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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 March 31, 2021

OR

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

For the transition period from to Commission file number 001-38935


ATRECA, INC.

(Exact name of registrant as specified in its charter)


Delaware

27-3723255

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

835 Industrial Road, Suite 400,

San Carlos, CA 94070

(Address of principal executive offices)

(Zip Code)

(650)-595-2595

(Registrant’s telephone number, including area code)

450 East Jamie Court,

South San Francisco, CA 94080

(Former name, former address and former fiscal year, if changed since last report)


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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock

BCEL

The Nasdaq Global Select Market

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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  .

As of May 12, 2021, the registrant had 30,178,367 shares of Class A common stock, $0.0001 par value per share and 6,715,441 shares of Class B common stock, $0.0001 par value per share, outstanding.


Table of Contents

TABLE OF CONTENTS

Page

PART I. FINANCIAL INFORMATION 

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets

3

Condensed Consolidated Statements of Operations

4

Condensed Consolidated Statements of Loss and Comprehensive Loss

5

Condensed Consolidated Statements of Stockholders’ Equity

6

Condensed Consolidated Statements of Cash Flows

7

Notes to Unaudited Condensed Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

Item 4.

Controls and Procedures

30

PART II. OTHER INFORMATION

32

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

76

Item 3.

Defaults Upon Senior Securities

76

Item 4.

Mine Safety Disclosures

76

Item 5.

Other Information

77

Item 6.

Exhibits

77


Table of Contents

PART I --- FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

Atreca, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

March 31, 

December 31, 

    

2021

    

2020

    

(Unaudited)

(Note 2)

ASSETS

Current Assets

Cash and cash equivalents

$

89,712

$

60,789

Investments

121,958

179,296

Prepaid expenses and other current assets (Note 5)

13,109

9,037

Total current assets

224,779

249,122

Property and equipment, net (Note 6)

33,948

19,831

Deposits and other

3,076

3,111

Total assets

$

261,803

$

272,064

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities

Accounts payable

$

7,525

$

5,216

Accrued expenses (Note 7)

9,133

10,302

Other current liabilities

2,097

1,900

Total current liabilities

18,755

17,418

Capital lease obligations, net of current portion

4

Deferred rent

21,649

12,585

Total liabilities

40,404

30,007

Commitment and contingencies (Note 8)

Stockholders’ equity

Class A common stock, $0.0001 par value, 650,000,000 shares authorized as of both March 31, 2021 and December 31, 2020; 30,175,529 and 30,089,162 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

3

3

Class B common stock, $0.0001 par value, 50,000,000 shares authorized as of both March 31, 2021 and December 31, 2020; 6,715,441 shares issued and outstanding as of both March 31, 2021 and December 31, 2020

1

1

Additional paid-in capital

497,561

492,436

Accumulated other comprehensive income

50

58

Accumulated deficit

(276,216)

(250,441)

Total stockholders’ equity

221,399

242,057

Total liabilities and stockholders’ equity

$

261,803

$

272,064

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Atreca, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

Three Months Ended March 31, 

    

2021

    

2020

Expenses

Research and development

$

18,388

$

14,210

General and administrative

7,821

7,123

Total expenses

26,209

21,333

Interest and other income (expense)

Other income

344

231

Interest income

91

685

Interest expense

(1)

(1)

Loss before income tax expense

(25,775)

(20,418)

Income tax expense

Net loss

$

(25,775)

$

(20,418)

Net loss per share, basic and diluted

$

(0.70)

$

(0.73)

Weighted-average shares used in computing net loss per share, basic and diluted

36,841,065

28,020,408

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Atreca, Inc.

Condensed Consolidated Statements of Loss and Comprehensive Loss

(in thousands)

(unaudited)

Three Months Ended March 31, 

    

2021

    

2020

Net loss

$

(25,775)

$

(20,418)

Other comprehensive income:

Unrealized gain(loss) on fair value of investments

(8)

163

Comprehensive loss

$

(25,783)

$

(20,255)

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Atreca, Inc.

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except share data)

(unaudited)

Accumulated

Additional

Other

Total

Three Months Ended March 31, 2020

Common Stock

Paid-In

Comprehensive

Accumulated

Stockholders'

Shares

    

Amount

    

Capital

    

Income

    

Deficit

    

Equity

Balances at December 31, 2019

27,970,167

$

3

$

351,039

$

16

$

(164,106)

$

186,952

Issuance of common stock upon exercise of options

86,872

419

419

Vesting of early exercised stock options

4

4

Issuance of common stock under the Employee Stock Purchase Plan

36,556

533

533

Stock-based compensation

2,482

2,482

Unrealized gain on fair value of investments

163

163

Net loss

(20,418)

(20,418)

Balances at March 31, 2020

28,093,595

$

3

$

354,477

$

179

$

(184,524)

$

170,135

Accumulated

Additional

Other

Total

Three Months Ended March 31, 2021

Common Stock

Paid-In

Comprehensive

Accumulated

Stockholders'

Shares

    

Amount

    

Capital

    

Income (Loss)

    

Deficit

    

Equity

Balances at December 31, 2020

36,804,603

$

4

$

492,436

$

58

$

(250,441)

$

242,057

Issuance of common stock upon exercise of options

43,349

241

241

Issuance of common stock under the Employee Stock Purchase Plan

43,018

484

484

Stock-based compensation

4,400

4,400

Unrealized loss on fair value of investments

(8)

(8)

Net loss

(25,775)

(25,775)

Balances at March 31, 2021

36,890,970

$

4

$

497,561

$

50

$

(276,216)

$

221,399

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Atreca, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

Three Months Ended March 31, 

    

2021

    

2020

Cash Flows from Operating Activities

Net loss

$

(25,775)

$

(20,418)

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

579

541

Stock-based compensation

4,400

2,482

Amortization (accretion) of investments

465

(80)

Changes in operating assets and liabilities:

Prepaid expenses and other current assets

(4,037)

356

Accounts payable

(146)

(79)

Accrued expenses

(2,453)

(3,020)

Other current liabilities

(595)

1,124

Other non-current liabilities

505

Deferred rent

9,864

675

Net cash used in operating activities

(17,698)

(17,914)

Cash Flows from Investing Activities

Purchase of property and equipment

(10,957)

(523)

Purchase of investments

(14,921)

(58,974)

Proceeds from maturities of investments

71,786

10,570

Change in deposits

127

Net cash provided by (used in) investing activities

45,908

(48,800)

Cash Flows from Financing Activities

Proceeds from the issuance of common stock under the Employee Stock Purchase Plan

484

533

Proceeds from exercise of stock options

241

423

Principal payments on capital lease obligations

(12)

(13)

Net cash provided by financing activities

713

943

Net change in cash, cash equivalents and restricted cash

28,923

(65,771)

Cash, cash equivalents and restricted cash, beginning of period

62,441

159,236

Cash, cash equivalents and restricted cash, end of period

$

91,364

$

93,465

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Atreca, Inc.

Condensed Consolidated Statements of Cash Flows (continued)

(in thousands)

(unaudited)

Three Months Ended March 31, 

    

2021

    

2020

  

Supplemental Disclosure of Cash Flow Information

Cash paid for interest

$

1

$

1

Cash paid for income taxes

$

$

Supplemental Schedule of Non-Cash Investing and Financing Activities

Vesting of early exercised common stock options

$

$

4

Purchases of property and equipment included in accounts payable and accrued liabilities

$

11,051

$

879

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Notes to Unaudited Interim Condensed Consolidated Financial Statements

1.            Business

Nature of Business

Atreca, Inc. (the “Company”) was incorporated in the State of Delaware on June 11, 2010 (“inception date”), and is located in San Carlos, California. The Company is a biopharmaceutical company utilizing its differentiated platform to discover and develop novel antibody-based immunotherapeutics to treat a range of solid tumor types. The Company's lead product candidate, ATRC-101, is a monoclonal antibody in clinical development with a novel mechanism of action and target derived from an antibody identified using its discovery platform. The Company operates in a single segment. Since inception, the Company has been primarily engaged in research and development, raising capital, building its management team and building its intellectual property portfolio.

2.           Summary of Significant Accounting Policies

Basis of Presentation

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts of the Company and its wholly owned subsidiary. All intercompany transactions and accounts have been eliminated. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related footnotes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “2020 Form 10-K”).

Principles of Consolidation

The condensed consolidated financial statements include accounts of the Company and its wholly owned subsidiary. All significant intercompany accounts and transactions are eliminated upon consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of income and expenses in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Key estimates in the condensed consolidated financial statements include estimated useful lives of property and equipment, impairment of long-lived assets, accrued expenses, valuation of deferred income tax assets, fair value of warrants issued to purchasers of shares of preferred stock and common stock and fair value of options granted under the Company's stock option plan.

