sponsors are obligated to continue sponsorship or funding of any clinical trials involving our product candidates and could stop their support at any time. If these third party sponsors ceased their support for our product candidates, our ability to advance clinical development of product candidates could be limited and we may not be able to pursue the number of different indications for our product candidates that are currently being pursued.

Even if these third party sponsors continue to sponsor and fund clinical trials of our product candidates, our reliance on their support subjects us to numerous risks. For example, we have limited control over the design, execution or timing of their clinical trials and limited visibility into their day-to-day activities, including with respect to how they are providing and administering our product candidates. If a clinical trial sponsored by a third party has a failure due to poor design of the trial, errors in the way the clinical trial is executed or for any other reason, or if the sponsor fails to comply with applicable regulatory requirements or if there are errors in the reported data, it could represent a major set-back for the development and approval of our product candidates, even if we were not directly involved in the trial and even if the clinical trial failure was not related to the underlying safety or efficacy of the product candidate. In addition, these third party sponsors could decide to de-prioritize clinical development of our product candidates in relation to other projects, which could adversely affect the timing of further clinical development. We are also subject to various confidentiality obligations with respect to the clinical trials sponsored by third party sponsors, which could prevent us from disclosing current information about the progress or results from these trials until the applicable sponsor publicly discloses such information or permits us to do so. This may make it more difficult to evaluate our business and prospects at any given point in time and could also impair our ability to raise capital on our desired timelines.

We are dependent on 3D Medicines and Alphamab with respect to certain aspects of our development of envafolimab for the treatment of sarcoma in North America and on Eucure and Biocytogen with respect to certain aspects of our development of YH001 for the treatment of certain sarcoma subtypes in North America. The failure to maintain these collaboration and clinical trial agreements, the failure of 3D Medicines, Alphamab, Eucure or Biocytogen to perform their obligations under the agreements, or the actions of 3D Medicines, Alphamab, Eucure or Biocytogen or their other partners with respect to envafolimab and YH001 in other indications or outside North America could negatively impact our business.

Pursuant to the terms of our collaboration and clinical trial agreement with 3D Medicines and Alphamab, we were granted an exclusive license to develop and commercialize envafolimab for sarcoma in North America. Pursuant to the terms of our collaborative development and commercialization agreement with Eucure and Biocytogen, we were granted an exclusive (including with respect to Eucure and its affiliates), nontransferable, license to develop and commercialize YH001 in North America for the treatment of multiple human indications, including the Initial Indications or one or more of the Substitute Indications, which may be substituted for Initial Indications at our discretion. While we are generally responsible for clinical development, 3D Medicines and Alphamab are responsible for certain critical activities associated with envafolimab and Eucure and Biocytogen are responsible for certain critical activities associated with YH001, including, as applicable, the manufacture and supply of envafolimab and YH001, CMC activities and prosecution and enforcement of intellectual property rights. We have limited control over the amount and timing of resources that 3D Medicines, Alphamab, Eucure and Biocytogen will dedicate to their respective efforts, and their failure to perform their obligations would impair our ability to develop envafolimab for sarcoma in North America and YH001 for certain sarcoma subtypes in North America. In addition, we have very limited influence or control over 3D Medicines’, Alphamab’s, Eucure’s or Biocytogen’s (or their respective other partners’) activities with respect to the development and commercialization of envafolimab and YH001 in non-licensed indications or indications outside of North America, even though these activities could have a significant impact on the development and commercialization of envafolimab for sarcoma in North America and YH001 for certain sarcoma subtypes in North America. For example, Eucure may pursue clinical trials for YH001 in North America outside of the Initial Indications or Substitute Indications, and also within the Initial Indications or Substitute Indications as part of a combination therapy of YH001 and an additional Eucure product, any of which could have a significant impact on the development and commercialization of YH001 for sarcoma in North America. Additionally, adverse events in clinical trials outside of the United States could cause the FDA to put clinical trials of envafolimab or YH001 in the United States on hold, and negative results of clinical trials of envafolimab in other indications may cast doubt as to the likelihood of positive results of clinical trials in UPS/MFS or other sarcoma indications.

We are subject to a number of other risks associated with these collaboration and clinical trial agreements, including:

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we and our corporate partners could disagree as to future development plans which could delay initiation of clinical trials or stop a future clinical trial;

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there may be disputes between us and our corporate partners, including disagreements regarding the terms of the collaboration and clinical trial agreement, that may result in the delay of or failure to achieve development, regulatory and commercial objectives and/or costly litigation or arbitration that diverts our management’s attention and resources;

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our corporate partners may not provide us with timely and accurate information regarding development progress and activities outside of sarcoma and North America, which could adversely impact our ability to report progress to our investors and may cause us to make ill-informed decisions with respect to our own development efforts;

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our corporate partners may not properly maintain or defend the intellectual property rights licensed to us in North America or may undertake activities that invite litigation that could jeopardize or invalidate the intellectual property rights licensed to us or expose us to potential litigation; and

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our corporate partners are responsible for conducting CMC activities for envafolimab and YH001 and may not conduct such activities at the quality level required to seek FDA approval.

If we have disagreements with our corporate partners, if they do not perform their obligations under the collaboration and clinical trial agreements or there are negative events with respect to envafolimab or YH001 outside of the licensed indications or North America, there could be material adverse consequences to our ability to successfully develop and commercialize envafolimab and YH001 in North America or to the value of envafolimab and YH001 to us.

We may not be successful in establishing and maintaining additional collaborations, which could adversely affect our ability to develop and commercialize our existing product candidates or to leverage our clinical development capabilities.*

A part of our strategy is to strategically evaluate and, as deemed appropriate, enter into additional licensing and collaboration agreements, including potentially with major biotechnology or pharmaceutical companies. In particular, we are actively seeking additional corporate partnerships in which we would share in the cost and risk of clinical development and commercialization of innovative product candidates of third parties. We face significant competition in seeking appropriate partners, and the negotiation process is time-consuming and complex. In order for us to successfully partner our product candidates, potential partners must view these product candidates as having the requisite potential to demonstrate safety and efficacy and as being economically valuable in light of the terms that we are seeking and other available products for licensing by other companies. With respect to additional partnerships whereby we would develop third party product candidates, we will need to identify promising product candidates where the owner of the development and commercial rights could benefit from our clinical development capabilities. Even if we are successful in our efforts to establish new collaborations, the terms that we agree upon may not be favorable to us, and we may not be able to maintain such collaborations if, for example, development or approval of a product candidate is delayed or sales of an approved product are disappointing. Any inability or delay in entering into new collaboration agreements related to our product candidates, in particular in foreign countries where we do not have and do not intend to establish significant capabilities, could delay the development and commercialization of our product candidates and reduce their market potential. If we are unable to enter into additional collaborations that leverage our clinical development capabilities, we may be forced to reduce these capabilities, which could lower the value of our company and make it less likely that third parties will seek to collaborate with us to develop their product candidates.

We rely on third parties to conduct preclinical studies and clinical trials of product candidates, and if they do not properly and successfully perform their obligations to us, we may not be able to obtain regulatory approvals for product candidates.

We do not have our own capabilities to perform preclinical testing of product candidates, and therefore rely entirely on third party contractors and laboratories to conduct these studies for us. In addition, while we intend to continue designing, monitoring and managing our clinical trials of product candidates using our clinical operations and regulatory team, we still depend upon independent investigators and collaborators, such as universities and medical institutions, to conduct our clinical trials at their sites under agreements with us. We will compete with many other companies for the resources of these third-party contractors, laboratories, investigators and collaborators, and the initiation and completion of our preclinical studies and clinical trials may be delayed if we encounter difficulties in engaging these third parties or need to change service providers during a preclinical study or clinical trial.

We control only certain aspects of the activities conducted for us by the third parties on which we currently rely and on which we will rely in the future for our preclinical studies and clinical trials. Nevertheless, we are responsible for ensuring that each of our clinical trials and certain of our preclinical studies is conducted in accordance with applicable protocol, legal, regulatory and scientific standards, and our reliance on third parties does not relieve us of our regulatory responsibilities. With respect to clinical trials, we and these third parties are required to comply with cGCPs, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for product candidates in clinical development. Regulatory authorities enforce these cGCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of these third parties fail to comply with applicable cGCP regulations, the clinical data 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 assure you that, upon inspection, such regulatory authorities will determine that any of our clinical trials comply with the cGCP regulations. In addition, our clinical trials must be conducted with product candidates produced under cGMPs and will require a large number of test patients. Our failure or any failure by these third parties to comply with these regulations or to recruit a sufficient number of patients may require us to repeat clinical trials, which would delay the regulatory approval process. Moreover, our business may be implicated if any of these third parties violates federal or state health care laws, including, among others, fraud and abuse, false claims, privacy and security, and physician payment transparency laws. Any third parties conducting our preclinical studies and clinical trials are not and will not be our employees and, except for remedies available to us under our agreements with such third parties, we cannot control whether or not they devote sufficient time and resources to our ongoing preclinical and clinical development programs. These third parties may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials or other drug development activities, which could affect their performance on our behalf. If these third parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our protocols or regulatory requirements or for other reasons, our preclinical studies and clinical trials may be extended, delayed or terminated and we may not be able to complete development of, obtain regulatory approval of or successfully commercialize product candidates. As a result, our financial results and the commercial prospects for our product candidates or those of our partners would be harmed, our costs could increase and our ability to generate revenue could be delayed.

Switching or adding third parties to conduct our preclinical studies and clinical trials involves substantial cost and requires extensive management time and focus. In addition, there is a natural transition period when a new third party commences work. As a result, delays may occur, which can materially impact our ability to meet our desired development timelines.

Risks Related to Our Intellectual Property

If we are unable to obtain or protect intellectual property rights related to our product candidates, we may not be able to compete effectively.

We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our product candidates. If we do not adequately protect our intellectual property, competitors may be able to use our technologies which could do harm to our business and affect our ability to be profitable. In particular, our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to our product candidates. Additionally, we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. The patent applications that we own or in-license may fail to result in issued patents with claims that cover our product candidates in the United States or in other countries. We may also fail to identify patentable aspects of our research and development before it is too late to obtain patent protection. Any disclosure or misappropriation by third parties of our confidential proprietary information could enable competitors to quickly duplicate or surpass our technological achievements, eroding our competitive position in our market.

The patent position of biotechnology companies is generally uncertain because it involves complex legal and factual considerations in a legal framework that is constantly evolving. The standards applied by the United States Patent and Trademark Office (USPTO), and foreign patent offices in granting patents are not always applied uniformly or predictably. For example, there is no uniform worldwide policy regarding patentable subject matter or the scope of claims allowable in biotechnology patents. There is a substantial amount of prior art in the biotechnology and pharmaceutical fields, including scientific publications, patents and patent applications. There is no assurance that all potentially relevant prior art relating to our patents and patent applications has been found. We may be unaware of prior art that could be used to invalidate an issued patent or prevent our pending patent applications from issuing as patents. Even if patents do successfully issue and even if such patents cover our product candidates, third parties may challenge their validity, enforceability or scope, which may result in such patents being narrowed or invalidated. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property, provide exclusivity for our product 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.

If patent applications we hold or have in-licensed with respect to our product candidates fail to issue, if their breadth or strength of protection is threatened, or if they fail to provide meaningful exclusivity for our product candidates, it could dissuade companies from collaborating with us. We cannot offer any assurances about which, if any, patents will issue, the breadth of any such patents or whether any issued patents will be found invalid and unenforceable or will be threatened by third parties. Any successful challenge to these patents or any other patents owned by or licensed to us could deprive us of rights necessary for the successful commercialization of any product candidate that we may develop. Since patent applications in the United States and most other countries are confidential for a period of time after filing, and some remain so until issued, we cannot be certain that we were the first to file any patent application related to a product candidate.

For applications filed before March 16, 2013, or patents issuing from such applications, an interference proceeding can be provoked by a third party, or instituted by the USPTO to determine who was the first to invent any of the subject matter covered by the claims of our applications and patents. As of March 16, 2013, the United States transitioned to a “first-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 files a patent application in the USPTO before us could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by the third party. The change to “first-to-file” from “first-to-invent” is one of the changes to the patent laws of the United States resulting from the Leahy-Smith America Invents Act, or the Leahy-Smith Act, signed into law on September 16, 2011. Among some of the other significant changes to the patent laws are changes that limit where a patentee may file a patent infringement suit and provide opportunities for third parties to challenge any issued patent in the USPTO. It is not yet clear, what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act 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 and financial condition.

Patents granted by the European Patent Office may be opposed by any person within nine months from the publication of their grant and, in addition, may be challenged before national courts at any time. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from designing around our claims. Furthermore, due to the patent laws of a country, or the decisions of a patent examiner in a country, or our own filing strategies, we may not obtain patent coverage for all our product candidates or methods involving these product candidates in the parent patent application.

In addition, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after it is filed. Various extensions may be available; however, the life of a patent and the protection it affords is limited. If we encounter delays in obtaining regulatory approvals, the period of time during which we could market a product candidate under patent protection could be reduced. Even if patents covering our product candidates are obtained, once the patent life has expired for a product, we may be open to competition from generic and biosimilar products.

Obtaining and enforcing patents is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications or maintain and/or enforce patents that may issue based on our patent applications, at a reasonable cost or in a timely manner.

Any loss of patent protection could have a material adverse impact on our business. We may be unable to prevent competitors from entering the market with a product that is similar to or the same as our products.