Unaudited Interim Condensed Consolidated Financial Statements

The accompanying condensed consolidated financial statements are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect, in the opinion of management, all adjustments of a normal and recurring nature that are necessary for the fair statement of the Company’s financial position as of March 31, 2021 and its results of operations and cash flows for the three months ended March 31, 2021 and 2020. The financial data and the other financial information contained in these notes to the condensed consolidated financial statements related to the three-month periods are also unaudited. The condensed results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any other future annual or interim period. The consolidated

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balance sheet as of December 31, 2020 included herein was derived from the audited consolidated financial statements as of that date.

Collaborations

Historically, we have entered into a number of discovery collaborations as we developed our discovery platform. These collaborations have generally focused on identifying novel antibodies in areas of significant unmet medical need.

In July 2020, the Company entered into a Collaboration and License Agreement with Xencor, Inc. (“Xencor Agreement”), to research, develop and commercialize novel CD3 bispecific antibodies as potential therapeutics in oncology. Under the Xencor Agreement, the Company and Xencor, Inc. will engage in a three-year research program in which the Company will provide antibodies against novel tumor targets through its discovery platform from which Xencor, Inc. will engineer XmAb bispecific antibodies that also bind to the CD3 receptor on T cells. Up to two joint programs are eligible to be mutually selected for further development and commercialization, with each partner sharing 50% of costs and profits. Each company has the option to lead development, regulatory and commercialization activities for one of the joint programs. In addition, the Xencor Agreement allows each partner the option to pursue up to two programs independently, with a mid-to high-single digit percent royalty payable on net sales to the other partner.

For the cost-sharing related to the research program, the Company will follow the presentation and disclosure guidance of Accounting Standard Codification (“ASC”) 808 Collaboration Agreements. As of March 31, 2021, the Company had $4,000 of payable under the research cost-sharing provision recorded in accrued expenses on the accompanying balance sheet.

The Company evaluated the Xencor Agreement under the provisions of Accounting Standard Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers and all related amendments (collectively, “ASC 606”). The Company concluded that Xencor, Inc. is not a customer as there are no distinct units of account that are reflective of a vendor-customer relationship or exchange of consideration for the research activities.

Other Income

Other income is comprised of amounts earned from services performed under service agreements. Beginning January 1, 2018, the Company follows the provisions of Accounting Standards Update 2014-09 ASC Topic 606, Revenue from Contracts with Customers (“Topic 606”). The guidance provides a unified model to determine how income is recognized.

In determining the appropriate amount of other income to be recognized as it fulfills its obligations under the agreements, the Company performs the following steps: (i) identifies the promised goods or services in the contract; (ii) determines whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measures the transaction price, including the constraint on variable consideration; (iv) allocates the transaction price to the performance obligations based on estimated selling prices; and (v) recognizes other income when (or as) the Company satisfies each performance obligation.

Upon adoption of Topic 606, there was no change to the units of accounting previously identified with respect to existing service agreements under legacy Generally Accepted Accounting Principles (“GAAP”), which are now considered performance obligations under Topic 606, and there was no change to the revenue recognition pattern for the performance obligations. Accordingly, the adoption of the new standard resulted in no cumulative effect change to the Company's opening accumulated deficit balance.

The Company generally allocates the transaction price to distinct performance obligations at their stand-alone selling prices, determined by their estimated costs plus some margin. Performance obligations are generally delivered over time and recognized based upon observable inputs as the related research services are performed, which are recorded as research and development expenses. Amounts due under service agreements are generally billed monthly as services are delivered and do not generally result in contract liabilities or assets. Receivables under service agreements

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of $0 and $13,000 are included in prepaid expenses and other current assets as of March 31, 2021 and December 31, 2020, respectively. In February 2020, the Company entered into an agreement with an external partner for a research project to identify the antigenic targets of select antibodies discovered by the Company with potential utility in oncology. The nonrefundable upfront payment from this agreement was classified as a contract liability and will be recognized as other income over the expected service period of 18 months. Contract liabilities of $0.5 million and $0.8 million related to the agreement are included in other current liabilities, as of March 31, 2021 and December 31, 2020, respectively.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents include all cash balances and highly liquid investments purchased with an original maturity of three months or less.

The Company maintained restricted cash of $1.7 million as of both March 31, 2021 and December 31, 2020, respectively. This amount is included in deposits and other in the accompanying condensed consolidated balance sheets and is comprised solely of letters of credit required pursuant to leases for Company facilities.

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same amounts shown in the condensed consolidated statements of cash flows.

    

March 31, 

    

December 31, 

2021

    

2020

Cash and cash equivalents

$

89,712

$

60,789

Restricted cash

1,652

1,652

Cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows

$

91,364

$

62,441

Investments

The Company considers securities purchased with original maturities greater than three months to be investments. The Company’s policy is to protect the value of its investment portfolio and minimize principal risk by earning returns based on current interest rates. The Company’s intent is to convert all investments into cash to be used for operations and has classified them as available for sale. For purposes of determining realized gains and losses, the cost of securities sold is based on specific identification. Interest and dividends on securities classified as available-for-sale are included in interest income.

Risks and Uncertainties

The Company is subject to a number of risks associated with companies at a similar stage, including dependence on key individuals, competition from similar services and larger companies, volatility of the industry, ability to obtain regulatory clearance, ability to obtain adequate financing to support growth, the ability to attract and retain additional qualified personnel to manage the anticipated growth of the Company and general economic conditions.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents, investments and other receivables. Cash and cash equivalents are held at two financial institutions and were in excess of the Federal Deposit Insurance Corporation insurable limit at March 31, 2021 and December 31, 2020. Additionally, cash and cash equivalents and investments are maintained at brokerage firms for which amounts are insured by the Securities Investor Protection Corporation subject to legal limits. The Company has not experienced any losses on its deposits to date.

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The Company does not require collateral or other security for other receivables; however, credit risk is mitigated by the Company’s ongoing evaluations of its debtors’ credit worthiness.

Research and Development Costs

Research and development costs are expensed as incurred. Research and development costs consist primarily of salaries and benefits, consultant fees, stock-based compensation, certain facility costs, legal costs and other costs associated with preclinical and clinical development.

A substantial portion of the Company’s ongoing research and development activities are conducted by third-party service providers in connection with preclinical and clinical development activities and contract manufacturing organizations in connection with the production of materials for clinical trials. At the end of the reporting period, the Company compares payments made to third-party service providers to the estimated progress toward completion of the research or development objectives. Such estimates are subject to change as additional information becomes available. Depending on the timing of payments to the service providers and the progress that the Company estimates has been made as a result of the service provided, the Company may record net prepaid or accrued expense relating to these costs.

Stock-Based Compensation

The Company generally grants stock options to its employees for a fixed number of shares with an exercise price equal to the fair value of the underlying shares at the date of grant. The Company accounts for stock option grants using the fair value method. The fair value of options is calculated using the Black-Scholes option pricing model. Stock-based compensation is recognized as the underlying options vest using the straight-line attribution approach, and forfeitures are recorded as they occur.

Emerging Growth Company Status

The Company is an “emerging growth company,” (“EGC”) as defined in the Jumpstart Our Business Startups Act, (“JOBS Act”), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not EGCs. The Company may take advantage of these exemptions until it is no longer an EGC under Section 107 of the JOBS Act, which provides that an EGC can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. The Company has elected to use the extended transition period for complying with new or revised accounting standards, and as a result of this election, the Company’s condensed consolidated financial statements may not be comparable to companies that comply with public company Financial Accounting Standards Board (“FASB”) standards’ effective dates. The Company may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of the IPO or such earlier time that the Company is no longer an EGC.

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income Taxes - Simplifying the Accounting for Income Taxes (“Topic 740”): which simplifies the accounting for income taxes, eliminates certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application. The new guidance, effective January 1, 2021, did not have an impact on the Company’s condensed consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU 2016-02 and subsequent amendments to the initial guidance under ASU 2017-13, ASU 2018-10, ASU 2018-11, and ASU 2019-01 (collectively, “Topic 842”), which modifies the accounting by lessees for all leases with a term greater than 12 months. This standard will require lessees to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Topic 842 is effective for the Company as of January 1, 2022. Early adoption is permitted. The Company’s most significant lease is its operating lease for its corporate headquarters, and, while the Company has not yet estimated the amounts by which its financial statements will be affected by the adoption of this guidance, it expects that the overall recognition of expense will be

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similar to current guidance, but that there will be a significant change in the balance sheet due to the recognition of right of use assets and the corresponding lease liabilities.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (“Topic 326”): Measurement of Credit Losses on Financial Instruments and subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04, ASU 2019-05, and ASU 2020-03 which amends the current approach to estimate credit losses on certain financial assets, including trade and other receivables. The amendment replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. For available-for-sale debt securities, credit losses should be recorded through an allowance for credit losses. Topic 326 is effective for the Company as of January 1, 2023. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements and related disclosures.

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3.           Fair Value of Financial Instruments

The Company’s financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used for such measurements were as follows:

March 31, 2021

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets

  

  

  

  

Money market funds

$

82,449

$

$

$

82,449

U.S. Agency Bonds

10,695

10,695

Certificates of deposit

449

449

Corporate debt securities

9,903

9,903

U.S. Treasury securities

100,911

100,911

Total

$

183,809

$

20,598

$

$

204,407

December 31, 2020

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets

  

  

  

  

Money market funds

$

57,951

$

$

$

57,951

U.S. Agency Bonds

10,706

10,706

Certificates of deposit

941

941

Corporate debt securities

16,667

16,667

U.S. Treasury securities

150,982

150,982

Total

$

209,874

$

27,373

$

$

237,247

The Company utilized the market approach and Level 1 valuation inputs to value its money market funds and U.S. government treasury securities because published fair market values were readily available. The Company measured the fair value of corporate debt securities and U.S. agency bonds using Level 2 valuation inputs, which are based on quoted prices and market observable data of similar instruments. As of March 31, 2021 and 2020, gross unrealized gains and unrealized losses for cash equivalents and investments were not material, and the remaining contractual maturity of all marketable securities was less than one year.

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4.           Cash, Cash Equivalents and Investments

The fair value and the amortized cost of cash, cash equivalents and available-for-sale investments by major security type consist of the following (in thousands):

As of March 31, 2021

Gross

Gross

Estimated

Amortized

Unrealized

Unrealized

Fair

Cash and cash equivalents and investments

    

Cost

    

Gains

    

Losses

    

Value

Cash, cash equivalents and money market funds

$

89,712

$

$

$

89,712

U.S. Treasury securities

 

100,864

47

100,911

Corporate debt securities

9,906

(3)

9,903

U.S. Agency bonds

10,691

4

10,695

Certificates of deposit

447

 

2

 

 

449

Total

 

211,620

 

53

 

(3)

 

211,670

Less amounts classified as cash and cash equivalents

 

(89,712)

 

 

 

(89,712)

Total available-for-sale investments

$

121,908

$

53

$

(3)

$

121,958

As of December 31, 2020

Gross

Gross

Estimated

Amortized

Unrealized

Unrealized

Fair

Cash and cash equivalents and investments

    

Cost

    

Gains

    

Losses

    

Value

Cash, cash equivalents and money market funds

$

60,789

$

$

$

60,789

U.S. Treasury securities

 

150,929

53

150,982

Corporate debt securities

16,668

(1)

16,667

U.S. Agency bonds

10,704

2

10,706

Certificates of deposit

937

 

4

 

 

941

Total

 

240,027

 

59

 

(1)

 

240,085

Less amounts classified as cash and cash equivalents

 

(60,789)

 

 

 

(60,789)

Total available-for-sale investments

$

179,238

$

59

$

(1)

$

179,296

5.           Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following (in thousands):

    

March 31,

December 31,

 

    

2021

    

2020

    

Prepaid insurance

$

716

$

1,453

Vendor prepayments and deposits

2,502

1,557

Prepaid rent

 

1,438

 

1,397

Tenant improvement receivables

7,972

3,732

Non-trade receivables

 

5

 

336

Interest receivables and other current assets

476

562

Total prepaid expenses and other current assets

$

13,109

$

9,037

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6.           Property and Equipment, net

Property and equipment consists of the following (in thousands):

March 31, 

    

December 31, 

    

2021

    

2020

 

Laboratory equipment

$

11,762

$

11,287

Furniture and fixtures

 

242

 

242

Computer hardware and software

 

1,004

 

919

Leasehold improvements

 

667

 

667

Construction in process

 

28,469

 

14,379

 

42,144

 

27,494

Less accumulated depreciation and amortization

 

(8,196)

 

(7,663)

Total property and equipment, net

$

33,948

$

19,831

Depreciation expense was $0.6 million and $0.5 million for the three months ended March 31, 2021 and 2020, respectively.

The net book value of property and equipment under capital leases was $38,000 and $49,000 at March 31, 2021 and December 31, 2020, respectively.

7.           Accrued Expenses

Accrued expenses consist of the following (in thousands):

    

March 31,

    

December 31,

2021

    

2020

Compensation and related benefits

$

2,246

$

4,954

Accrued Construction-in-progress

5,374

4,145

Professional fees

251

82

Contract research fees

777

809

Other

485

312

Total accrued expenses

$

9,133

$

10,302

8.           Commitments and Contingencies

Leases

The Company leases its office facilities under non-cancellable operating lease agreements that expire at various dates through April 2033. Under the terms of the leases, the Company is responsible for certain insurance, property taxes and maintenance expenses. The office facilities lease agreements contain scheduled increases over the lease term. The related rent expense is calculated on a straight-line basis with the difference recorded as deferred rent. Rent expense was $3.3 million and $2.0 million for the three months ended March 31, 2021 and 2020, respectively.

The Company leases certain property and equipment under capital leases. In 2017, the Company financed purchases of $226,000 under a capital lease agreement. Outstanding amounts under the capital lease agreements are generally secured by liens on the related property and equipment.

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Future minimum lease payments under non-cancelable operating and capital lease agreements consisted of the following at March 31, 2021 (in thousands):

    

Capital

    

Operating

Leases

Leases

Years ending December 31:

2021 (remaining 9 months)

$

38

$

5,264

2022

 

4

 

7,336

2023

 

 

7,037

2024

7,249

2025

7,466

Thereafter

61,625

Total minimum lease payments

 

42

$

95,977

Less: amount representing interest

 

(1)

Present value of capital lease obligation

 

41

Less: current portion

 

(41)

Non-current portion

$

Litigation

The Company is not aware of any asserted or unasserted claims against it where it believes that an unfavorable resolution would have an adverse material impact on the operations or financial position of the Company.

9.           Capital Stock

Class A and Class B Common Stock

On June 2, 2019 the board of directors of the Company authorized the issuance of 650,000,000 shares of Class A common stock, $0.0001 par value per share, 50,000,000 shares of Class B common stock, $0.0001 par value per share and 300,000,000 shares of preferred stock, $0.0001 par value per share, upon the filing of the Company’s Amended and Restated Certificate of Incorporation in connection with the reverse stock split. Each holder of Class A common stock will be entitled to one vote and each holder of Class B common stock is not entitled to vote except as may be required by law and shall not be entitled to vote on the election of directors at any time.

Sales Agreement

In August 2020, the Company entered into a sales agreement (“Sales Agreement”) with Cowen and Company, LLC (“Cowen”), pursuant to which the Company may, upon the terms and subject to the conditions set forth therein, issue and sell through Cowen, acting as the Company’s sales agent and/or principal, shares of the Company’s Class A common stock, having an aggregate offering price of up to $100.0 million (the “ATM Shares”). The Company has no obligations to sell any ATM Shares under the Sales Agreement. The issuance and sale of the ATM Shares, if any, is subject to the continued effectiveness of the Company’s shelf registration statement on Form S-3, File No. 333-239652, initially filed with the SEC on July 2, 2020 and declared effective by the SEC on July 10, 2020. The Sales Agreement provides that Cowen will be entitled to compensation for its services in an amount equal to up to 3.0% of gross proceeds for each time we issue and sell ATM Shares under the Sales Agreement. The ATM Shares will be sold based on prevailing market prices at the time of the sale, and, as a result, prices may vary. Unless otherwise terminated earlier, the Sales Agreement continues until all shares available under the Sales Agreement have been sold. As of March 31, 2021, no ATM Shares have been sold under the Sales Agreement.

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10.           Equity Incentive Plans

2019 Equity Incentive Plan

The Company’s board of directors adopted and our stockholders approved our 2019 Equity Incentive Plan, (the “2019 Plan”), on June 2, 2019, and June 7, 2019, respectively. The 2019 Plan became effective on June 19, 2019, and no further grants will be made under the Company’s 2010 Equity Incentive Plan (the “2010 Plan”). The purpose of the 2019 Plan, through the grant of stock awards including stock options and other stock-based awards, including restricted stock units (“RSUs”), is to help the Company secure and retain the services of eligible award recipients, provide incentives for such persons to exert maximum efforts for our success and that of the Company’s affiliates, and provide a means by which the eligible recipients may benefit from increases in the value of the Company’s Class A common stock. Under the 2019 Plan, 6,141,842 shares of the Company’s Class A common stock have been reserved for issuance to employees, directors and consultants. Additionally, the number of shares of the Company’s Class A common stock reserved for issuance under the 2019 Plan will automatically increase on January 1 of each year, beginning on January 1, 2020 and continuing through and including January 1, 2029, by 4% of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by the Company’s board of directors.