We depend on our licensors to prosecute and maintain patents and patent applications that are material to our business. Any failure by our licensors to effectively protect these intellectual property rights could adversely impact our business and operations.*

Specific to the development of YH001 in North America, we hold an exclusive (including with respect to Eucure and its affiliates), nontransferable, license to develop and commercialize YH001 in North America for the treatment, through administration of YH001 by intravenous or subcutaneous means, of multiple human indications, including the Initial Indications or one or more of the Substitute Indications, which may be substituted for Initial Indications at our discretion. As it relates to the development of envafolimab for the treatment of sarcoma in North America, we hold an exclusive license from 3D Medicines and Alphamab to any and all intellectual property rights, including patents, copyrights, trademarks and know-how, claiming or covering envafolimab. We also hold a non-exclusive license for the conduct of clinical trials in the EU in support of the development of envafolimab for the treatment of sarcoma in North America.

As a licensee of third parties, we rely on these third parties to file and prosecute patent applications and maintain patents and otherwise protect the licensed intellectual property under some of our license agreements. We have not had and do not have primary control over these activities for certain of our patents or patent applications and other intellectual property rights. We cannot be certain that such activities by third parties have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents or other intellectual property rights. Pursuant to the terms of the license agreements with some of our licensors, the licensors may have the right to control enforcement of our licensed patents or defense of any claims asserting the invalidity of these patents and even if we are permitted to pursue such enforcement or defense, we will require the cooperation of our licensors. We cannot be certain that our licensors will allocate sufficient resources or prioritize their or our enforcement of such patents or defense of such claims to protect our interests in the licensed patents. Even if we are not a party to these legal actions, an adverse outcome could harm our business because it might prevent us from continuing to license intellectual property that we may need to operate our business.

Third party claims of intellectual property infringement or misappropriation may prevent or delay our development and commercialization efforts.

Our commercial success depends in part on us and our partners not infringing the patents and proprietary rights of third parties. There is a substantial amount of litigation and other proceedings, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions, reexamination and review proceedings before the USPTO and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent applications owned by third parties exist in the fields in which we and our partners are developing and may develop our product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may be subject to claims of infringement of the patent rights of third parties.

Third parties may assert that we are employing their proprietary technology without authorization. There may be third party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our product candidates, that we failed to identify. For example, applications filed before November 29, 2000 and certain applications filed after that date that will not be filed outside the United States remain confidential until issued as patents. Except for the preceding exceptions, patent applications in the United States and elsewhere are generally published only after a waiting period of approximately 18 months after the earliest filing. Therefore, patent applications covering our product candidates or methods of use of our product candidates could have been filed by others without our knowledge. Additionally, pending patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our product candidates or the use or manufacture of our product candidates.

The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we are sued for patent infringement, we would need to demonstrate that our product candidates, products or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid, and we may not be able to do this. Proving that a patent is invalid is difficult. For example, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Also, in proceedings before courts in Europe, the burden of proving invalidity of the patent usually rests on the party alleging invalidity. Third parties could bring claims against us that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial damages. Further, if a patent infringement suit were brought against us, we could be forced to stop or delay research, development, manufacturing or sales of the product or product candidate that is the subject of the suit.

If any third party patents were held by a court of competent jurisdiction to cover aspects of our materials, formulations, methods of manufacture or methods for treatment, the holders of any such patents would be able to block our ability to develop and commercialize the applicable product candidate until such patent expired or unless we or our partner obtain a license. These licenses may not be available on acceptable terms, if at all. Even if we or our partner were able to obtain a license, the rights may be nonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we or our partner could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we or our partner are unable to enter into licenses on acceptable terms.

Parties making claims against us or our partner may obtain injunctive or other equitable relief, which could effectively block our or our partner’s ability to further develop and commercialize one or more of our product candidates. Defending against claims of patent infringement or misappropriation of trade secrets could be costly and time consuming, regardless of the outcome. Thus, even if we were to ultimately prevail, or to settle at an early stage, such litigation could burden us with substantial unanticipated costs. In addition, litigation or threatened litigation could result in significant demands on the time and attention of our management team, distracting them from the pursuit of other company business. In the event of a successful claim of 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.

Third parties may submit applications for patent term extensions in the United States and/or supplementary protection certificates in the EU member states seeking to extend certain patent protection which, if approved, may interfere with or delay the launch of one or more of our products.

We may face a claim of misappropriation if a third party believes that we inappropriately obtained and used trade secrets of such third party. If we are found to have misappropriated a third party’s trade secrets, we may be prevented from further using such trade secrets, limiting our ability to develop our product candidates, and we may be required to pay damages.

During the course of any patent or other intellectual property litigation, there could be public announcements of the results of hearings, rulings on motions, and other interim proceedings in the litigation. If securities analysts or investors regard these announcements as negative, the perceived value of our product candidates or intellectual property could be diminished. Accordingly, the market price of our common stock may decline.

We may become involved in lawsuits to protect or enforce our inventions, patents or other intellectual property or the patent of our licensors, which could be expensive and time consuming.

Competitors may infringe our intellectual property, including our patents or the patents of our licensors. In addition, one or more of our third party collaborators may have submitted, or may in the future submit, a patent application to the USPTO without naming a lawful inventor that developed the subject matter in whole or in part while under an obligation to execute an assignment of rights to us. As a result, we may be required to file infringement or inventorship claims to stop third party infringement, unauthorized use, or to correct inventorship. This can be expensive, particularly for a company of our size, and time-consuming. Any claims that we assert against perceived infringers could also provoke these parties to assert counterclaims against us alleging that we infringe their intellectual property rights. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patent claims do not cover its technology or that the factors necessary to grant an injunction against an infringer are not satisfied.

An adverse determination of any litigation or other proceedings could put one or more of our patents at risk of being invalidated, held unenforceable or interpreted narrowly and could put our patent applications at risk of not issuing.

Interference, derivation or other proceedings brought at the USPTO or any foreign patent authority may be necessary to determine the priority or patentability of inventions with respect to our patent applications or those of our licensors or collaborators. Litigation or USPTO proceedings brought by us may fail. An unfavorable outcome in any such proceedings could require us to cease using the related technology or to attempt to license rights to it from the prevailing party, or could cause us to lose valuable intellectual property rights. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms, if any license is offered at all. Even if we are successful, domestic or foreign litigation or USPTO or foreign patent office proceedings may result in substantial costs and distraction to our management. We may not be able, alone or with our licensors or collaborators, to prevent misappropriation of our trade secrets, confidential information or proprietary rights, particularly in countries where the laws may not protect such rights as fully as in the United States.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or other proceedings, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation or proceedings. In addition, during the course of this kind of litigation or proceedings, there could be public announcements of the results of hearings, motions or other interim proceedings or developments or public access to related documents. If investors perceive these results to be negative, the market price for our common stock could be significantly harmed.

We have in-licensed a portion of our intellectual property, and, if we fail to comply with our obligations under these arrangements, we could lose such intellectual property rights or owe damages to the licensor of such intellectual property.*

We are a party to a number of license agreements that are important to our business, and we may enter into additional license agreements in the future. YH001 and associated intellectual property have been licensed from Eucure and Biocytogen and envafolimab and associated intellectual property have been licensed from 3D Medicines and Alphamab. Our existing license agreements impose, and we expect that future license agreements will impose, various diligence, milestone payment, royalty and other obligations on us. If there is any conflict, dispute, disagreement or issue of non-performance between us and our licensing partners regarding our rights or obligations under the license agreements, including any such conflict, dispute or disagreement arising from our failure to satisfy payment or diligence obligations under any such agreement, we may owe damages, our licensor may have a right to terminate the affected license, and our and our partners’ ability to utilize the affected intellectual property in our drug development efforts, and our ability to enter into collaboration or marketing agreements for a product candidate, may be adversely affected.

The failure of our partners to meet their contractual obligations to us could adversely affect our business.

Our reliance on our partners poses a number of additional risks, including the risk that they may not perform their contractual obligations to us to our standards, in compliance with applicable legal or contractual requirements, in a timely manner or at all; they may not maintain the confidentiality of our proprietary information; and disagreements or disputes could arise that could cause delays in, or termination of, the research, development or commercialization of product candidates or result in litigation or arbitration. For example, as previously disclosed, in June 2020, I-Mab commenced an arbitration proceeding after we invoked contractual dispute resolution provisions asserting that I-Mab had breached its contractual obligations under the two separate strategic collaboration and clinical trial agreements. In April 2023, we received notification from the arbitration tribunal of the final Arbitration Award to us. Any similar litigation, arbitration or adversarial proceedings and further disputes may be similarly prolonged and might result in substantial costs and may divert management’s attention and resources, which might seriously harm our business, reputation, overall financial condition and operating results.

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

Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States and in some cases may even force us to grant a compulsory license to competitors or other third parties. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but 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.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, 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 could result in substantial costs and divert our 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.

In addition, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in domestic and foreign intellectual property laws.

Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, 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, renewal fees, annuity fees and various other governmental fees on patents and applications will be due to be paid to the USPTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents and applications. The USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, 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. In such an event, our competitors might be able to use our technologies and this circumstance would have a material adverse effect on our business.

Risks Related to Commercialization of Product Candidates

Even if we obtain regulatory approval of product candidates, the products may not gain market acceptance among physicians, patients, hospitals, cancer treatment centers, third party payors and others in the medical community.

Factors that will influence whether product candidates are accepted in the market include:

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the clinical indications for which product candidates are approved, if any;

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physicians, hospitals, cancer treatment centers and patients considering product candidates as a safe and effective treatment;

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the potential and perceived advantages of product candidates over alternative treatments;

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the prevalence and severity of any side effects;

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product labeling or product insert requirements of the FDA or other regulatory authorities;

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limitations or warnings contained in the labeling approved by the FDA or other regulatory authorities;

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the timing of market introduction of product candidates as well as competitive products;

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the cost of treatment in relation to alternative treatments;

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the availability of coverage and adequate reimbursement by governmental and commercial third party payors;

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the willingness of patients to pay out-of-pocket in the absence of coverage by governmental and commercial third party payors;

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relative convenience and ease of administration, including as compared to alternative treatments and competitive therapies; and

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the effectiveness of our sales and marketing efforts.

If, for any of these or other reasons, product candidates fail to achieve market acceptance among physicians, patients, hospitals, cancer treatment centers, third party payors or others in the medical community, we will not be able to generate significant revenue. Even if our products achieve market acceptance, we may not be able to maintain that market acceptance over time if new products or technologies are introduced that are more favorably received than our products, are more cost effective or render our products obsolete.

Off-label use of approved drugs could adversely impact peak sales of our product candidates if approved, including Keytruda’s off-label use in UPS/MFS.

While no PD-(L)1 treatments are currently FDA approved in UPS/MFS or any other sarcoma subtype, Keytruda (pembrolizumab, marketed by Merck & Co.) has a compendia listing in UPS and is reimbursed for off-label use in UPS. The off-label use of Keytruda in UPS/MFS may adversely affect the peak net sales of envafolimab in UPS/MFS and other sarcoma subtypes, if envafolimab is approved by the FDA and commercialized in the United States. Similarly, while no CTLA-4 therapy is approved by the FDA for the treatment of soft tissue sarcoma, if YH001 is approved, it may nevertheless compete with the currently marketed CTLA-4 inhibitor ipilimumab (Yervoy, marketed by Bristol Myers Squibb), which is approved by the FDA in multiple indications other than soft tissue sarcoma.

We face competition both in the United States and internationally, including from major multinational pharmaceutical companies, biotechnology companies and universities and other research institutions.

Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis, products that are more effective or less costly than any product candidate that we may develop, or achieve earlier patent protection, regulatory approval, product commercialization and market penetration than we do. Additionally, technologies developed by our competitors may render our potential product candidates uneconomical or obsolete, and we may not be successful in marketing product candidates against competitors.

Under the terms of our license agreement with Case Western, we obtained an exclusive, worldwide license to certain patents, know-how and other intellectual property controlled by Case Western related to TRC102. Despite our exclusive license, Case Western retained the right to grant non-exclusive licenses to third parties in the same field of use as our exclusive license as a means to settle any intellectual property disputes Case Western may have in the future with such third parties. While Case Western has not made us aware of any present intent to exercise this right, there can be no guarantee that Case Western will not do so in the future or that it would not grant such a non-exclusive license to a competitor of ours seeking to develop and commercialize a product that is identical to TRC102 in the same field of use that we are pursuing. If this were to occur, and we did not have other intellectual property outside of the Case Western license agreement to prevent competitive products for the same indications, we may face competition much earlier than we currently anticipate and the value of TRC102 may decline substantially.

Even if we are successful in achieving regulatory approval to commercialize a product candidate faster than our competitors, we may face competition from “biosimilars” due to the changing regulatory environment. In the United States, the Biologics Price Competition and Innovation Act created an abbreviated approval pathway for biological products that are demonstrated to be “highly similar,” or “biosimilar,” to or “interchangeable” with an FDA-approved biological product. This pathway could allow competitors to reference data from biological products already approved after 12 years from the time of approval. Future FDA standards or criteria for determining biosimilarity and interchangeability, and FDA discretion to determine the nature and extent of product characterization, non-clinical testing and clinical testing on a product-by-product basis, may further facilitate the approval of biosimilar products and their ability to compete with our product candidates or those of our partners. In addition, companies may be developing biosimilars in other countries that could compete with our products. If competitors are able to obtain marketing approval for biosimilars referencing our products, our products may become subject to competition from such biosimilars, with the attendant competitive pressure and consequences. Any such event or further changes in the law could decrease the period for which we have exclusivity and consequently negatively impact our business and competitive position. Expiration or successful challenge of our applicable patent rights could also trigger competition from other products, assuming any relevant exclusivity period has expired.

Finally, as a result of the expiration or successful challenge of our patent rights, we could face litigation with respect to the validity and/or scope of patents relating to our competitors’ products. The availability of our competitors’ products could limit the demand, and the price we are able to charge, for any products that we may develop and commercialize.

Coverage and reimbursement may be limited or unavailable in certain market segments for product candidates, which could make it difficult for us to sell product candidates profitably.

Successful sales of our product candidates, if approved, depend on the availability of coverage and adequate reimbursement from third party payors. In addition, because our product candidates and those of our partners represent new approaches to the treatment of cancer, we cannot accurately estimate the potential revenue from these product candidates.

Patients who are provided medical treatment for their conditions generally rely on third party payors to reimburse all or part of the costs associated with their treatment. Coverage and adequate reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payors are critical to new product acceptance.

Government authorities and other third party payors, such as commercial health insurers and health maintenance organizations, decide which drugs and treatments they will cover and the amount of reimbursement. Coverage and reimbursement by a third party payor may depend upon a number of factors, including, but not limited to, the third party payor’s determination that use of a product is:

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a covered benefit under its health plan;

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safe, effective and medically necessary;

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appropriate for the specific patient;

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cost-effective; and

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neither experimental nor investigational.

In the United States, no uniform policy of coverage and reimbursement for products exists among third party payors. Therefore, coverage and reimbursement for products can differ significantly from payor to payor. Obtaining coverage and reimbursement approval of a product from a government or other third party payor is a time-consuming and costly process that could require us to provide supporting scientific, clinical and cost-effectiveness data to each payor separately for the use of our products, with no assurance that coverage and adequate reimbursement will be obtained. Even if we obtain coverage for a given product, the resulting reimbursement rates might not be adequate for us to achieve or sustain profitability or may require co-payments that patients find unacceptably high. Patients are unlikely to use product candidates unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of product candidates. Further, coverage policies and third-party payor reimbursement rates may change at any time. Therefore, even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

We intend to seek approval to market product candidates in both the United States and in selected foreign jurisdictions. If we obtain approval in one or more foreign jurisdictions for product candidates, we will be subject to rules and regulations in those jurisdictions. In some foreign countries, particularly those in the EU, the pricing of biologics is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after obtaining marketing approval of a product candidate. In addition, market acceptance and sales of product candidates will depend significantly on the availability of coverage and adequate reimbursement from third party payors for product candidates.

Healthcare legislative reform measures may have a material adverse effect on our business and results of operations.*

Third party payors, whether domestic or foreign, or governmental or commercial, and governments are developing increasingly sophisticated methods of controlling healthcare costs. In both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory changes to the health care system that could impact our ability to sell our products profitably. In particular, in 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, collectively, the ACA, was enacted in the United States. Since its enactment, there have been executive, judicial and Congressional challenges to certain aspects of the ACA. For example, legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act of 2017 (Tax Act) includes a provision which repealed, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” Additionally, on June 17, 2021 the U.S. Supreme Court dismissed a challenge on procedural grounds that argued the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress. Further, prior to the U.S. Supreme Court ruling, on January 28, 2021, President Biden issued an executive order that initiated a special enrollment period for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. In addition, on August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (the IRA), into law, which among other things, extends enhanced subsidies for individuals purchasing health insurance coverage in ACA marketplaces through plan year 2025. The IRA also eliminates the “donut hole” under the Medicare Part D program beginning in 2025 by significantly lowering the beneficiary maximum out-of-pocket cost and through a newly established manufacturer discount program. It is possible that the ACA will be subject to judicial or Congressional challenges in the future. It is unclear how any such challenges and the healthcare reform measures of the Biden administration will impact the ACA and our business.

Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. In August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers up to 2% per fiscal year, which went into effect in April 2013 and, due to subsequent legislative changes to the statute will remain in effect until 2032 unless additional Congressional action is taken. In January 2013, former U.S. President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

There has been heightened governmental scrutiny over pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent 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 products. In July 2021, the Biden administration released an executive order, “Promoting Competition in the American Economy,” with multiple provisions aimed at prescription drugs. In response to Biden’s executive order, on September 9, 2021, the Department of Health and Human Services, or HHS, released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies that Congress could pursue to advance these principles. In addition, the IRA, among other things, (1) directs HHS to negotiate the price of certain single-source drugs and biologics covered under Medicare and (2) imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation. The IRA permits HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial years. HHS has and will continue to issue and update guidance as these programs are implemented. These provisions will take effect progressively starting in fiscal year 2023, although the Medicare drug price negotiation program is currently subject to legal challenges. It is currently unclear how the IRA will be implemented but it is likely to have a significant impact on the pharmaceutical industry. In addition, in response to the Biden administration’s October 2022 executive order, on February 14, 2023, HHS released a report outlining three new models for testing by the Center for Medicare and Medicaid Innovation which will be evaluated on their ability to lower the cost of drugs, promote accessibility, and improve quality of care. It is unclear whether the models will be utilized in any health reform measures in the future. 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, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors, which may adversely affect our future profitability. We cannot predict the initiatives that may be adopted in the future. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare and/or impose price controls may adversely affect:

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the demand for product candidates, if we obtain regulatory approval;

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our ability to set a price that we believe is fair for our products;

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our ability to obtain market acceptance in the medical community;

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our ability to generate revenue and achieve or maintain profitability;

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the level of taxes that we are required to pay; and

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the availability of capital.

We cannot predict whether future healthcare initiatives will be implemented at the federal or state level or in countries outside of the United States in which we may do business in the future, or the effect any future legislation or regulation will have on us.

If we obtain approval to commercialize any approved products outside of the United States, a variety of risks associated with international operations could materially adversely affect our business.

If any product candidates are approved for commercialization, we expect that we or our partners will be subject to additional risks related to entering into international business relationships, including:

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different regulatory requirements for drug approvals in foreign countries;

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different payor reimbursement regimes, governmental payors or patient self-pay systems and price controls;

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reduced protection for intellectual property rights;

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unexpected changes in tariffs, trade barriers and regulatory requirements, including the significant sanctions and export controls imposed against Russia, Russian banks and certain Russian individuals by the United States, United Kingdom and EU, along with others;

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economic weakness, including inflation, or political instability in particular foreign economies and markets;

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compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

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foreign taxes, including withholding of payroll taxes;

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foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country;

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workforce uncertainty in countries where labor unrest is more common than in the United States;

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production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and

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business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires.

If we or our partners outside of the United States are unable to successfully manage these risks associated with international operations, the market potential for our product candidates or those of our partners outside the United States will be limited and our results of operations may be harmed.

Risks Related to Our Business and Industry

If we fail to develop, acquire or in-license other product candidates or products, our business and prospects will be limited.*

We do not have internal new drug discovery capabilities or a technology platform with which to develop novel product candidates. Unless we develop or acquire these capabilities or a technology platform, our only means of expanding our product pipeline will be to acquire or in-license product candidates that complement or augment our current targets, or that otherwise fit into our development or strategic plans on terms that are acceptable to us. In addition, part of our corporate strategy is to leverage our existing internal clinical development and regulatory capabilities by entering into collaborations where we conduct development activities related to third party product candidates in exchange for commercialization and payment rights, such as our collaborations with Eucure and Biocytogen with respect to YH001 and 3D Medicines and Alphamab with respect to envafolimab. Identifying, selecting and acquiring or licensing promising product candidates requires substantial technical, financial and human resources. Efforts to do so may not result in the actual development, acquisition or license of a particular product candidate, potentially resulting in a diversion of our management’s time and the expenditure of our resources with no resulting benefit. With respect to envafolimab, 3D Medicines and Alphamab retain certain rights to reacquire the rights for sarcoma in North America in connection with an arm’s length sale to a third party of the rights to develop and commercialize envafolimab in North America for all indications. While we and 3D Medicines and Alphamab must negotiate in good faith and agree to fair compensation be paid to us for the value of and opportunity represented by the reacquired rights, we cannot guarantee that any compensation paid to us would adequately cover our investments in the program, the present value of the rights to us or our opportunity costs as a result of having advanced the program prior to reacquisition. Also, in the event that envafolimab is first approved in North America for sarcoma and within three years of the commercial launch of envafolimab in North America for sarcoma 3D Medicines and Alphamab replace us as the party responsible for commercialization, and we do not co-market envafolimab for sarcoma in North America, then 3D Medicine and Alphamab will be required to compensate us for our costs associated with preparing for and conducting commercial activities. However, we may not be able to agree with 3D Medicines and Alphamab on adequate compensation and cannot guarantee that any agreed-upon compensation would adequately cover our investments in commercializing envafolimab in North America or our lost opportunity costs in pursuing commercialization. If we are unable to retain existing product candidates and add additional product candidates to our pipeline, we may not be able to execute on an important part of our business strategy and our long-term business and prospects will be limited.

We and our partners are subject to extensive federal, state, and foreign regulation, and our failure to comply with healthcare laws could harm our business.*

Although we do not currently have any products on the market, we and our partners are subject to healthcare regulation and enforcement by the federal government and the states and foreign jurisdictions in which we conduct our business. The healthcare laws that may affect our ability to operate include:

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the federal anti-kickback statute, which applies to our business activities, including our research, marketing practices, educational programs, pricing policies and relationships with healthcare providers, by prohibiting, among other things, knowingly and willfully soliciting, receiving, offering or providing any remuneration (including any bribe, kickback or rebate) directly or indirectly, overtly or covertly, in cash or in kind, intended to induce or in return for the purchase or recommendation of any good, facility item or service reimbursable, in whole or in part, under a federal healthcare program, such as the Medicare or Medicaid programs;

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federal civil and criminal false claims laws, including the federal False Claims Act, and federal civil monetary penalty law that prohibit, among other things, knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other governmental healthcare programs that are false or fraudulent, or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;

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the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created federal criminal laws that prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;

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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and its implementing regulations, imposes certain regulatory and contractual requirements on covered entities, and their business associates and subcontractors that create, receive, maintain or transmit individually identifiable health information for or on their behalf, as well as their covered subcontractors, regarding the privacy, security and transmission of individually identifiable health information;

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federal “sunshine” requirements imposed by the ACA on certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to CMS information regarding any payments and other transfers of value provided to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), other healthcare professionals (such as nurse practitioners and physicians assistants), and teaching hospitals, as well as ownership and investment interests held by such physicians and their immediate family members; and

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state or foreign law equivalents of each of the above federal laws that may apply to items or services reimbursed by any third party payor, including commercial insurers; state laws that require pharmaceutical companies to comply with the industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; state laws that require the reporting of information relating to drug and biologic pricing; state and local laws that require the registration of pharmaceutical sales representatives; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.

It is possible that some of our business activities could be subject to challenge under one or more of such laws. In addition, recent health care reform legislation has strengthened certain of these laws. For example, the ACA, among other things, amended the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of these statutes or specific intent to violate them to have committed a violation. Moreover, the ACA provides that the government may 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 federal False Claims Act.

We are also 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. There are foreign and state law versions of these laws and regulations to which we are currently and/or may in the future, be subject. For example, the collection and use of personal health data in the EU is governed by the General Data Protection Regulation, or the EU GDPR. The EU GDPR, which is wide-ranging in scope, imposes several requirements relating to the consent of the individuals to whom the personal data relates, the information provided to the individuals, the security and confidentiality of the personal data, data breach notification and the use of third party processors in connection with the processing of personal data. The EU GDPR also imposes strict rules on the transfer of personal data out of the EU to the United States, provides an enforcement authority and imposes large monetary penalties for noncompliance. The EU GDPR requirements apply not only to third party transactions, but also to transfers of information within our company, including employee information. The EU GDPR and similar data privacy laws of other jurisdictions place significant responsibilities on us and create potential liability in relation to personal data that we or our third party vendors process, including in clinical trials conducted in the United States and EU. In addition, we expect that there will continue to be new proposed laws, regulations and industry standards relating to privacy and data protection in the United States, the EU and other jurisdictions, and we cannot determine the impact such future laws, regulations and standards may have on our business.

Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. 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 without limitation, significant administrative, civil and criminal penalties, damages, fines, disgorgement, contractual damages, reputational harm, imprisonment, exclusion from governmental health care programs, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our financial results.

We face potential product liability, and, if successful claims are brought against us, we may incur substantial liability.

The use of product candidates in clinical trials and the sale of any products for which we obtain marketing approval exposes us to the risk of 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 product candidates or those of our partners. If we cannot successfully defend against product liability claims, we could incur substantial liability and costs. In addition, regardless of merit or eventual outcome, product liability claims may result in:

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impairment of our business reputation;

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withdrawal of clinical trial participants;

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costs due to related litigation;

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distraction of management’s attention from our primary business;

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substantial monetary awards to patients or other claimants;

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the inability to commercialize product candidates; and

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decreased demand for product candidates, if approved for commercial sale.

We currently carry product liability insurance covering our clinical trials with limits we believe are customary for other companies in our field and stage of development. Our current product liability insurance coverage may not be sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive and in the future we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. If we obtain marketing approval for product candidates, we intend to expand our insurance coverage to include the sale of commercial products; however, we may be unable to obtain product liability insurance on commercially reasonable terms or in adequate amounts. On occasion, large judgments have been awarded in class action lawsuits based on drugs that had unanticipated adverse effects. A successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could adversely affect our results of operations and business.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

As of December 31, 2022, we had federal and California NOL carryforwards of $194.3 million and $144.5 million, respectively. The federal and California NOL carryforwards will begin to expire in 2030 and 2033, respectively, if not utilized. The federal NOL generated after 2017 of $111.1 million will carryforward indefinitely, but the deductibility of such federal NOLs is limited to 80% of taxable income. As of December 31, 2022, we also had federal research and development and Orphan Drug tax credit carryforwards of $13.7 million and California research and development tax credit carryforwards of $3.0 million. The federal research and development and Orphan Drug tax credit carryforwards will begin expiring in 2031 and 2036, respectively, if not utilized. The California research credit will carry forward indefinitely under current law. Under Sections 382 and 383 of Internal Revenue Code of 1986, as amended (Code), if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes, such as research tax credits, to offset its post-change income and taxes may be limited. In general, an “ownership change” occurs if there is a cumulative change in our ownership by “5% shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. We believe we have experienced certain ownership changes in the past and have reduced our deferred tax assets related to NOLs and research and development tax credit carryforwards accordingly. In the event we experience one or more ownership changes as a result of future transactions in our stock, then we may be further limited in our ability to use our NOLs and other tax assets to reduce taxes owed on the net taxable income that we earn in the event that we attain profitability. Any such limitations on the ability to use our NOLs and other tax assets could adversely impact our business, financial condition and operating results in the event that we attain profitability. In addition, at the state level, there may be periods during which the use of NOL carryforwards is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.