Stock option activity under the 2019 Plan and the Company’s 2010 Plan is as follow:

Options Outstanding

Weighted-

Average

Aggregate

Weighted-

Remaining

Intrinsic

Number

Average

Contractual

Value

    

of Shares

Exercise Price

Life (years)

(in thousands)

Balances, December 31, 2020

 

4,812,223

$

13.33

8.2

$

21,493

Granted

 

1,531,520

 

14.04

 

 

Exercised

 

(43,349)

 

5.56

 

 

Cancelled

 

(314,105)

 

15.23

 

 

Balances, March 31, 2021

 

5,986,289

$

13.47

8.4

$

20,154

Vested and expected to vest at March 31, 2021

 

5,986,289

$

13.47

8.4

$

20,154

Exercisable at March 31, 2021

 

2,647,026

$

10.52

7.6

$

15,461

Vested at March 31, 2021

 

2,401,069

$

11.07

7.6

$

12,959

The weighted-average grant date fair value of options granted to employees and non-employees in the three ended March 31, 2021 and 2020 was $10.42 and $15.63, respectively. The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model, assuming no expected dividends and the following weighted average assumptions:

Three Months Ended March 31, 

    

2021

    

2020

 

 

Expected life (in years)

 

5.98

 

5.95

Volatility

 

91.7

%  

84.9

%

Risk-free interest rate

 

0.6

%  

1.2

%

Expected volatility is based on volatilities of public companies operating in the Company’s industry. The expected life of the options is estimated using the simplified method detailed in SEC Staff Accounting Bulletin No. 107. The simplified method calculates the expected term as the mid-point between the weighted-average time to vesting and the contractual maturity. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The Company has elected to account for forfeitures as they occur, rather than estimate expected forfeitures.

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2019 Employee Stock Purchase Plan

The Company’s board of directors adopted the 2019 Employee Stock Purchase Plan, (“ESPP”), on June 2, 2019, and the Company’s stockholders approved the ESPP on June 7, 2019. The ESPP became effective on June 19, 2019. The Company’s board of directors authorized 283,333 shares of Class A common stock to be reserved for future issuance under the ESPP. The number of shares of our Class A common stock reserved for issuance will automatically increase on January 1 of each calendar year, from January 1, 2020 through January 1, 2029, by the lesser of (1) 1% of the total number of shares of our Class A common stock outstanding on December 31 of the preceding calendar year, and (2) 416,666 shares; provided, that prior to the date of any such increase, the Company’s board of directors may determine that such increase will be less than the amount set forth in clauses (1) and (2). During the three months ended March 31, 2021 and 2020, the expense related to the ESPP was $216,000 and $164,000, respectively. The fair value of each ESPP is estimated on the date of grant using the Black-Scholes option pricing model, assuming no expected dividends and the following range of assumptions:

Three Months Ended March 31, 

    

2021

    

2020

 

 

Expected life (in years)

 

0.5 - 2.0

 

0.5 - 2.0

Volatility

 

93.9 - 107.6

%  

91.4 - 106.8

%

Risk-free interest rate

 

0.1

%  

0.9 - 1.1

%

The Company recognized $4.4 million and $2.5 million of stock-based compensation expense related to the 2019 Plan, 2010 Plan, and ESPP for the three months ended March 31, 2021 and 2020, respectively. The compensation expense is allocated on a departmental basis, based on the classification of the option holder as follows (in thousands):

Three Months Ended March 31, 

    

2021

    

2020

 

Research and development

$

2,216

$

1,058

General and administrative

 

2,184

 

1,424

$

4,400

$

2,482

No income tax benefits have been recognized in the statements of operations for stock-based compensation arrangements and no stock-based compensation costs have been capitalized as property and equipment as of March 31, 2021.

Unrecognized compensation expense as of March 31, 2021 totaled $36.4 million related to non-vested stock options with a remaining weighted-average requisite service period of 2.9 years.

11.          401(k) Plan

The Company has a 401(k) plan that qualifies as a deferred compensation arrangement under Section 401 of the Code. Eligible employees may elect to defer a portion of their pretax earnings subject to certain statutory limits. Beginning January 1, 2021, the Company matches 100% up to the first $5,000 contributed by a participant. All matching contributions are immediately vested. Total matching contributions to the 401(k) Plan were $0.4 million for the three months ended March 31, 2021.

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12.          Net Loss Per Share

The following outstanding potentially dilutive common shares were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because the impact of including them would have been antidilutive:

Three Months Ended March 31, 

    

2021

    

2020

Common stock options

5,986,289

3,948,730

Convertible common stock warrants

49,997

49,997

6,036,286

3,998,727

13.          Income Taxes

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted and signed into law. GAAP requires recognition of the tax effects of new legislation during the reporting period that includes the enactment date. The CARES Act, includes changes to the tax provisions that benefits business entities, and makes certain technical corrections to the 2017 Tax Cuts and Jobs Act. The tax relief measures for businesses include a five-year net operating loss carryback, suspension of annual deduction limitation of 80% of taxable income from net operating losses generated in a tax year beginning after December 31, 2017, changes in the deductibility of interest, acceleration of alternative minimum tax credit refunds, payroll tax relief, and a technical correction to allow accelerated deductions for qualified improvement property. The CARES Act also provides other non-tax benefits to assist those impacted by the pandemic. The Company has evaluated the impact of the CARES Act and determined there was no material impact to the income tax provision for the quarter.

14.          Related Party Transactions

The Company recorded other income of $0 and $131,000 for the three months ended March 31, 2021 and 2020, respectively, under service contracts with a stockholder. The Company had a receivable from the stockholder at March 31, 2021 and December 31, 2020 of $0 and $13,000, respectively.

The Company recorded expense of $0.5 million and $0.4 million during the three months ended March 31, 2021 and 2020, respectively, related to intellectual property and other legal services performed by a related party. The Company owed $0.3 million and $0.1 million to the related party at March 31, 2021 and December 31, 2020, respectively.

The Company recorded expense of $0.3 million and $0.5 million during the three months ended March 31, 2021 and 2020, respectively, related to legal services performed by a related party. The Company owed $161,000 and $250,000 to the related party at March 31, 2021 and December 31, 2020, respectively.

The Company recorded research and development expense of $63,000 and $75,000 during the three months ended March 31, 2021 and 2020, respectively, under consulting agreements with a member of the Company’s board of directors. The Company owed $74,000 to the members of the Company’s board of directors as of both March 31, 2021 and December 31, 2020, respectively.

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15.          Subsequent Events

The Company has evaluated subsequent events that may require adjustments to or disclosure in the unaudited interim condensed consolidated financial statements through May 12, 2021, the date on which the unaudited interim condensed consolidated financial statements were available to be issued.

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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 (1) our unaudited condensed consolidated financial statements and related notes appearing in Part I, Item I of this Quarterly Report on Form 10-Q and (2) the audited consolidated financial statements and the related notes and the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the fiscal year ended December 31, 2020 included in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission, or SEC, on February 26, 2021, or 2020 Form 10-K.

Special Note Regarding Forward-Looking Statements

The following discussion and this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, Section 27A of the Securities Act and within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by the use of the words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “will,” “should,” “may,” “plan,” “assume” and other expressions that predict or indicate future events and trends and which do not relate to historical matters. You should not rely on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, some of which are beyond our control. These risks, uncertainties and other factors may cause our actual results, performance or achievements to be materially different from our anticipated future results, performance or achievements expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors,” set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate we have conducted exhaustive inquiry into, or review of, all potentially available relevant information. We anticipate that subsequent events and developments will cause our views to change. New risks emerge from time to time, and it is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. While we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q and are cautioned not to place undue reliance on such forward-looking statements.