New or future changes to tax laws could materially adversely affect us.

New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, which could adversely affect our business operations and financial performance. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us. For example, the Tax Act enacted many significant changes to the U.S. tax laws. Future guidance from the Internal Revenue Service and other tax authorities with respect to the Tax Act may affect us, and certain aspects of the Tax Act could be repealed or modified in future legislation. For example, the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), modified certain provisions of the Tax Act and the recently enacted IRA, includes provisions that will impact the U.S. federal income taxation of corporations, including imposing a minimum tax on the book income of certain large corporations and an excise tax on certain corporate stock repurchases that would be imposed on the corporation repurchasing such stock. In addition, it is uncertain if and to what extent various states will conform to the Tax Act, the CARES Act, the IRA or any newly enacted federal tax legislation. The impact of such legislation and any future changes in tax laws on holders of our common stock is also uncertain and could be adverse.

If we fail to attract and keep senior management and key clinical operations and regulatory personnel, we may be unable to successfully develop product candidates and execute our business strategy.

We are highly dependent on members of our senior management, including Charles Theuer, M.D., Ph.D., our President and Chief Executive Officer. Our clinical development strategy and ability to directly manage or oversee our on-going and planned clinical trials are also dependent on the members of our clinical operations and regulatory team. The loss of the services of any of these persons could impede the development of product candidates and our ability to execute our business strategy. We may be particularly impacted by the unexpected loss of employees due to our small employee base and limited ability to quickly shift responsibilities to other employees in our organization. We do not maintain “key person” insurance for any of our executives or other employees.

Recruiting and retaining other qualified employees for our business, including scientific, quality assurance and technical personnel, will also be critical to our success. There is currently a shortage of skilled executives in our industry, which is likely to continue, making recruitment and retention competitive. Competition for skilled personnel is intense, particularly in the San Diego, California area, 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 companies for individuals with similar skill sets. The inability to recruit or loss of the services of any executive or key employee could impede the progress of our development and strategic objectives. In response to competition, rising inflation rates and labor shortages, we may need to adjust employee cash compensation, which would affect our operating costs and our margins, or equity compensation, which would affect our outstanding share count and cause dilution to existing stockholders.

Unfavorable U.S. and global economic conditions could adversely affect our business, financial condition or results of operations.

Our results of operations could be adversely affected by general conditions in the U.S. and global economies, the U.S. and global financial markets and adverse macroeconomic and geopolitical developments. U.S. and global market and economic conditions have been, and continue to be, disrupted and volatile due to many factors, including the recent COVID-19 pandemic, material shortages and related supply chain challenges, recent and potential future bank failures, geopolitical developments such as the conflict between Ukraine and Russia or the recent state of war between Israel and Hamas and the related risk of a larger regional conflict, and higher inflation rates and the responses by central banking authorities to control such inflation, among others. General business and economic conditions that could affect business, financial condition or results of operations include fluctuations in economic growth, debt and equity capital markets, liquidity of the global financial markets, the availability and cost of credit, investor and consumer confidence, and the strength of the economies in which we, our collaborators, our manufacturers and our suppliers operate.

A severe or prolonged global economic downturn could result in a variety of risks to our business. For example, inflation rates, particularly in the United States, have increased recently to levels not seen in years, and increased inflation may result in increases in our operating costs (including our labor costs), reduced liquidity and limits on our ability to access credit or otherwise raise capital on acceptable terms, if at all. In addition, the U.S. Federal Reserve has raised, and may again raise, interest rates in response to concerns about inflation, which coupled with reduced government spending and volatility in financial markets may have the effect of further increasing economic uncertainty and heightening these risks. Risks of a prolonged global economic downturn are particularly true in Europe, which is undergoing a continued severe economic crisis. A weak or declining economy could also strain our suppliers and manufacturers, possibly resulting in supply and clinical trial disruption. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.

Additionally, financial markets around the world experienced volatility following the invasion of Ukraine by Russia in February 2022. In response to the invasion, the United States, United Kingdom and EU, along with others, imposed significant new sanctions and export controls against Russia, Russian banks and certain Russian individuals and may implement additional sanctions or take further punitive actions in the future. The full economic and social impact of the sanctions imposed on Russia (as well as possible future punitive measures that may be implemented), as well as the counter measures imposed by Russia, in addition to the ongoing military conflict between Ukraine and Russia, which could conceivably expand into the surrounding region, remains uncertain; however, both the conflict and related sanctions have resulted and could continue to result in disruptions to trade, commerce, pricing stability, credit availability and/or supply chain continuity in both Europe and globally, and has introduced significant uncertainty into global markets. In particular, the Russia-Ukraine conflict has contributed to rapidly rising costs of living (driven largely by higher energy prices) in Europe and other advanced economies. Further, a weak or declining economy could strain our suppliers, manufacturers and collaborators, possibly resulting in additional supply disruption for our product candidates and delays to our clinical trials. As a result, our business and results of operations may be adversely affected by the ongoing conflict between Ukraine and Russia, particularly to the extent it escalates to involve additional countries, further economic sanctions or wider military conflict. If economic conditions in Europe and other key markets for our business and the business of our suppliers, manufacturers and collaborators remain uncertain or deteriorate further, we could experience adverse effects on our business, financial condition or results of operations.

Risks Related to Our Common Stock

The market price of our common stock may be highly volatile, and our stockholders may not be able to resell their shares at a desired market price and could lose all or part of their investment.*

Even though our common stock trades on the Nasdaq Capital Market, we cannot assure you that an active, liquid trading market for our shares will develop or persist. Our stockholders may not be able to sell their shares quickly or at a recently reported market price if trading in our common stock is not active. The trading price of our common stock has been, and is likely to continue to be, volatile. Our stock price could be subject to wide fluctuations in response to a variety of factors, including the following:

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adverse results or delays in clinical trials;

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inability to obtain additional funding;

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any delay in submitting a BLA or an NDA for any product candidates and any adverse development or perceived adverse development with respect to the FDA’s review of that marketing application;

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failure to successfully develop and commercialize product candidates;

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changes in laws or regulations applicable to product candidates;

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changes in the structure of healthcare payment systems;

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inability to obtain adequate product supply for product candidates, or the inability to do so at acceptable prices;

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adverse regulatory decisions;

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introduction of new products or technologies by our competitors;

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failure to meet or exceed product development or financial projections we provide to the public;

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failure to meet or exceed the estimates and projections of the investment community;

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

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

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failure to maintain our collaboration and clinical trial agreements;

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failure of 3D Medicines or Alphamab to perform their obligations under our collaboration and clinical trial agreements, or the actions of 3D Medicines or Alphamab or their other partners with respect to envafolimab in other indications or outside North America;

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failure of Eucure and Biocytogen to perform their obligations under our collaborative development and commercialization agreement, or the actions of Eucure or Biocytogen or their other partners with respect to YH001 in other indications or outside North America, or within North America in combination with other Eucure product candidates;

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

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additions or departures of key scientific or management personnel;

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significant lawsuits, including patent or stockholder litigation;

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changes in the market valuations of similar companies;

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the impact of macroeconomic and geopolitical events, such as general political, health and economic conditions, including recent and potential future bank failures, economic slowdowns, recessions, inflation, rising interest rates and tightening of credit markets on our business;

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sales of our common stock by us or our stockholders in the future, in particular any sales by significant stockholders or our affiliates; and

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trading volume of our common stock.

In addition, the stock market in general, and the Nasdaq Capital Market in particular, have experienced extreme price and volume fluctuations, and we have in the past experienced volatility that has been unrelated or disproportionate to our operating performance. From January 1, 2022 through November 3, 2023, the closing price of our common stock has ranged between $0.13 and $3.00 per share. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance.

If we fail to continue to meet all applicable listing requirements, our common stock may be delisted from the Nasdaq Capital Market, which could have an adverse impact on the liquidity and market price of our common stock.*

Our common stock is currently listed on the Nasdaq Capital Market, which has qualitative and quantitative listing criteria. If we are unable to meet all of the Nasdaq continued listing requirements and at least one of the Nasdaq continued listing standards in the future, including if the closing bid price for our common stock falls below $1.00 per share for 30 consecutive trading days (the Minimum Bid Price Requirement), or if we are unable to maintain at least $2.5 million in stockholders’ equity or a market capitalization of at least $35 million, Nasdaq could determine to delist our common stock. For example, on June 8, 2023, we received letters (Notices) from the Listing Qualifications staff (the Staff) of the Nasdaq Stock Market LLC (Nasdaq) notifying us that (i) for 30 consecutive business days preceding the date of the Notices, the market value of our common stock was less than $35.0 million, which does not meet the requirement for continued listing on the Nasdaq Capital Market, as required by Nasdaq Listing Rule 5550(b)(2) (the Market Value Rule), and (ii) for 30 consecutive business days preceding the date of the Notices, the closing bid price of our common stock was below $1.00 per share, which is the minimum required closing bid price for continued listing on the Nasdaq Capital Market pursuant to Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”).

In accordance with Nasdaq Listing Rule 5810(c)(3)(C) and Nasdaq Listing Rule 5810(c)(3)(A), Nasdaq has provided us with 180 calendar days, or until December 5, 2023, to regain compliance with the Market Value Rule and the Minimum Bid Price Requirement. If we regain compliance with the Market Value Rule and the Minimum Bid Price Requirement, Nasdaq will provide us with written confirmation and close the matter. If we fail to satisfy the Nasdaq requirements for continued listing, our common stock may become subject to delisting. If that were to happen, we may not be able to regain compliance. If we cannot regain compliance after any such notice and if our common stock is delisted by Nasdaq, it could lead to a number of negative implications, including an adverse effect on the price of our common stock, increased volatility in our common stock, reduced liquidity in our common stock, the loss of federal preemption of state securities laws and greater difficulty in obtaining financing. In addition, delisting of our common stock could deter broker-dealers from making a market in or otherwise seeking or generating interest in our common stock, could result in a loss of current or future coverage by certain sell-side analysts and might deter certain institutions and persons from investing in our securities at all. Delisting could also cause a loss of confidence of our collaborators, vendors, suppliers and employees, which could harm our business and future prospects.

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

We expect that significant additional capital will be needed in the future to continue our planned operations. To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. We may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. These sales may also result in material dilution to our existing stockholders, and new investors could gain rights superior to our existing stockholders.

We do not intend to pay dividends on our common stock so any returns will be limited to the value of our stock.*

We have never declared or paid any cash dividend on our common stock. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future.

Provisions in our amended and restated certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders or remove our current management.

Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders and may prevent attempts by our stockholders to replace or remove our current management. These provisions include:

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authorizing the issuance of “blank check” preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval;

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limiting the removal of directors by the stockholders;

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creating a staggered board of directors;

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prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders;

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eliminating the ability of stockholders to call a special meeting of stockholders; and

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establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings.

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 members of our board of directors, which is responsible for appointing the members of our management. In addition, we are subject to Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with an interested stockholder for a period of three years following the date on which the stockholder became an interested stockholder, unless such transactions are approved by our board of directors. This provision could have the effect of delaying or preventing a change of control, whether or not it is desired by or beneficial to our stockholders. Further, other provisions of Delaware law may also discourage, delay or prevent someone from acquiring us or merging with us.

Confidentiality agreements with employees and third parties may not prevent unauthorized disclosure of trade secrets and other proprietary information.

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 development processes that involve proprietary know-how or information that is not covered by patents. However, trade secrets can be difficult to protect. We seek to protect our proprietary processes, in part, by entering into confidentiality agreements with our employees, consultants, and outside scientific advisors, contractors and collaborators. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, or outside scientific advisors might intentionally or inadvertently disclose our trade secret information to competitors. In addition, competitors may otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques.

General Risk Factors

We are subject to stringent and evolving U.S. and foreign laws, regulations, rules, contractual obligations, policies and other obligations related to data privacy and security. Our actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions; litigation; fines and penalties; disruptions of our business operations, reputational harm; loss of revenue or profits; and other adverse business consequences.

In the ordinary course of business, we collect, receive, store, process, generate, use, transfer, disclose, make accessible, protect, secure, dispose of, transmit, and share (collectively, process) personal data and other sensitive information, including proprietary and confidential business data, trade secrets, intellectual property, data we collect about trial participants in connection with clinical trials, sensitive third-party data, business plans, transactions, and financial information (collectively, sensitive data).

Our data processing activities may subject us to numerous data privacy and security obligations, such as various laws, regulations, guidance, industry standards, external and internal privacy and security policies, contractual requirements, and other obligations relating to data privacy and security.

In the United States, federal, state, and local governments have enacted numerous data privacy and security laws, including data breach notification laws, personal data privacy laws, consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act), and other similar laws (e.g., wiretapping laws). For example, the California Consumer Privacy Act of 2018(CCPA), applies to personal information of consumers, business representatives, and employees, and requires businesses to provide specific disclosures in privacy notices and honor requests of California residents to exercise certain privacy rights. The CCPA provides for civil penalties for noncompliance (up to $7,500 per violation) and allows private litigants affected by certain data breaches to recover significant statutory damages. In addition, it the California Privacy Rights Act of 2020 (CPRA), expands the CCPA’s requirements, including by adding a new right for individuals to correct their personal information and establishing a new regulatory agency to implement and enforce the law.

Other states, such as Virginia and Colorado, have also passed comprehensive privacy laws, and similar laws are being considered in several other states, as well as at the federal and local levels. These developments may further complicate compliance efforts, and increase legal risk and compliance costs for us and the third parties upon which we rely.

Outside the United States, an increasing number of laws, regulations, and industry standards may govern data privacy and security. For example, the European Union’s General Data Protection Regulation (EU GDPR) and the United Kingdom’s GDPR (UK GDPR) impose strict requirements for processing personal data.

For example, under the EU GDPR, companies may face temporary or definitive bans on data processing and other corrective actions; fines of up to 20 million Euros or 4% of annual global revenue, whichever is greater; or private litigation related to processing of personal data brought by classes of data subjects or consumer protection organizations authorized at law to represent their interests.

In addition, we may be unable to transfer personal data from Europe and other jurisdictions to the United States or other countries due to data localization requirements or limitations on cross-border data flows. Europe and other jurisdictions have enacted laws requiring data to be localized or limiting the transfer of personal data to other countries. In particular, the European Economic Area (EEA) and the United Kingdom (UK) have significantly restricted the transfer of personal data to the United States and other countries whose privacy laws it believes are inadequate. Other jurisdictions may adopt similarly stringent interpretations of their data localization and cross-border data transfer laws. Although there are currently various mechanisms that may be used to transfer personal data from the EEA and UK to the United States in compliance with law, such as the EEA and UK’s standard contractual clauses, these mechanisms are subject to legal challenges, and there is no assurance that we can satisfy or rely on these measures to lawfully transfer personal data to the United States. If there is no lawful manner for us to transfer personal data from the EEA, the UK, or other jurisdictions to the United States, or if the requirements for a legally-compliant transfer are too onerous, we could face significant adverse consequences, including the interruption or degradation of our operations, the need to relocate part of or all of our business or data processing activities to other jurisdictions at significant expense, increased exposure to regulatory actions, substantial fines and penalties, the inability to transfer data and work with partners, vendors and other third parties, and injunctions against our processing or transferring of personal data necessary to operate our business. Additionally, companies that transfer personal data out of the EEA and UK to other jurisdictions, particularly to the United States, are subject to increased scrutiny from regulators, individual litigants, and activities groups. Some European regulators have ordered certain companies to suspend or permanently cease certain transfers of personal data out of Europe for allegedly violating the GDPR’s cross-border data transfer limitations.

Obligations related to data privacy and security are quickly changing becoming increasingly stringent, and creating regulatory uncertainty Additionally, these obligations may be subject to differing applications and interpretations, which may be inconsistent or in conflict among jurisdictions. Preparing for and complying with these obligations requires us to devote significant resources and may necessitate changes to our services, information technologies, systems, and practices and to those of any third parties that process personal data on our behalf.

We may at times fail (or be perceived to have failed) in our efforts to comply with our data privacy and security obligations. Moreover, despite our efforts, our personnel or third parties upon whom we rely may fail to comply with such obligations. If we or the third parties upon which we rely fail, or are perceived to have failed, to address or comply with applicable data privacy and security obligations, we could face significant consequences, including but not limited to: government enforcement actions (e.g., investigations, fines, penalties, audits, inspections and similar); litigation (including class-action claims); additional reporting requirements and/or oversight; bans on processing personal data; and orders to destroy or not use personal data. Any of these events could have a material adverse effect on our reputation, business, or financial condition, including but not limited to: loss of customers; interruptions or stoppages in our business operations (including clinical trials); inability to process personal data or to operate in certain jurisdictions; limited ability to develop or commercialize our products; expenditure of time and resources to defend any claim or inquiry; adverse publicity; or substantial changes to our business model or our operations.

If our information technology systems or data, or those of third parties upon which we rely, are or were compromised, we could experience adverse consequences resulting from such compromise, including but not limited to interruptions to our operations such as our clinical trials; regulatory investigations or actions; litigation; fines and penalties; disruptions of our business operations; reputational harm; loss of revenue or profits; and other adverse consequences.

In the ordinary course of our business, we and the third parties upon which we rely, process sensitive data, and, as a result, we and the third parties upon which we rely face a variety of evolving threats, including, but not limited to ransomware attacks, which could cause security incidents. Cyber-attacks, malicious internet-based activity, online and offline fraud, and other similar activities threaten the confidentiality, integrity, and availability of our sensitive data and information technology systems, and those of the third parties upon which we rely. Such threats are prevalent and continue to rise, are increasingly difficult to detect, and come from a variety of sources, including traditional computer “hackers,” threat actors, “hacktivists,” organized criminal threat actors, personnel (such as through theft or misuse), sophisticated nation states, and nation-state-supported actors.

Some actors now engage and are expected to continue to engage in cyber-attacks, including without limitation nation-state actors for geopolitical reasons and in conjunction with military conflicts and defense activities. During times of war and other major conflicts, we and the third parties upon which we rely may be vulnerable to a heightened risk of these attacks, including retaliatory cyber-attacks, that could materially disrupt our systems and operations, supply chain, and ability to produce, sell and distribute our services.

We and the third parties upon which we rely are subject to a variety of evolving threats, including but not limited to social-engineering attacks (including through phishing attacks), malicious code (such as viruses and worms), malware (including as a result of advanced persistent threat intrusions), denial-of-service attacks (such as credential stuffing), credential harvesting, personnel misconduct or error, ransomware attacks, supply-chain attacks, software bugs, server malfunctions, software or hardware failures, loss of data or other information technology assets, adware, telecommunications failures, earthquakes, fires, floods, and other similar threats. In particular, severe ransomware attacks are becoming increasingly prevalent and can lead to significant interruptions in our operations, loss of sensitive data and income, reputational harm, and diversion of funds. Extortion payments may alleviate the negative impact of a ransomware attack, but we may be unwilling or unable to make such payments due to, for example, applicable laws or regulations prohibiting such payments. Remote work has become more common and has increased risks to our information technology systems and data, as more of our employees utilize network connections, computers, and devices outside our premises or network, including working at home, while in transit and in public locations. Additionally, future or past business transactions (such as acquisitions or integrations) could expose us to additional cybersecurity risks and vulnerabilities, as our systems could be negatively affected by vulnerabilities present in acquired or integrated entities’ systems and technologies. Furthermore, we may discover security issues that were not found during due diligence of such acquired or integrated entities, and it may be difficult to integrate companies into our information technology environment and security program.

Third party sites that take part in clinical trials we sponsor or third parties that are also sponsoring clinical trials involving our product candidates or those of our partners, such as NCI and Case Western, face similar threats and any security breach of their systems could adversely affect us. Security breaches could be particularly harmful to our business due to our reliance on internal clinical development functions and systems to conduct our clinical trials. For example, for clinical trials that we conduct, we rely on third party hosted software to manage the resulting clinical data. While the third party vendor is obligated to back up our clinical data on its servers, we do not independently back up our clinical data, and a loss of our clinical data by the third party vendor could result in delays in our development programs, cause us to breach our obligations to our third party collaborators, and significantly increase our costs to recover or reproduce the data.

Any of the previously identified or similar threats could cause a security incident or other interruption that could result in unauthorized, unlawful, or accidental acquisition, modification, destruction, loss, alteration, encryption, disclosure of, or access to our sensitive data or our information technology systems, or those of the third parties upon which we rely. A security incident or other interruption could disrupt our ability (and that of third parties upon which we rely) to provide our clinical development activities.

We may expend significant resources or modify our business activities (including our clinical trial activities) to try to protect against security incidents. Additionally, certain data privacy and security obligations may require us to implement and maintain specific security measures or industry-standard or reasonable security measures to protect our information technology systems and sensitive data.

While we have implemented security measures designed to protect against security incidents, there can be no assurance that these measures will be effective. We take steps to detect and remediate vulnerabilities, but we may not be able to detect and remediate all vulnerabilities because the threats and techniques used to exploit the vulnerability change frequently and are often sophisticated in nature. Therefore, such vulnerabilities could be exploited but may not be detected until after a security incident has occurred. These vulnerabilities pose material risks to our business. Further, we may experience delays in developing and deploying remedial measures designed to address any such identified vulnerabilities.

Applicable data privacy and security obligations may require us to notify relevant stakeholders of security incidents. Such disclosures are costly, and the disclosure or the failure to comply with such requirements could lead to adverse consequences.

If we (or a third party upon which we rely) experience a security incident or are perceived to have experienced a security incident, we may experience adverse consequences, such as government enforcement actions (for example, investigations, fines, penalties, audits, and inspections); additional reporting requirements and/or oversight; restrictions on processing sensitive data (including personal data); litigation (including class claims); indemnification obligations; negative publicity; reputational harm; monetary fund diversions; interruptions in our operations (including availability of data); financial loss; and other similar harms. Security incidents and attendant consequences may cause customers to stop using our services, deter new customers from using our services, and negatively impact our ability to grow and operate our business.

Our contracts may not contain limitations of liability, and even where they do, there can be no assurance that limitations of liability in our contracts are sufficient to protect us from liabilities, damages, or claims related to our data privacy and security obligations. We cannot be sure that our insurance coverage will be adequate or sufficient to protect us from or to mitigate liabilities arising out of our privacy and security practices, that such coverage will continue to be available on commercially reasonable terms or at all, or that such coverage will pay future claims.

In addition to experiencing a security incident, third parties may gather, collect, or infer sensitive information about us from public sources, data brokers, or other means that reveals competitively sensitive details about our organization and could be used to undermine our competitive advantage or market position.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock.

Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our unaudited condensed consolidated financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.

Other business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.

Our operations, and those of our contractors, consultants and collaborators, could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or man-made disasters or business interruptions, for which we are predominantly self-insured. To the extent our collaborators are unable to comply with their obligations under our agreements with them or they are otherwise unable to complete or are delayed in completing development activities due to business disruptions, our ability to advance development in the United States may become impaired. In addition, NCI may be affected by government shutdowns in the United States or withdrawn funding, which may lead to suspension or termination of ongoing NCI-sponsored clinical development of our product candidates. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. In addition, our ability and the ability of our partners to obtain clinical supplies of product candidates could be disrupted if the operations of our third party manufacturers are affected by a man-made or natural disaster or other business interruption. Our corporate headquarters are located in San Diego, California near major earthquake faults and fire zones. The ultimate impact on us and our general infrastructure of being located near major earthquake faults and fire zones and being consolidated in certain geographical areas is unknown, but our operations and financial condition could suffer in the event of a major earthquake, fire or other natural disaster.

We are at risk of securities class action litigation.

In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because pharmaceutical companies have experienced significant stock price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.

Our employees, independent contractors, principal investigators, consultants, vendors and commercial partners may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insider trading.

We are exposed to the risk that our employees, independent contractors, principal investigators, consultants, vendors and commercial partners may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or unauthorized activities that violate:

•

FDA regulations, including those laws that require the reporting of true, complete and accurate information to the FDA;

•

manufacturing standards;

•

federal and state fraud and abuse laws and other healthcare laws;

•

laws governing the conduct of business abroad; or

•

laws that require the reporting of true and accurate financial information or data.

Additionally, these parties may fail to disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, imprisonment, possible exclusion from participation in Medicare, Medicaid and other U.S. federal healthcare programs, contractual damages, integrity oversight and reporting obligations, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

We may encounter difficulties in managing our growth and expanding our operations successfully.

As we seek to advance product candidates through clinical trials and commercialization, we will need to expand our development, regulatory, manufacturing, marketing and sales capabilities or contract with additional third parties to provide these capabilities for us. As our operations expand, we expect that we will need to manage additional relationships with partners, consultants, suppliers and other third parties. Future growth will impose significant added responsibilities on members of our management, including having to divert a disproportionate amount of its attention away from day-to-day operating activities to implement and manage future growth. Our future financial performance and our ability to commercialize product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to manage our development efforts and clinical trials effectively and hire, train and integrate additional management, administrative and, if necessary, sales and marketing personnel. We may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from successfully growing our company.

If our third party manufacturers use hazardous and biological materials in a manner that causes injury or violates applicable law, we may be liable for damages.

Our development activities involve the controlled use of potentially hazardous substances, including chemical and biological materials, by our third party manufacturers. Our manufacturers are subject to federal, state and local laws and regulations in the United States and abroad governing the use, manufacture, storage, handling and disposal of medical and hazardous materials. Although we believe that our manufacturers’ procedures for using, handling, storing and disposing of these materials comply with legally prescribed standards, we cannot completely eliminate the risk of contamination or injury resulting from medical or hazardous materials. As a result of any such contamination or injury, we may incur liability, including through obligations to indemnify our third party manufacturers, or local, city, state or federal authorities may curtail the use of these materials and interrupt our business operations. In the event of an accident, we could be held liable for damages or penalized with fines, and the liability could exceed our resources. We do not have any insurance for liabilities arising from medical or hazardous materials. Compliance with applicable environmental laws and regulations is expensive, and current or future environmental regulations may impair our development and production efforts or those of our third party manufacturers, which could harm our business, prospects, financial condition or results of operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Recent Sales of Unregistered Securities

There were no sales of equity securities during the period covered by this report that were not registered under the Securities Act and were not previously reported in a Current Report on Form 8-K filed by us.

Purchases of Equity Securities by the Issue and Affiliated Purchasers

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS


Exhibit Number		Description of Document

3.1(1)		Amended and Restated Certificate of Incorporation.

3.2(2)		Certificate of Amendment to the Amended and Restated Certificate of Incorporation of TRACON Pharmaceuticals, Inc.

3.3(8)		Certificate of Amendment to Amended and Restated Certificate of Incorporation, as amended, of TRACON Pharmaceuticals, Inc.

3.4(1)		Amended and Restated Bylaws.

4.1(3)		Form of Common Stock Certificate of the Registrant.