Overview

We are a clinical-stage biopharmaceutical company utilizing our differentiated platform to discover and develop novel antibody-based immunotherapeutics to treat a range of solid tumor types. While more traditional oncology drug discovery approaches attempt to generate antibodies against known targets, our approach relies on the human immune system to direct us to unique antibody-target pairs from patients experiencing a clinically meaningful, active immune response against their tumors. These unique antibody-target pairs represent a potentially novel and previously unexplored landscape of immuno-oncology targets. We believe the fact that our approach has the potential to deliver novel, previously unexplored immuno-oncology targets provides us with a significant competitive advantage over traditional approaches which focus on known targets that many companies are aware of and can pursue. We have utilized our drug discovery approach to identify over 2,000 distinct human antibodies that bind preferentially to tumor tissue from patients who are not the source of the antibody. Our lead product candidate, ATRC-101, is a monoclonal antibody with a novel mechanism of action and target derived from an antibody identified using our discovery platform. ATRC-101 reacts in vitro with a majority of human ovarian, non-small cell lung, colorectal and breast cancer samples from multiple patients. It has demonstrated robust anti-tumor activity as a single agent in multiple preclinical models, including one model in which PD-1 checkpoint inhibitors typically display limited activity. We have initiated a Phase 1b clinical trial in patients with select solid tumors in which the first patient was dosed in February 2020. Our efforts beyond ATRC-101 are focused on expanding our clinical pipeline by advancing additional product candidates using our

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large library of "hit" antibodies that bind preferentially to tumor tissue across patients. To that end, via internal efforts and partnerships, we are both continuing to develop our platform and combining the novel antibodies that are generated by our platform with antibody "weaponization" technologies.

We commenced operations in 2010, and have since devoted substantially all of our resources to research and development, identifying product candidates, undertaking preclinical studies, conducting clinical trials, raising capital, building our management team and building our intellectual property portfolio. We do not have any products approved for marketing or sale and have not generated any revenue from product sales. Our ability to generate product revenue sufficient to achieve or sustain profitability will depend on the successful development, regulatory approval and eventual commercialization of one or more of our current or future product candidates.

To date, we have financed our operations primarily through equity offerings of our securities. Our net losses were $25.8 million and $20.4 million for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, we had an accumulated deficit of $276.2 million. We anticipate that a substantial portion of our capital resources and efforts in the foreseeable future will be focused on discovering, completing the necessary development, obtaining regulatory approval for and preparing for potential commercialization of product candidates. As of March 31, 2021, we had cash, cash equivalents and investments of $211.7 million. Although it is difficult to predict our funding requirements, we anticipate that our cash, cash equivalents and marketable securities as of March 31, 2021, should enable us to fund our operations for at least the next 12 months, assuming our programs and collaborations advance as currently contemplated.

We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. Our net losses may fluctuate significantly from period to period, depending on the timing of our planned preclinical studies and clinical trials and expenditures on other research and development activities. We expect our expenses will increase substantially over time as we:

complete clinical trials for ATRC-101 and initiate preclinical studies on any additional product candidates that we may pursue in the future;
continue research and development to expand our growing library of more than 2,000 antibodies and develop potential future product candidates from that collection;
continue to invest in advancing our differentiated discovery platform, and the underlying technologies;
seek marketing approvals for product candidates that successfully complete clinical trials;
maintain, protect and expand our portfolio of intellectual property rights, including patents, trade secrets and know-how;
implement additional operational, financial and management systems; and
attract, hire and retain additional administrative, clinical, regulatory and research personnel.

Impact of COVID-19

In March 2020, COVID-19, a disease caused by a novel strain of the coronavirus, was characterized as a pandemic by the World Health Organization. In response to COVID-19, we have taken, and continue to take, proactive measures to prioritize health and safety, including of our employees and other personnel, and to maintain business continuity. Following guidance from federal, state and local authorities, we transitioned to a fully remote working environment in March 2020. As a result, our laboratories and office locations were closed for more than two months and partially re-opened in June 2020 for lab-based personnel and certain essential personnel only. All onsite personnel are required to adhere to our COVID-19 safety protocols for their protection. All other personnel are still working remotely. In addition, in our clinical trial for ATRC-101, we experienced delays due to COVID-19 in initiating sites, achieving patient compliance with study-related procedures, and enrolling patients during the second and third quarters of fiscal 2020, although we have not experienced enrollment delays since that time. The financial results for the three months ended March 31, 2021 reflect a decrease in overall operating expenses as a result of these impacted activities.

To date, the COVID-19 pandemic has not had a material adverse impact on our productivity or our business, and as of March 31, 2021, we have not identified any significant disruption or impairment of our assets due to the pandemic. However, we cannot predict the potential future impacts of COVID-19, including its variants, on us and third

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parties with whom we conduct business, including on our clinical studies and our clinical trial for ATRC-101 and related timelines, as well as our preclinical activities. These impacts will depend on future developments that are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak and the effectiveness of actions taken in the United States and other countries to contain, vaccinate against, and treat the disease and other factors identified in Part II, Item 1A. “Risk Factors” in this Form 10-Q. Given these uncertainties, COVID-19 could impact our business operations and our ability to execute on our associated business strategies and initiatives, and adversely impact our consolidated results of operations and our financial condition in the future, and could disrupt the business of third parties with whom we do business, including our existing and potential future collaborators. We will continue to closely monitor and evaluate the nature and extent of the impacts of COVID-19 on our business, consolidated results of operations, and financial condition.

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, which provides emergency assistance for individuals, families, and businesses affected by COVID-19. One such measure is the employer retention payroll tax credit, under which, eligible employers may claim a credit against applicable employment taxes. The maximum credit may be worth up to $5,000 per eligible employee. We assessed our eligibility under the provision and recognized a payroll tax credit of $598,000 in the year ended December 31, 2020.

Financial Operations Overview

Revenue

We have no products approved for marketing or commercial sale and have never generated any revenue from product sales.

Operating Expenses

Research and Development

Research and development expenses represent costs incurred in performing research, development and manufacturing activities in support of our own product development efforts, including intellectual property legal expenses, salaries, employee benefits and stock-based compensation for personnel contributing to research and development activities, laboratory supplies, outsourced research and development expenses, professional services and allocated facilities-related costs. We expect our research and development expenses to increase in the foreseeable future as we continue to invest in our differentiated discovery platform to expand our pipeline of product candidates, advance our product candidates into and through preclinical studies and clinical trials and pursue regulatory approval of our product candidates.

General and Administrative

Our general and administrative expenses consist primarily of personnel costs, allocated facilities costs and other expenses for outside professional services, including legal, human resource, audit and accounting services. We expect to incur additional general and administrative expenses as we continue to support the growth of our business and incur the costs of compliance associated with being a public company.

Interest and Other Income (Expense)

Other income (expense) includes other income which represents amounts received from partners for research and discovery services, interest income earned on our cash, cash equivalents and investments, interest expense, revaluation expense resulting from the liability recorded for certain preferred stock warrants and gains or losses on the periodic disposals of property and equipment.

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Results of Operations

Comparison of the three months ended March 31, 2021 and 2020

The following table summarizes our results of operations during the respective periods:

Three Months Ended

 

March 31, 

Change

 

    

2021

    

2020

    

$

    

%

 

(in thousands)

 

Operating expenses:

 

  

 

  

 

  

  

Research and development

$

18,388

$

14,210

$

4,178

29

%

General and administrative

 

7,821

 

7,123

 

698

10

%

Total operating expenses

 

26,209

 

21,333

 

4,876

23

%

Operating Loss

 

(26,209)

 

(21,333)

 

(4,876)

23

%

Other income (expense), net:

 

 

 

Other income

 

344

 

231

 

113

49

%

Interest income

 

91

 

685

 

(594)

(87)

%

Interest expense

 

(1)

 

(1)

 

%

Total other income, net

 

434

 

915

 

(481)

(53)

%

Income tax expense

 

 

 

*

Net Loss

$

(25,775)

$

(20,418)

$

(5,357)

26

%


*

Not meaningful

Research and Development

The following table summarizes our research and development expenses incurred during the respective periods:

Three Months Ended

March 31, 

    

2021

    

2020

(in thousands)

Personnel related (including stock‑based compensation)

$

8,388

$

6,282

Product and other contract services

 

2,843

 

2,604

Laboratory supplies and equipment

 

2,353

 

1,804

Consulting, legal and other services

 

1,160

 

714

Facility related

 

3,127

 

2,182

Other

 

517

 

624

Total research and development expenses

$

18,388

$

14,210

Research and development expenses increased by $4.2 million, or 29%, during the three months ended March 31, 2021 compared to the same period in 2020. The increase was primarily attributable to higher personnel-related expenses of $2.1 million as a result of additional employee headcount, a $0.9 million increase in facility expenses as the San Carlos premises were delivered to us for the construction of certain tenant improvements, and a $0.6 million increase in laboratory supplies and equipment for increased research and development activities.