4.2(4)		Form of Pre-Funded Warrant dated March 27, 2018 (attached as Exhibit B-1 to the Securities Purchase Agreement).

4.3(4)		Form of Common Warrant dated March 27, 2018 (attached as Exhibit B-2 to the Securities Purchase Agreement).

4.4(5)		Form of Pre-Funded Warrant dated June 21, 2022.

4.5(5)		Form of Amended and Restated Pre-Funded Warrant 2 dated June 21, 2022.

4.6(5)		Form of Amended and Restated Pre-Funded Warrant 3 dated June 21, 2022.

4.7(3)		Warrant to Purchase Stock issued to Silicon Valley Bank on November 14, 2013.

4.8(3)		Warrant to Purchase Stock issued to Silicon Valley Bank on June 4, 2014.

4.9(3)		Warrant to Purchase Stock issued to Silicon Valley Bank on May 13, 2015.

4.10(9)		Warrant to Purchase Stock issued to Silicon Valley Bank on January 25, 2017.

4.11(10)		Warrant to Purchase Stock issued to Silicon Valley Bank on May 3, 2018.

4.12(6)		Form of Warrant to Purchase Common Stock dated September 2, 2022.

4.13(7)		Form of Pre-Funded Warrant to Purchase Common Stock dated March 10, 2023 (attached as Exhibit B to Securities Purchase Agreement dated March 9, 2023.

4.14(11)#		Registration Rights Agreement, dated May 8, 2023, by and between the Registrant and Lincoln Park Capital Fund, LLC.

10.1(11)#		Securities Purchase Agreement, dated May 8, 2023, by and between the Registrant and Lincoln Park Capital Fund, LLC.

31.1		Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934.

31.2		Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934.

32.1		Certification of Principal Executive Officer pursuant to Rule 13a-14(b) or 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.

32.2		Certification of Principal Financial Officer pursuant to Rule 13a-14(b) or 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.


Exhibit Number		Description of Document


101.INS		Inline XBRL Instance Document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		The cover page for the Company’s Quarterly Report on Form 10-Q has been formatted in Inline XBRL and contained in Exhibit 101


#		Schedules (or similar attachments, including exhibits) to this exhibit have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the Securities and Exchange Commission or its staff upon request.
(1)		Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the SEC on February 4, 2015.
(2)		Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the SEC on December 9, 2020.
(3)		Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-201280), as amended.
(4)		Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the SEC on March 23, 2018.
(5)		Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the SEC on June 21, 2022.
(6)		Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the SEC on September 6, 2022.
(7)		Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the SEC on March 9, 2023.
(8)		Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the SEC on April 20, 2023.
(9)		Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the SEC on January 31, 2017.
(10)		Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, filed with the SEC on May 10, 2018.
(11)		Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, filed with the SEC on May 10, 2023.

Signatures

Pursuant to the requirements 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.


	TRACON Pharmaceuticals, Inc.

Date: November 9, 2023	/s/ Charles P. Theuer, M.D., Ph.D.
	Charles P. Theuer, M.D., Ph.D.
	President and Chief Executive Officer
	(Principal Executive Officer)


Date: November 9, 2023	/s/ Scott B. Brown, CPA
	Scott B. Brown, CPA
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Charles P. Theuer, M.D., Ph.D., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of TRACON Pharmaceuticals, 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 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 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: November 9, 2023	/s/ Charles P. Theuer, M.D., Ph.D.
	Charles P. Theuer, M.D., Ph.D.
	President and Chief Executive Officer (Principal Executive Officer)

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Scott B. Brown, CPA, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of TRACON Pharmaceuticals, Inc.;

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: November 9, 2023	/s/ Scott B. Brown, CPA
	Scott B. Brown, CPA
	Chief Financial Officer (Principal Financial and Accounting Officer)

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Charles P. Theuer, M.D., Ph.D., President and Chief Executive Officer of TRACON Pharmaceuticals, Inc. (the “Registrant”), do hereby certify in accordance with Rule 13a-14(b) and 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) this Quarterly Report on Form 10-Q of the Registrant for the period ended September 30, 2023, to which this certification is attached as an exhibit (the “Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.


Date: November 9, 2023	/s/ Charles P. Theuer, M.D., Ph.D.
	Charles P. Theuer, M.D., Ph.D.
	President and Chief Executive Officer (Principal Executive Officer)

This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of TRACON Pharmaceuticals, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Scott B. Brown, CPA, Chief Financial Officer of TRACON Pharmaceuticals, Inc. (the “Registrant”), do hereby certify in accordance with Rule 13a-14(b) and 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.


Date: November 9, 2023	/s/ Scott B. Brown, CPA
	Scott B. Brown, CPA
	Chief Financial Officer (Principal Financial and Accounting Officer)

Document and Entity Information - shares	9 Months Ended
Document and Entity Information - shares	Sep. 30, 2023	Nov. 03, 2023
Cover [Abstract]
Entity Registrant Name	TRACON Pharmaceuticals, Inc.
Entity Central Index Key	0001394319
Document Type	10-Q
Document Period End Date	Sep. 30, 2023
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Common Stock, Shares Outstanding		31,144,335
Document Fiscal Year Focus	2023
Document Fiscal Period Focus	Q3
Trading Symbol	TCON
Entity Shell Company	false
Entity File Number	001-36818
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	34-2037594
Title of 12(b) Security	Common Stock, par value $0.001 per share
Security Exchange Name	NASDAQ
Entity Address, Address Line One	4350 La Jolla Village Drive
Entity Address, Address Line Two	Suite 800
Entity Address, City or Town	San Diego
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	92122
City Area Code	858
Local Phone Number	550-0780
Document Quarterly Report	true
Document Transition Report	false

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Current assets:
Cash and cash equivalents	$ 7,763	$ 17,433
Prepaid and other assets	577	795
Total current assets	8,340	18,228
Property and equipment, net	40	51
Restricted cash	72	67
Other assets	961	1,123
Total assets	9,413	19,469
Current liabilities:
Accounts payable and accrued expenses	10,622	11,107
Accrued compensation and related expenses	1,080	1,457
Long-term debt, current portion		9,807
Total current liabilities	11,702	22,371
Other long-term liabilities	795	969
Arbitration financing payable		3,280
Commitments and contingencies (Note 4)
Stockholders' deficit:
Preferred stock, $0.001 par value, authorized shares - 10,000,000 at September 30, 2023 and December 31, 2022; issued and outstanding shares - none
Common stock, $0.001 par value; authorized shares - 60,000,000 and 40,000,000 at September 30, 2023 and December 31, 2022, respectively; issued and outstanding shares - 31,130,335 and 23,125,250 at September 30, 2023 and December 31, 2022, respectively	31	23
Additional paid-in capital	237,823	229,737
Accumulated deficit	(240,938)	(236,911)
Total stockholders' deficit	(3,084)	(7,151)
Total liabilities and stockholders' deficit	$ 9,413	$ 19,469

Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Sep. 30, 2023	Dec. 31, 2022
Statement of Financial Position [Abstract]
Preferred Stock, Par or Stated Value Per Share	$ 0.001	$ 0.001
Preferred Stock, Shares Authorized	10,000,000	10,000,000
Preferred Stock, Shares Issued	0	0
Preferred Stock, Shares Outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	60,000,000	40,000,000
Common stock, shares issued	31,130,335	23,125,250
Common stock, shares outstanding	31,130,335	23,125,250

Condensed Consolidated Statements of Operations - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Income Statement [Abstract]
Collaboration revenue			$ 9,000
Revenue, Product and Service [Extensible Enumeration]	us-gaap:CollaborativeArrangementMember		us-gaap:CollaborativeArrangementMember
Operating expenses:
Research and development	$ 2,326	$ 4,097	$ 10,783	$ 10,013
General and administrative	1,262	2,280	5,522	12,049
Arbitration success fees	(2,000)		2,375
Total operating expenses	1,588	6,377	18,680	22,062
Loss from operations	(1,588)	(6,377)	(9,680)	(22,062)
Other income (expense):
Interest expense, net	(646)	(58)	(7,341)	(76)
Other income, net	12,997		12,994
Total other income (expense)	12,351	(58)	5,653	(76)
Net income (loss)	$ 10,763	$ (6,435)	$ (4,027)	$ (22,138)
Earnings (Loss) per common share:
Basic	$ 0.29	$ (0.3)	$ (0.13)	$ (1.08)
Diluted	$ 0.29	$ (0.3)	$ (0.13)	$ (1.08)
Weighted-average number of common shares outstanding:
Basic	36,770,038	21,469,977	30,462,400	20,455,877
Diluted	36,856,064	21,469,977	30,462,400	20,455,877

Condensed Consolidated Statements of Stockholders' Equity (Deficit) - USD ($) $ in Thousands	Total	Common Stock	Additional Paid-in Capital	Accumulated Deficit
Balance at Dec. 31, 2021	$ 11,714	$ 19	$ 219,471	$ (207,776)
Balance (in Shares) at Dec. 31, 2021		19,445,903
Increase (Decrease) in Shareholders' Equity (Deficit)
Stock-based compensation expense	548		548
Issuances of common stock, net of offering costs (in shares)		10,389
Issuance of common stock upon cashless exercise of pre-funded warrants	1	$ 1
Issuances of common stock upon cashless exercise of pre-funded warrants (in shares)		170,668
Net loss	(9,473)			(9,473)
Balance at Mar. 31, 2022	2,790	$ 20	220,019	(217,249)
Balance (in Shares) at Mar. 31, 2022		19,626,960
Balance at Dec. 31, 2021	11,714	$ 19	219,471	(207,776)
Balance (in Shares) at Dec. 31, 2021		19,445,903
Increase (Decrease) in Shareholders' Equity (Deficit)
Issuances of common stock upon cashless exercise of pre-funded warrants (in shares)		170,668
Net loss	(22,138)
Balance at Sep. 30, 2022	(2,635)	$ 22	227,257	(229,914)
Balance (in Shares) at Sep. 30, 2022		21,749,924
Balance at Mar. 31, 2022	2,790	$ 20	220,019	(217,249)
Balance (in Shares) at Mar. 31, 2022		19,626,960
Increase (Decrease) in Shareholders' Equity (Deficit)
Stock-based compensation expense	535		535
Issuance of common stock under equity plans	49		49
Issuance of common stock under equity plans (in shares)		23,461
Issuance of common stock and warrants, net of offering costs	5,398	$ 1	5,397
Issuances of common stock and warrants, net of offering costs (in shares)		1,771,377
Net loss	(6,230)			(6,230)
Balance at Jun. 30, 2022	2,542	$ 21	226,000	(223,479)
Balance (in Shares) at Jun. 30, 2022		21,421,798
Increase (Decrease) in Shareholders' Equity (Deficit)
Stock-based compensation expense	481		481
Issuance of common stock, net of offering costs	518	$ 1	517
Issuances of common stock, net of offering costs (in shares)		328,126
Issuances of common stock upon cashless exercise of pre-funded warrants (in shares)		0
Issuance of common stock warrants in connection with debt financing	259		259
Net loss	(6,435)			(6,435)
Balance at Sep. 30, 2022	(2,635)	$ 22	227,257	(229,914)
Balance (in Shares) at Sep. 30, 2022		21,749,924
Balance at Dec. 31, 2022	(7,151)	$ 23	229,737	(236,911)
Balance (in Shares) at Dec. 31, 2022		23,125,250
Increase (Decrease) in Shareholders' Equity (Deficit)
Stock-based compensation expense	484		484
Issuance of common stock and warrants, net of offering costs	4,099	$ 1	4,098
Issuances of common stock and warrants, net of offering costs (in shares)		902,641
Net loss	(8,504)			(8,504)
Balance at Mar. 31, 2023	(11,072)	$ 24	234,319	(245,415)
Balance (in Shares) at Mar. 31, 2023		24,027,891
Balance at Dec. 31, 2022	(7,151)	$ 23	229,737	(236,911)
Balance (in Shares) at Dec. 31, 2022		23,125,250
Increase (Decrease) in Shareholders' Equity (Deficit)
Net loss	(4,027)
Balance at Sep. 30, 2023	(3,084)	$ 31	237,823	(240,938)
Balance (in Shares) at Sep. 30, 2023		31,130,335
Balance at Mar. 31, 2023	(11,072)	$ 24	234,319	(245,415)
Balance (in Shares) at Mar. 31, 2023		24,027,891
Increase (Decrease) in Shareholders' Equity (Deficit)
Stock-based compensation expense	502		502
Issuance of common stock under equity plans	43		43
Issuance of common stock under equity plans (in shares)		31,569
Issuance of common stock, net of offering costs	1,074	$ 3	1,071
Issuances of common stock, net of offering costs (in shares)		2,570,133
Net loss	(6,286)			(6,286)
Balance at Jun. 30, 2023	(15,739)	$ 27	235,935	(251,701)
Balance (in Shares) at Jun. 30, 2023		26,629,593
Increase (Decrease) in Shareholders' Equity (Deficit)
Stock-based compensation expense	493		493
Issuance of common stock, net of offering costs	1,399	$ 4	1,395
Issuances of common stock, net of offering costs (in shares)		4,500,742
Net loss	10,763			10,763
Balance at Sep. 30, 2023	$ (3,084)	$ 31	$ 237,823	$ (240,938)
Balance (in Shares) at Sep. 30, 2023		31,130,335

Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Cash flows from operating activities
Net loss	$ (4,027)	$ (22,138)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation	1,479	1,564
Depreciation and amortization	11	12
Noncash interest	88	17
Amortization of debt discount	7,325	15
Lease asset amortization and liability accretion, net	16	47
Changes in assets and liabilities:
Prepaid expenses and other assets	218	(316)
Accounts payable and accrued expenses	(535)	(538)
Accrued compensation and related expenses	(377)	(249)
Net cash provided by (used in) operating activities	4,198	(21,586)
Cash flows from investing activities
Purchase of property and equipment		(13)
Net cash used in investing activities		(13)
Cash flows from financing activities
Proceeds from long-term debt		9,960
Repayment of long-term debt and arbitration financing payable	(20,500)	(1,680)
Proceeds from sale of common stock and warrants, net of offering costs	6,594	6,410
Proceeds from issuance of common stock under equity plans	43	49
Net cash (used in) provided by financing activities	(13,863)	14,739
Change in cash, cash equivalents, and restricted cash	(9,665)	(6,860)
Cash, cash equivalents, and restricted cash at beginning of period	17,500	24,072
Cash, cash equivalents, and restricted cash at end of period	$ 7,835	$ 17,212

Organization and Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2023

Organization And Accounting Policies [Abstract]

Organization and Summary of Significant Accounting Policies

Organization and Business

Basis of Presentation

Unaudited Interim Financial Information

Use of Estimates

Cash and Cash Equivalents

Restricted Cash

Concentration of Credit Risk

Property and Equipment

Leases

Revenue Recognition

Clinical Trial Expense Accruals

Research and Development Costs

Research and development costs, including license fees, are expensed as incurred.