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General and Administrative

The following table summarizes our general and administrative expenses incurred during the respective periods:

Three Months Ended

March 31, 

    

2021

    

2020

(in thousands)

Personnel related (including stock‑based compensation)

$

4,389

$

3,518

Consulting, legal and other services

 

1,017

 

1,489

Facility related

 

1,024

 

712

Other

 

1,391

 

1,404

Total general and administrative expenses

$

7,821

$

7,123

General and administrative expenses increased by $0.7 million, or 10%, during the three months ended March 31, 2021 compared to the same period in 2020. The increase consists of a $0.9 million increase in personnel-related expenses, including stock-based compensation, as a result of additional employee headcount and a $0.3 million increase in facility expenses as the San Carlos premises were delivered to us for the construction of certain tenant improvements. This was partially offset by a $0.5 million decrease in consulting, legal and other services.

Other Income

Other income is comprised of amounts earned from research and discovery services provided to partners under service agreements. Other income increased by $0.1 million during the three months ended March 31, 2021 compared to the same period in 2020 due to the services provided to a third party partner.

Interest Income

Interest income decreased to $0.1 million during the three months ended March 31, 2021 as compared to $0.7 million during the three months ended March 31, 2020 due primarily to a significant decrease in market interest rates on fixed income and money market securities.

Interest Expense

Interest expense during the three months ended March 31, 2021 and 2020 pertained to the interest portion of payments made on capital leases under which we acquired certain property and equipment.

Liquidity and Capital Resources; Plan of Operations

Liquidity and Capital Resources

As of March 31, 2021, we had cash, cash equivalents and investments totaling $211.7 million. Our cash and cash equivalents primarily consist of bank deposits and money market funds. Our investments consist of U.S. government treasury and agency securities, commercial paper and corporate debt securities.

Due to our significant research and development expenditures, we have generated significant operating losses since inception. We have funded our operations primarily through the sale of convertible preferred stock and common stock.

In July 2020, we issued and sold 7,642,125 shares of our Class A common stock, and 781,250 shares of our Class B common stock at an offering price of $16.00 per share. The net proceeds to us from this offering was $126.1

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million after deducting underwriting discounts and commissions of $8.1 million and other offering expenses of $0.6 million. As of March 31, 2021, we had an accumulated deficit of $276.2 million.

Our management evaluates whether there are relevant conditions and events that in the aggregate raise substantial doubt about our ability to continue as a going concern and to meet its obligations as they become due within one year from the date that the financial statements are issued. We believe our existing cash and cash equivalents and short-term investments will be sufficient to fund our operating and capital needs for at least the next 12 months.

We are subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Identification and development of product candidates will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if our drug development efforts are successful, it is uncertain when, if ever, we will realize significant revenue from product sales.

Cash Flows

The following table summarizes our cash flows for the periods indicated:

Three Months Ended

March 31, 

    

2021

    

2020

(in thousands)

Cash used in operating activities

$

(17,698)

$

(17,914)

Cash provided by (used in) investing activities

 

45,908

 

(48,800)

Cash provided by financing activities

 

713

 

943

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

$

28,923

$

(65,771)

Cash Flows from Operating Activities

For the three months ended March 31, 2021, cash used in operating activities was $17.7 million, which consisted of a net loss of $25.8 million, partially offset by $5.4 million in non-cash charges and a net change of $2.6 million in our net operating assets and liabilities. The non-cash charges consisted of depreciation and amortization of $0.6 million and stock-based compensation of $4.4 million. The change in operating assets and liabilities was primarily due a $9.9 million increase in deferred rent because of increased lease incentive obligations. This increase was partially offset by a $4.0 million increase in prepaid expenses and other current assets as a result of the increase of tenant improvement receivable from the Company’s leasehold improvement construction for its San Carlos location and other prepaid vendor expenses, and a $2.5 million decrease in accrued expenses attributable to payment of accrued bonus expenses.

For the three months ended March 31, 2020, cash used in operating activities was $17.9 million, which consisted of a net loss of $20.4 million and a net change of $0.3 million in our net operating assets and liabilities, partially offset by $2.9 million in non-cash charges. The non-cash charges consisted of depreciation and amortization of $0.5 million and stock-based compensation of $2.5 million. The change in operating assets and liabilities was primarily due to a decrease in accrued expense of $3.0 million resulting from the payment of accrued bonus expenses and decreased preclinical activities, partially offset by increases in other current and non-current liabilities of $1.1 million and $0.5 million, respectively, resulting from an increase contract liabilities balance from our new arrangement with an external partner, a $0.7 million increase in deferred rent primarily due to increases in lease incentive obligation, and a $0.5 million decrease in prepaid expenses and other current assets attributable to amortization of prepaid insurance expenses.

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Cash Flows from Investing Activities

For the three months ended March 31, 2021, cash provided by investing activities of $45.9 million was primarily related to $56.9 million in net proceed from maturities of investments, partially offset by $11.0 million in purchases of property and equipment.

For the three months ended March 31, 2020, cash used in investing activities of $48.8 million was primarily related to $59.0 million in purchases of investments, partially offset by $10.6 million provided by proceeds from maturities of investments.

Cash Flows from Financing Activities

For the three months ended March 31, 2021, cash provided by financing activities was $0.7 million, which primarily related to $0.5 million and $0.2 million of proceeds from our 2019 Employee Stock Purchase Plan (“ESPP”) program and employee stock option exercises, respectively.

For the three months ended March 31, 2020, cash provided by financing activities was $0.9 million, which primarily related to $0.5 million and $0.4 million of proceeds from our 2019 ESPP program and employee stock option exercises, respectively.

Contractual Obligations and Other Commitments

The following table summarizes our contractual obligations as of March 31, 2021:

Payments Due by Period

    

Less than

    

    

    

More than

    

1 Year

1 to 3 Years

3 to 5 Years

5 Years

Total

(in thousands)

Contractual obligations:

 

  

 

  

 

  

 

  

 

  

Operating lease obligations

$

7,441

$

13,972

$

14,822

$

59,742

$

95,977

Capital lease obligations

 

42

 

 

 

 

42

Total contractual obligations

$

7,483

$

13,972

$

14,822

$

59,742

$

96,019

The operating lease obligations noted above represent operating lease obligations related to our currently occupied premises in South San Francisco, California, and premises in San Carlos, California, which we took possession of in August 2020 for the construction of certain tenant improvements prior to our rent commencement. These leases expire at various dates through the second half of 2033.

In July 2019, we entered into a lease agreement, or the San Carlos Lease, for the lease of approximately 99,557 rentable square feet of office space located in San Carlos, California, which is intended to serve as our permanent headquarters, office and laboratory space following the completion of construction and certain tenant improvements. The term of the San Carlos Lease commenced in August 2020, and the premises were delivered to us for the construction of certain tenant improvements. The term will end on the date that is 144 months from the first day of the first full month after rent commences. Base rent for the San Carlos Lease is $557,519 per month, with annual increases of 3%. We are obligated to provide a security deposit of $1.1 million in the form of a letter of credit.

In July 2019, concurrently with the execution and delivery of the San Carlos Lease, we also entered into a lease agreement, or the Temporary Lease, for the lease of approximately 74,788 rentable square feet of office space located in South San Francisco, California, which is intended to serve as our temporary headquarters, office and laboratory space while our permanent headquarters is under construction. The Temporary Lease commenced in August 2019, and is expected to end 90 days following the substantial completion of certain tenant improvements and construction on the space covered by the San Carlos Lease. Base rent for the Temporary Lease is $280,455 per month, with annual increases of 3%.

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The capital lease obligations noted above represent certain property and equipment we acquired under capital leases. In 2017, we financed purchases of $226,000 in equipment under a capital lease agreement. Outstanding amounts under the capital lease agreements are generally secured by liens on the related property and equipment.

In addition, we enter into contracts in the normal course of business with contract research organizations for preclinical and clinical studies as well as with contract development manufacturing organizations for the manufacture of materials for those studies. These agreements generally provide for termination at the request of either party with less than one-year notice and are, therefore, cancelable contracts and not reflected in the table above.

Off-Balance Sheet Arrangements

Since inception, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles, or GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as the reported revenue generated, and reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

There have been no material changes in our critical accounting policies from those disclosed in our 2020 Form 10-K, under the heading Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Emerging Growth Company Status

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.

We elected to use this extended transition period for complying with new or revised accounting standards, including but not limited to the new lease accounting standard, that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. We early adopted Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Accounting Standards Codification Topic 606), and Accounting Standards Update 2018-07, Improvements to Nonemployee Share-Based Payment Accounting (Accounting Standards Codification Topic 718), as the JOBS Act does not preclude an emerging growth company from early adopting a new or revised accounting standard earlier than the time that such standard applies to private companies. We expect to use the extended transition period for any other new or revised accounting standards during the period in which we remain an emerging growth company.