Comprehensive Loss

Net Loss Per Share


	September 30,
	2023		2022
Warrants to purchase common stock		1,534,261		6,987,785
Common stock options		3,121,152		2,246,310
ESPP shares		218,825		16,315
		4,874,238		9,250,410


	Three Months Ended
	September 30, 2023
Weighted-average common shares outstanding, basic		36,770,038
Dilutive securities		86,026
Weighted-average common shares outstanding, diluted		36,856,064

Financial Instruments and Fair Value Measurements

9 Months Ended

Sep. 30, 2023

Fair Value Disclosures [Abstract]

Financial Instruments and Fair Value Measurements

Cash equivalents, which are classified as equity securities, and restricted cash consisted of the following (in thousands):


	September 30, 2023								December 31, 2022
	Cost		Unrealized Gain		Unrealized (Loss)		Estimated Fair Value		Cost		Unrealized Gain		Unrealized (Loss)		Estimated Fair Value
Money market funds	$	2,300	$	—	$	—	$	2,300	$	10,150	$	—	$	—	$	10,150

Classified as:
Cash equivalents							$	2,228							$	10,083
Restricted cash								72								67
Total cash equivalents and restricted cash							$	2,300							$	10,150

At September 30, 2023 and December 31, 2022, the Company had no investments.


Level 1:	Observable inputs such as quoted prices in active markets.

Level 2:	Inputs, other than the quoted prices in active markets that are observable either directly or indirectly.

Level 3:	Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements.

None of the Company’s non-financial assets or liabilities are recorded at fair value on a non-recurring basis. No transfers between levels have occurred during the periods presented.

The fair values of the Company’s assets and liabilities, which are measured at fair value on a recurring basis, were determined using the following inputs (in thousands):


			Fair Value Measurements at
			Reporting Date Using
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
At September 30, 2023
Money market funds	$	2,300	$	—	$	2,300	$	—

At December 31, 2022
Money market funds	$	10,150	$	—	$	10,150	$	—

Long-Term Debt

9 Months Ended

Sep. 30, 2023

Debt Disclosure [Abstract]

Long-Term Debt

Arbitration Financing Investment Agreement

Runway Growth Finance Corp. Loan and Security Agreement

As of December 31, 2022, long-term debt and unamortized debt discount balances associated with the RGC Loan Agreement were as follows (in thousands):


	December 31,
	2022
Long-term debt	$	10,000
Less debt discount, net of current portion		—
Long-term debt, net of debt discount		10,000
Less current portion of long-term debt		(10,000	)
Long-term debt, net of current portion	$	—
Current portion of long-term debt	$	10,000
Current portion of debt discount		(193	)
Current portion of long-term debt, net	$	9,807

No future principal and interest payments, including a final payment, were owed under the RGC Loan Agreement as of September 30, 2023.

Silicon Valley Bank Loan and Security Agreement

At September 30, 2023, the Company had the following exercisable outstanding warrants for the purchase of common stock issued in connection with the Company’s loan agreements with SVB:


Expiration	Number of shares		Exercise price
November 14, 2023 through June 4, 2024		3,874		$	77.40
January 25, 2024		4,669		$	51.40
May 3, 2025		5,363		$	26.10
		13,906

Commitments and Contingencies

9 Months Ended

Sep. 30, 2023

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

License Agreements

Loss Contingencies

Gain Contingencies

Stockholders' Deficit

9 Months Ended

Sep. 30, 2023

Stockholders' Equity Note [Abstract]

Stockholders' Deficit

Stockholders’ Deficit

Lincoln Park Common Stock Purchase Agreement

Sale of Common Stock and Pre-Funded Warrants

At-The-Market Issuance Sales Agreement

Equity Plan Activity

Common Stock Warrants

As of September 30, 2023, the Company had the following outstanding warrants for the purchase of common stock:


Expiration	Number of shares		Exercise price
November 14, 2023 through June 4, 2024		3,874	$	77.40
January 25, 2024		4,669	$	51.40
March 27, 2024		1,369,602	$	27.00
May 3, 2025		5,363	$	26.10
August 27, 2030		1,889,513	$	0.01
August 31, 2030		1,137,454	$	0.01
June 21, 2032		2,205,018	$	0.01
September 2, 2032		150,753	$	1.99
March 10, 2033		2,013,999	$	0.01
		8,780,245

Stock-Based Compensation Expense

The weighted-average assumptions used in the Black-Scholes option pricing model to determine the fair value of the employee stock option grants were as follows:


	Nine Months Ended
	September 30,
	2023			2022
Risk-free interest rate		3.5	%		1.9	%
Expected volatility		90	%		90	%
Expected term (in years)		6.2			6.2
Expected dividend yield		—	%		—	%

There were no employee stock option grants during the three months ended September 30, 2023 and 2022.

Stock compensation expense for the ESPP was immaterial for the three and nine months ended September 30, 2023 and 2022.

The allocation of stock-based compensation expense was as follows (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Research and development	$	237	$	211	$	699	$	620
General and administrative		256		270		780		944
	$	493	$	481	$	1,479	$	1,564

Collaborations

9 Months Ended

Sep. 30, 2023

Collaborations Disclosure [Abstract]

Collaborations

I-Mab Collaboration Agreements

Organization and Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2023

Organization And Accounting Policies [Abstract]

Organization and Business

Basis of Presentation

Unaudited Interim Financial Information

Use of Estimates

Cash and Cash Equivalents

Restricted Cash

Concentration of Credit Risk

Property and Equipment

Leases

Revenue Recognition

Clinical Trial Expense Accruals

Research and Development Costs

Research and development costs, including license fees, are expensed as incurred.

Comprehensive Loss

Net Loss Per Share


	September 30,
	2023		2022
Warrants to purchase common stock		1,534,261		6,987,785
Common stock options		3,121,152		2,246,310
ESPP shares		218,825		16,315
		4,874,238		9,250,410


	Three Months Ended
	September 30, 2023
Weighted-average common shares outstanding, basic		36,770,038
Dilutive securities		86,026
Weighted-average common shares outstanding, diluted		36,856,064

Organization and Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2023

Organization And Accounting Policies [Abstract]

Schedule of potentially dilutive securities not included in the calculation of diluted net loss per share

otentially dilutive securities not included in the calculation of diluted net loss per share for those periods because to do so would be anti-dilutive are as follows (in common stock equivalent shares):


	September 30,
	2023		2022
Warrants to purchase common stock		1,534,261		6,987,785
Common stock options		3,121,152		2,246,310
ESPP shares		218,825		16,315
		4,874,238		9,250,410


	Three Months Ended
	September 30, 2023
Weighted-average common shares outstanding, basic		36,770,038
Dilutive securities		86,026
Weighted-average common shares outstanding, diluted		36,856,064

Schedule of antidilutive securities included in computation of earnings per share


	Three Months Ended
	September 30, 2023
Weighted-average common shares outstanding, basic		36,770,038
Dilutive securities		86,026
Weighted-average common shares outstanding, diluted		36,856,064

Financial Instruments and Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2023

Fair Value Disclosures [Abstract]

Schedule of Available-for-sale Securities and Equity Securities

Cash equivalents, which are classified as equity securities, and restricted cash consisted of the following (in thousands):


	September 30, 2023								December 31, 2022
	Cost		Unrealized Gain		Unrealized (Loss)		Estimated Fair Value		Cost		Unrealized Gain		Unrealized (Loss)		Estimated Fair Value
Money market funds	$	2,300	$	—	$	—	$	2,300	$	10,150	$	—	$	—	$	10,150

Classified as:
Cash equivalents							$	2,228							$	10,083
Restricted cash								72								67
Total cash equivalents and restricted cash							$	2,300							$	10,150

Schedule of assets and liabilities measured at fair value on a recurring basis

The fair values of the Company’s assets and liabilities, which are measured at fair value on a recurring basis, were determined using the following inputs (in thousands):


			Fair Value Measurements at
			Reporting Date Using
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
At September 30, 2023
Money market funds	$	2,300	$	—	$	2,300	$	—

At December 31, 2022
Money market funds	$	10,150	$	—	$	10,150	$	—

Long-Term Debt (Tables)

9 Months Ended

Sep. 30, 2023

Debt Disclosure [Abstract]

Schedule of Long-term debt and unamortized debt discount balances

As of December 31, 2022, long-term debt and unamortized debt discount balances associated with the RGC Loan Agreement were as follows (in thousands):


	December 31,
	2022
Long-term debt	$	10,000
Less debt discount, net of current portion		—
Long-term debt, net of debt discount		10,000
Less current portion of long-term debt		(10,000	)
Long-term debt, net of current portion	$	—
Current portion of long-term debt	$	10,000
Current portion of debt discount		(193	)
Current portion of long-term debt, net	$	9,807

Schedule of exercisable outstanding warrants for purchase of common stock issued

At September 30, 2023, the Company had the following exercisable outstanding warrants for the purchase of common stock issued in connection with the Company’s loan agreements with SVB:


Expiration	Number of shares		Exercise price
November 14, 2023 through June 4, 2024		3,874		$	77.40
January 25, 2024		4,669		$	51.40
May 3, 2025		5,363		$	26.10
		13,906

As of September 30, 2023, the Company had the following outstanding warrants for the purchase of common stock:


Expiration	Number of shares		Exercise price
November 14, 2023 through June 4, 2024		3,874	$	77.40
January 25, 2024		4,669	$	51.40
March 27, 2024		1,369,602	$	27.00
May 3, 2025		5,363	$	26.10
August 27, 2030		1,889,513	$	0.01
August 31, 2030		1,137,454	$	0.01
June 21, 2032		2,205,018	$	0.01
September 2, 2032		150,753	$	1.99
March 10, 2033		2,013,999	$	0.01
		8,780,245

Stockholders' Deficit (Tables)

9 Months Ended

Sep. 30, 2023

Stockholders' Equity Note [Abstract]

Schedule of exercisable outstanding warrants for purchase of common stock issued

At September 30, 2023, the Company had the following exercisable outstanding warrants for the purchase of common stock issued in connection with the Company’s loan agreements with SVB:


Expiration	Number of shares		Exercise price
November 14, 2023 through June 4, 2024		3,874		$	77.40
January 25, 2024		4,669		$	51.40
May 3, 2025		5,363		$	26.10
		13,906

As of September 30, 2023, the Company had the following outstanding warrants for the purchase of common stock:


Expiration	Number of shares		Exercise price
November 14, 2023 through June 4, 2024		3,874	$	77.40
January 25, 2024		4,669	$	51.40
March 27, 2024		1,369,602	$	27.00
May 3, 2025		5,363	$	26.10
August 27, 2030		1,889,513	$	0.01
August 31, 2030		1,137,454	$	0.01
June 21, 2032		2,205,018	$	0.01
September 2, 2032		150,753	$	1.99
March 10, 2033		2,013,999	$	0.01
		8,780,245

Summary of weighted-average assumptions used Black-Scholes option pricing model to determine the fair value

The weighted-average assumptions used in the Black-Scholes option pricing model to determine the fair value of the employee stock option grants were as follows:


	Nine Months Ended
	September 30,
	2023			2022
Risk-free interest rate		3.5	%		1.9	%
Expected volatility		90	%		90	%
Expected term (in years)		6.2			6.2
Expected dividend yield		—	%		—	%

Summary of allocation of stock-based compensation expense

The allocation of stock-based compensation expense was as follows (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Research and development	$	237	$	211	$	699	$	620
General and administrative		256		270		780		944
	$	493	$	481	$	1,479	$	1,564

Organization and Summary of Significant Accounting Policies - Additional Information (Details) - USD ($)	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Dec. 31, 2022
Basis of Presentation
Accumulated deficit	$ 240,938,000		$ 236,911,000
Cash, cash equivalents and short-term investments	7,800,000
Restricted cash	$ 72,000		$ 67,000
Property and Equipment
Estimated useful life	5 years
Antidilutive securities	4,874,238	9,250,410
Common Stock Options
Property and Equipment
Antidilutive securities	3,121,152	2,246,310
Warrants to Purchase Common Stock
Property and Equipment
Antidilutive securities	1,534,261	6,987,785
Jones Trading Institutional Services LLC \| Capital on Demand Sales Agreement \| Common Stock
Basis of Presentation
Maximum aggregate value of stock to be sold	$ 50,000,000
Remaining amount available under the Sales Agreement	42,900,000
Lincoln Park Capital Fund, LLC \| Capital on Demand Sales Agreement \| Common Stock
Basis of Presentation
Maximum aggregate value of stock to be sold	26,000,000
Remaining amount available under the Sales Agreement	$ 25,000,000

Organization and Summary of Significant Accounting Policies - Schedule of Potentially Dilutive Securities Not Included in the Calculation of Diluted Net Loss Per Share (Details) - shares	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Antidilutive securities
Antidilutive securities	4,874,238	9,250,410
Warrants to Purchase Common Stock
Antidilutive securities
Antidilutive securities	1,534,261	6,987,785
Common Stock Options
Antidilutive securities
Antidilutive securities	3,121,152	2,246,310
ESPP Shares
Antidilutive securities
Antidilutive securities	218,825	16,315

Organization and Summary of Significant Accounting Policies - Summary of Weighted-average Number of Common Shares Outstanding Included in Calculation of Basic and Diluted EPS (Details) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Organization And Accounting Policies [Abstract]
Weighted Average Number of Shares Outstanding, Basic	36,770,038	21,469,977	30,462,400	20,455,877
Dilutive securities	86,026
Weighted Average Number of Shares Outstanding, Diluted	36,856,064	21,469,977	30,462,400	20,455,877

Financial Instruments and Fair Value Measurements - Schedule of Available-for-sale Securities and Equity Securities (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Short-Term Investments, Cash Equivalents and Fair Value Measurements
Cash equivalents	$ 2,228	$ 10,083
Restricted cash	72	67
Total cash equivalents, restricted cash, and other assets	2,300	10,150
Money market funds
Short-Term Investments, Cash Equivalents and Fair Value Measurements
Cost	2,300	10,150
Estimated Fair Value	$ 2,300	$ 10,150

Financial Instruments and Fair Value Measurements - Additional Information (Details) - USD ($)	Sep. 30, 2023	Dec. 31, 2022
Fair Value Disclosures [Abstract]
Short-term investments	$ 0	$ 0
Amount of transfers between levels	$ 0	$ 0

Financial Instruments and Fair Value Measurements - Schedule of Assets and Liabilities Measured at Fair Value on a Recurring Basis (Details) - Recurring - Money market funds - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Assets:
Fair value, assets	$ 2,300	$ 10,150
Level 2
Assets:
Fair value, assets	$ 2,300	$ 10,150

Long-Term Debt - Additional Information (Details)		1 Months Ended					3 Months Ended		9 Months Ended
Long-Term Debt - Additional Information (Details)	Apr. 05, 2023 USD ($)	Sep. 30, 2023 USD ($) shares	Jul. 31, 2023 USD ($)	Dec. 30, 2022 USD ($)	Sep. 30, 2022 USD ($) Tranche $ / shares shares	May 31, 2018 USD ($)	Sep. 30, 2023 USD ($) shares	Mar. 31, 2023	Sep. 30, 2023 USD ($) shares	Sep. 30, 2022 USD ($) $ / shares shares	Apr. 20, 2023 USD ($)	Dec. 31, 2022 USD ($)
Debt Instrument [Line Items]
Proceeds from long-term debt										$ 9,960,000
Maximum capital contribution				$ 30,000,000
Initial capital contribution from investors				$ 3,500,000
Settlement received		$ 2,000,000	$ 22,000,000
Percentage of Initial Capital Contribution From Investors				25.00%
Percentage of closing fee amount				2.00%
Arbitration financing payable				$ 3,500,000								$ 3,280,000
Noncash interest							$ 700,000		$ 7,200,000
Conversion of warrants to purchase shares \| shares		8,780,245					8,780,245		8,780,245
Silicon Valley Bank
Debt Instrument [Line Items]
Conversion of warrants to purchase shares \| shares		13,906					13,906		13,906
RGC Loan Agreement
Debt Instrument [Line Items]
Principal and interest payment		$ 0					$ 0		$ 0
2018 SVB Loan \| Silicon Valley Bank
Debt Instrument [Line Items]
Proceeds from long-term debt						$ 7,000,000
Final payment on payoff						$ 300,000
Loan And Security Agreement \| Runway Growth Finance Corp
Debt Instrument [Line Items]
Long term debt, principal amount					$ 10,000,000					10,000,000
Proceeds from sale of debt and equity securities	$ 25,000,000			$ 25,000,000
Percentage of final payment fee								4.25%
Loan And Security Agreement \| Runway Growth Finance Corp \| Term Loan
Debt Instrument [Line Items]
Number of tranche \| Tranche					3
Loan And Security Agreement \| Runway Growth Finance Corp \| Term Loan \| Maximum
Debt Instrument [Line Items]
Long term debt, principal amount					$ 35,000,000					35,000,000
Loan And Security Agreement \| Runway Growth Finance Corp \| Term Loan A
Debt Instrument [Line Items]
Long term debt, principal amount					10,000,000					10,000,000
Loan And Security Agreement \| Runway Growth Finance Corp \| Term Loan B \| Maximum
Debt Instrument [Line Items]
Long term debt, principal amount					15,000,000					15,000,000
Loan And Security Agreement \| Runway Growth Finance Corp \| Term Loan C \| Maximum
Debt Instrument [Line Items]
Long term debt, principal amount	$ 10,000,000				$ 10,000,000					$ 10,000,000	$ 10,000,000.0
Warrants \| Runway Growth Finance Corp \| Term Loan A
Debt Instrument [Line Items]
Conversion of warrants to purchase shares \| shares					150,753					150,753
Exercise price (per share) \| $ / shares					$ 1.99					$ 1.99
Expiration date					Sep. 02, 2032					Sep. 02, 2032

Long-Term Debt - Schedule of Long-Term Debt and Unamortized Debt Discount Balances (Details) $ in Thousands	Dec. 31, 2022 USD ($)
Debt Disclosure [Abstract]
Long-term debt	$ 10,000
Long-term debt, net of debt discount	10,000
Less current portion of long-term debt	(10,000)
Current portion of long-term debt	10,000
Current portion of debt discount	(193)
Current portion of long-term debt, net	$ 9,807

Long-Term Debt - Schedule of Exercisable Outstanding Warrants for Purchase of Common Stock Issued (Details)	Sep. 30, 2023 $ / shares shares
Debt Instrument [Line Items]
Conversion of warrants to purchase shares	8,780,245
Silicon Valley Bank
Debt Instrument [Line Items]
Conversion of warrants to purchase shares	13,906
Silicon Valley Bank \| November 14, 2023 Through June 4, 2024
Debt Instrument [Line Items]
Conversion of warrants to purchase shares	3,874
Exercise price (per share) \| $ / shares	$ 77.4
Silicon Valley Bank \| January 25, 2024
Debt Instrument [Line Items]
Conversion of warrants to purchase shares	4,669
Exercise price (per share) \| $ / shares	$ 51.4
Silicon Valley Bank \| May 3, 2025
Debt Instrument [Line Items]
Conversion of warrants to purchase shares	5,363
Exercise price (per share) \| $ / shares	$ 26.1

Commitments and Contingencies - Additional Information (Details) - USD ($) $ in Thousands	1 Months Ended		3 Months Ended		9 Months Ended
	Sep. 30, 2023	Jul. 31, 2023	Sep. 30, 2023	Jun. 30, 2023	Sep. 30, 2023
Commitments and Contingencies
Arbitration success fees		$ 4,400	$ (2,000)		$ 2,375
Settlement to legal counsel	$ 2,400
Loss contingency payment write-off amount	300
Settlement received	2,000	22,000
Settlement received, net of termination fee		$ 13,000
Termination fee awarded				$ 9,000
Research and development arrangement
Commitments and Contingencies
Potential milestone payable	$ 9,600		$ 9,600		$ 9,600

Stockholders' Deficit - Additional Information (Details) - USD ($)		1 Months Ended	3 Months Ended			9 Months Ended		12 Months Ended
	May 31, 2023	Mar. 31, 2023	Sep. 30, 2023	Sep. 30, 2022	Mar. 31, 2022	Sep. 30, 2023	Sep. 30, 2022	Dec. 31, 2022
Class Of Stock [Line Items]
Net proceeds						$ 43,000	$ 49,000
Conversion of warrants to purchase shares			8,780,245			8,780,245
Employee stock option grants during the period			0	0
Lincoln Park Purchase Agreement
Class Of Stock [Line Items]
Aggregate value of shares committed to purchase	$ 26,000,000
Common stock purchase price per share	$ 0.5763
Percentage of common stock outstanding owned after sale agreement						19.99%
Net proceeds	$ 1,000,000
2023 Pre-Funded Warrants
Class Of Stock [Line Items]
Maximum percentage of holders ownership interest in common stock after exercise		19.99%
Common Stock
Class Of Stock [Line Items]
Issuance of common stock upon exercise of pre funded warrants.			0			0
Cashless exercise of pre-funded warrants to purchase common stock				176,554			176,554
Issuance of common stock upon cashless exercise of pre-funded warrants				0	170,668		170,668
Common Stock \| Equity Plan Activity
Class Of Stock [Line Items]
Shares issued upon exercise of outstanding stock options						0	0	0
Shares issued in connection with employee stock purchase plan			0			31,569		56,261
Common Stock \| Equity Plan Activity \| Restricted Stock Units
Class Of Stock [Line Items]
Shares issued upon vesting of restricted stock units						0	0	0
Common Stock \| Private Placement
Class Of Stock [Line Items]
Net proceeds received from issuance direct offering		$ 3,000,000
Common Stock \| Capital on Demand Sales Agreement \| Jones Trading Institutional Services LLC
Class Of Stock [Line Items]
Maximum aggregate value of stock to be sold			$ 50,000,000			$ 50,000,000
Remaining amount available under the Sales Agreement			42,900,000			$ 42,900,000
Percentage of gross proceeds, required to pay for common stock sold through sales agreement						2.50%
Common Stock \| Lincoln Park Purchase Agreement
Class Of Stock [Line Items]
Common stock issued and sold	1,735,207					599,216
Remaining amount available under the Sales Agreement			$ 25,000,000			$ 25,000,000
Common Stock \| 2023 Pre-Funded Warrants \| Private Placement
Class Of Stock [Line Items]
Exercise price (per share)		$ 0.01
Common Stock \| Purchase Price Of $1.38 Per Share \| Private Placement
Class Of Stock [Line Items]
Common stock issued and sold		174,508
Common stock purchase price per share		$ 1.38
Common Stock \| Purchase Price Of $1.37 Per Share \| 2023 Pre-Funded Warrants \| Private Placement
Class Of Stock [Line Items]
Common stock purchase price per share		$ 1.37
Conversion of warrants to purchase shares		2,013,999

Stockholders' Deficit - Schedule of Outstanding Warrants for Purchase of Common Stock Issued (Details)	Sep. 30, 2023 $ / shares shares
Class Of Stock [Line Items]
Conversion of warrants to purchase shares	8,780,245
January 25, 2024
Class Of Stock [Line Items]
Conversion of warrants to purchase shares	4,669
Exercise price (per share) \| $ / shares	$ 51.40
November 14, 2023 Through June 4, 2024
Class Of Stock [Line Items]
Conversion of warrants to purchase shares	3,874
Exercise price (per share) \| $ / shares	$ 77.40
March 27, 2024
Class Of Stock [Line Items]
Conversion of warrants to purchase shares	1,369,602
Exercise price (per share) \| $ / shares	$ 27.00
May 3, 2025
Class Of Stock [Line Items]
Conversion of warrants to purchase shares	5,363
Exercise price (per share) \| $ / shares	$ 26.10
August 27, 2030
Class Of Stock [Line Items]
Conversion of warrants to purchase shares	1,889,513
Exercise price (per share) \| $ / shares	$ 0.01
August 31, 2030
Class Of Stock [Line Items]
Conversion of warrants to purchase shares	1,137,454
Exercise price (per share) \| $ / shares	$ 0.01
June 21, 2032
Class Of Stock [Line Items]
Conversion of warrants to purchase shares	2,205,018
Exercise price (per share) \| $ / shares	$ 0.01
September 2, 2032
Class Of Stock [Line Items]
Conversion of warrants to purchase shares	150,753
Exercise price (per share) \| $ / shares	$ 1.99
March 10, 2033
Class Of Stock [Line Items]
Conversion of warrants to purchase shares	2,013,999
Exercise price (per share) \| $ / shares	$ 0.01

Stockholders' Deficit - Summary of Weighted-Average Assumptions Fair Value of the Employee Stock Option Grants (Details) - Stock Option	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Class Of Stock [Line Items]
Risk-free interest rate	3.50%	1.90%
Expected volatility	90.00%	90.00%
Expected term (in years)	6 years 2 months 12 days	6 years 2 months 12 days

Stockholders' Deficit - Summary of Allocation of Stock-Based Compensation Expense (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Class Of Stock [Line Items]
Stock based compensation expense	$ 493	$ 481	$ 1,479	$ 1,564
Research and development
Class Of Stock [Line Items]
Stock based compensation expense	237	211	699	620
General and administrative
Class Of Stock [Line Items]
Stock based compensation expense	$ 256	$ 270	$ 780	$ 944

Collaborations - Additional Information (Details) $ in Thousands	1 Months Ended		3 Months Ended	9 Months Ended
	Apr. 30, 2023 USD ($)	Nov. 30, 2018 USD ($) Antibody	Sep. 30, 2023	Sep. 30, 2023 USD ($)
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Collaboration revenue				$ 9,000
Revenue, Product and Service [Extensible Enumeration]			us-gaap:CollaborativeArrangementMember	us-gaap:CollaborativeArrangementMember
Bispecific Agreement \| I-Mab
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Maximum number of proprietary bispecific antibodies under development \| Antibody		5
TJ4309 Agreement
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Percentage of cost bearing		40.00%
TJ4309 Agreement \| I-Mab
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Percentage of cost bearing		60.00%
Termination of agreement upon completion of clinical trial		90 days
TJ4309 Agreement \| I-Mab \| First Phase Clinical Trial
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Termination fee		$ 9,000		$ 9,000
Termination fee payable	$ 9,000
TJ4309 Agreement \| I-Mab \| First Phase Two Clinical Trial
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Termination fee		$ 15,000