We will remain an emerging growth company until the earliest of (i) December 31, 2024, (ii) the last day of our first fiscal year in which we have total annual gross revenues of at least $1.07 billion, (iii) the date on which we are deemed to be a “large accelerated filer” under the rules of the Securities and Exchange Commission, which means the market value of our voting and non-voting common equity that is held by non-affiliates is equal to or exceeds $700.0 million as of the prior June 30th and (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

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Recent Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies, in our Notes to Condensed Consolidated Financial Statements (Unaudited) included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

We have operations both within the United States and internationally, and we are exposed to market risk in the ordinary course of business.

Interest Rate Risk

The primary objectives of our investment activities are to ensure liquidity and to preserve capital. We are exposed to market risks in the ordinary course of our business. These risks include interest rate sensitivities. We held cash, cash equivalents and investments of $211.7 million and $183.4 million as of March 31, 2021 and December 31, 2020, respectively. We generally hold our cash in interest-bearing money market accounts. Historical fluctuations in interest rates have not been significant for us. Due to the short-term maturities of our cash equivalents and the low risk profile of our investments, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our cash equivalents or investments.

Foreign Currency

The U.S. dollar is our functional currency and the functional currency of our subsidiary is Singapore dollars. For consolidation purposes, assets and liabilities of our subsidiary are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Revenue and expenses are translated at average exchange rates in effect during the period. Gains and losses from transactions denominated in foreign currency are included in the accumulated other comprehensive loss component of stockholders' equity (deficit). Translation adjustments are not included in earnings unless they are realized through a sale or upon a complete or substantially complete liquidation of our net investment in its foreign operations.

Item 4.   Controls and Procedures

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e)) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to provide reasonable assurance that information required to be disclosed in our reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. As required by Rule 13a-15(b) under the Exchange Act, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2021, our disclosure controls and procedures were effective at the reasonable assurance level.

 

Changes in Internal Control over Financial Reporting

 

There were no changes to our internal control over financial reporting that occurred during the quarter ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Inherent Limitations Over Internal Controls

 

Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Accordingly, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and fraud.

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PART II.    OTHER INFORMATION

Item 1.   Legal Proceedings

From time to time, we may become involved in litigation relating to claims arising from the ordinary course of business. Our management believes that there are currently no claims or actions pending against us, the ultimate disposition of which would have a material adverse effect on our results of operations, financial condition or cash flows.

Item 1A. Risk Factors

Our operations and financial results are subject to various risks and uncertainties including those described below. You should consider and read carefully all of the risks and uncertainties described below, in addition to other information contained in this Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and related notes, our “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as our other public filings. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. If any of the following risks or additional risks and uncertainties not presently known to us, that we currently believe to be immaterial, or others not specified below materialize, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that case, the trading price of our Class A common stock could decline, and you may lose all or part of your original investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations and the market price of our common stock. This Quarterly Report on Form 10-Q also contains forward-looking statements and estimates that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of specific factors, including the risks and uncertainties described below. The risks relating to our business set forth in our 2020 Form 10-K, are set forth below and are unchanged substantively as of March 31, 2021, except for those risks designated by an asterisk (*).

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Risk Factor Summary

The success of our business will depend on a number of factors, many of which are beyond our control and involve risks, including but not limited to the following:*

Risks Related to Our Business

We are a clinical-stage biopharmaceutical company with a history of losses. We expect to continue to incur significant losses for the foreseeable future and may never achieve or maintain profitability, which could result in a decline in the market value of our Class A common stock.
ATRC 101 is in clinical trials. It may fail in development or suffer delays that materially and adversely affect its commercial viability.
ATRC 101 may not demonstrate the combination of safety and efficacy necessary to become approvable or commercially viable.
COVID-19 could adversely impact our business and our operations, including at our laboratories and office locations, which were closed for more than two months and reopened in June 2020 for lab-based personnel and certain essential personnel only, and at our clinical trial sites, as well as the business and operations of our manufacturers, CROs or other third parties with whom we conduct business.
Failure to successfully validate, develop and obtain regulatory approval for companion diagnostics for our product candidates could harm our drug development strategy and operational results.
We may not be successful in our efforts to use and expand our discovery platform to build a pipeline of product candidates.
Our approach to developing and identifying our antibodies using our discovery platform is novel and unproven and may not result in marketable products.
The market may not be receptive to our current or potential future product candidates, and we may not generate any revenue from the sale or licensing of our product candidates.
If there are undesirable side effects caused by ATRC-101 or any potential future product candidate in clinical trials or after receiving marketing approval, our ability to market and derive revenue from the product candidate could be compromised.
We will need substantial additional funds to advance development of product candidates and our discovery platform, and we cannot guarantee that we will have sufficient funds available in the future to develop and commercialize our current or potential future product candidates.
We may expend our limited resources to pursue a particular product candidate and fail to capitalize on product candidates that may be more profitable or for which there is a greater likelihood of success.
We have obtained rights to use human samples in furtherance of our research and development of our current and potential future product candidates. However, if we fail to obtain appropriate consent or exceed the scope of the permission to use these samples, we may become liable for monetary damages for, obligated to pay continuing royalties for or required to cease usage of the samples.
We have entered into, and may in the future enter into, strategic transactions for the research, development and commercialization of certain of our current and potential future product candidates. If any of these transactions are not successful, then we may not be able to capitalize on the market potential of such product candidates. Further, we may not be able to enter into future transactions on acceptable terms, if at all, which could adversely affect our ability to develop and commercialize current and potential future product candidates, impact our cash position, increase our expense, and present significant distractions to our management.
If third parties on which we intend to rely to conduct certain preclinical studies, or any future clinical trials, do not perform as contractually required, fail to satisfy regulatory or legal requirements or miss expected deadlines, our development program could be delayed or fail, which would have material and adverse impacts on our business and financial condition.
Because we may rely on third parties for manufacturing and supply of our product candidates, some of which are or may be sole source vendors, for preclinical and clinical development materials and commercial supplies, our supply may become limited or interrupted or may not be of satisfactory quantity or quality.

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Risks Related to Our Intellectual Property

If we are unable to obtain or protect intellectual property rights related to our technology and current or future product candidates, or if our intellectual property rights are inadequate, we may not be able to compete effectively.
If we fail to comply with our obligations under any license, collaboration or other intellectual property-related agreements, we may be required to pay damages and could lose intellectual property rights that may be necessary for developing, commercializing and protecting our current or future technologies or product candidates or we could lose certain rights to grant sublicenses.
Patent terms may not be able to protect our competitive position for an adequate period of time with respect to our current or future technologies or product candidates.
Other companies or organizations may challenge our or our licensors’ patent rights or may assert patent rights that prevent us from developing and commercializing our current or future products.
Third parties may initiate legal proceedings alleging that we are infringing, misappropriating or violating their intellectual property rights, the outcome of which would be uncertain and could have a material adverse impact on the success of our business.

Risks Related to Government Regulation

Clinical development includes a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results
We may be unable to obtain U.S. or foreign regulatory approval and, as a result, be unable to commercialize ATRC 101 or potential future product candidates.
Even if we receive regulatory approval for any of our current or potential future product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense. Additionally, our current or potential future product candidates, if approved, could be subject to labeling and other restrictions and market withdrawal and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products.
We may attempt to secure approval from the FDA through the use of accelerated registration pathways. If unable to obtain approval under an accelerated pathway, we may be required to conduct additional preclinical studies or clinical trials which could increase the expense of obtaining, reduce the likelihood of obtaining or delay the timing of obtaining, 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 are subject to U.S. and foreign anti-corruption and anti-money laundering laws with respect to our operations and non-compliance with such laws can subject us to criminal or civil liability and harm our business.

Risks Related to Our Class A Common Stock

Our stock price may be volatile and purchasers of our Class A common stock could incur substantial losses.
Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.
Future sales and issuances of our Class A common stock or Class B common stock or rights to purchase Class A common stock or Class B common stock, including pursuant to our 2019 Plan, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.
Our ability to use net operating losses, or NOLs, to offset future taxable income may be subject to certain limitations.

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Risks Related to Our Business

We are a clinical-stage biopharmaceutical company with a history of losses. We expect to continue to incur significant losses for the foreseeable future and may never achieve or maintain profitability, which could result in a decline in the market value of our Class A common stock.

We are a clinical-stage biopharmaceutical company with a history of losses. Since our inception, we have devoted substantially all of our resources to research and development, raising capital, building our management team and building our intellectual property portfolio, and we have incurred significant operating losses. As of March 31, 2021, and 2020, we had accumulated deficits of $276.2 million and $184.5 million, respectively. For the quarters ended March 31, 2021 and 2020, our net losses were $25.8 million and $20.4 million, respectively. Substantially all of our losses have resulted from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations. To date, we have not generated any revenue from product sales, and we have not sought or obtained regulatory approval for any product candidate. Furthermore, we do not expect to generate any revenue from product sales for the foreseeable future, and we expect to continue to incur significant operating losses for the foreseeable future due to the cost of research and development, preclinical studies and clinical trials and the regulatory approval process for our current and potential future product candidates.

We expect our net losses to increase substantially as we continue clinical development of our lead product candidate, ATRC-101. However, the amount of our future losses is uncertain. Our ability to achieve or sustain profitability, if ever, will depend on, among other things, successfully developing product candidates, obtaining regulatory approvals to market and commercialize product candidates, manufacturing any approved products on commercially reasonable terms, entering into potential future partnerships, establishing a sales and marketing organization or suitable third-party alternatives for any approved product and raising sufficient funds to finance business activities. If we, or our potential future partners, are unable to commercialize one or more of our product candidates, or if sales revenue from any product candidate that receives approval is insufficient, we will not achieve or sustain profitability, which could have a material and adverse effect on our business, financial condition, results of operations and prospects. Any predictions you make about our future success or viability may not be as accurate as they could be if we had a history of successfully developing and commercializing pharmaceutical products.

ATRC-101 is in clinical trials. It may fail in development or suffer delays that materially and adversely affect its commercial viability.

In February 2020, we initiated a Phase 1b clinical trial for ATRC-101 in patients with solid tumors. We have no products on the market or that have gained regulatory approval. Other than ATRC-101, we currently have no product candidates and none of our potential future product candidates have ever been tested in humans. Our ability to achieve and sustain profitability depends on obtaining regulatory approvals for and successfully commercializing product candidates, either alone or with partners.

Before obtaining regulatory approval for the commercial distribution of product candidates, we or a partner must conduct extensive preclinical studies, followed by clinical trials to demonstrate the safety and efficacy of our product candidates in humans. We cannot be certain of the timely completion or outcome of our preclinical studies and cannot predict if the FDA or other regulatory authorities will accept our proposed clinical programs or if the outcome of our preclinical studies will ultimately support the further development of our preclinical programs. As a result, we cannot be sure that we will be able to submit INDs or similar applications for our preclinical programs on the timelines we expect, if at all, and we cannot be sure that submission of INDs or similar applications will result in the FDA or other regulatory authorities allowing clinical trials to begin.

In addition, in March 2020, a disease caused by a novel strain of the coronavirus, or COVID-19, was characterized as a pandemic by the World Health Organization. In response to COVID-19, the FDA announced its intention to postpone most foreign inspections and non-prioritized domestic inspections of manufacturing facilities and products, and regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to COVID-19. If global health concerns continue to 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

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FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have an adverse effect on the timing and progress of our current or future clinical trials and our business.

ATRC-101 is in early clinical development, and we are subject to the risks of failure inherent in the development of product candidates based on novel approaches, targets and mechanisms of action. Accordingly, you should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by clinical stage biopharmaceutical companies such as ours.

We may not have the financial resources to continue development of, or to enter into new collaborations for, ATRC-101 or any potential future product candidates. This may be exacerbated if we experience any issues that delay or prevent regulatory approval of, or our ability to commercialize, a product candidate, such as:

negative or inconclusive results from our clinical trials or the clinical trials of others for product candidates similar to ours, leading to a decision or requirement to conduct additional preclinical studies or clinical trials or abandon a program;
product-related side effects experienced by participants in our clinical trials or by individuals using drugs or therapeutic antibodies similar to ours;
delays in submitting IND applications or comparable foreign applications, or delays or failure in obtaining the necessary approvals from regulators to commence a clinical trial, or a suspension or termination of a clinical trial once commenced;
conditions imposed by the FDA, or other regulatory authorities regarding the scope or design of our clinical trials;
delays in enrolling research subjects in clinical trials;
high drop-out rates of research subjects;
inadequate supply or quality of product candidate components or materials or other supplies necessary for the conduct of our clinical trials;
greater-than-anticipated clinical trial costs;
poor effectiveness of our product candidates during clinical trials;
unfavorable FDA or other regulatory agency inspection and review of a clinical trial or manufacture site;
failure of our third-party contractors or investigators to comply with regulatory requirements or otherwise meet their contractual obligations in a timely manner, or at all;
delays and changes in regulatory requirements, policies and guidelines; or
the FDA or other regulatory agencies interpreting our data differently than we do.

As a result of COVID-19, we have experienced, and may experience in the future, disruptions or delays in our clinical trial for ATRC-101. These disruptions or delays may affect, among other things, enrolling patients, initiating sites, recruiting clinical site investigators and site personnel, achieving patient compliance with clinical trial protocols if COVID-19 containment measures or other limitations or restrictions impede patient movement or interrupt healthcare services, monitoring clinical trial sites due to travel restrictions related to COVID-19, and collecting sufficient clinical data. For example, we have experienced delays in initiating sites and achieving patient compliance with study-related procedures. We have worked, and continue to work,  closely with our current and potential clinical trial sites to mitigate any disruptions or delays. COVID-19 may impact our ability to initiate additional clinical trial sites quickly, but at this time we cannot predict the full extent of this impact, or any other potential impact of COVID-19, on our clinical trial for ATRC-101.

Further, we and our potential future partners may never receive approval to market and commercialize any product candidate. Even if we or a potential future partner obtains regulatory approval, the approval may be for targets, disease indications or patient populations that are not as broad as we intended or desired or may require labeling that includes significant use or distribution restrictions or safety warnings. We or a potential future partner may be subject to post-marketing testing requirements to maintain regulatory approval.

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ATRC-101 may not demonstrate the combination of safety and efficacy necessary to become approvable or commercially viable.

We may ultimately discover that ATRC-101 does not possess certain properties that we currently believe are helpful for therapeutic effectiveness and safety. For example, although ATRC-101 has exhibited encouraging results in animal studies, including anti-tumor activity and safety, it may not demonstrate the same properties in humans and may interact with human biological systems in unforeseen, ineffective or harmful ways. As a result, we may never succeed in developing a marketable product based on ATRC-101. If ATRC-101 or any of our potential future product candidates prove to be ineffective, unsafe or commercially unviable, our entire pipeline could have little, if any, value, which could require us to change our focus and approach to antibody discovery and development, which would have a material and adverse effect on our business, financial condition, results of operations and prospects.

COVID-19 could adversely impact our business and our operations, including at our laboratories and office locations, which were closed for more than two months and reopened in June 2020 for lab-based personnel and certain essential personnel only, and at our clinical trial sites, as well as the business and operations of our manufacturers, CROs or other third parties with whom we conduct business.

COVID-19 could adversely impact our business and operations, and the business and operations of our manufacturers, CROs and other third parties with whom we conduct our business. Following COVID-19 guidance from federal, state and local authorities, we transitioned to a fully remote working environment in March 2020.  As a result, our laboratories and office locations were closed for more than two months and partially re-opened in June 2020 for lab-based personnel and certain essential personnel only. All onsite personnel are required to adhere to our COVID-19 safety protocols for their protection. All other personnel are still working remotely. We do not know if and when we may have to close our laboratories and office locations again, or when these locations will reopen for all personnel.  COVID-19 could adversely impact our business, including:  

disruptions or delays in our preclinical studies or our clinical trial for ATRC-101, including enrolling patients, initiating sites, recruiting clinical site investigators and site personnel, achieving patient compliance with clinical trial protocols if containment measures or other limitations or restrictions impede patient movement or interrupt healthcare services, monitoring clinical trial sites due to travel restrictions related to COVID-19, and collecting sufficient clinical data;
disruptions or delays in our manufacturing activities, including our supply of preclinical, clinical, and commercial materials from existing third-party manufacturers and our ability to engage new third-party manufacturers;
disruptions or delays in our existing and potential future collaboration activities;
disruptions or delays in our efforts to use and expand our discovery platform, both internally and externally with third parties, including decreased productivity of our onsite lab-based personnel due to restrictions related to COVID-19 at our laboratory and office locations and delays in receiving necessary supplies and other materials;
delays in activities of the FDA or other regulatory authorities related to our clinical trial for ATRC-101 or any future clinical trials;
diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of clinical trials;
changes in laws or regulations as a result of COVID-19 that may require us to change the ways in which our clinical trial is conducted and incur unexpected costs, or require us to discontinue the clinical trial;
interruption in global commercial transportation and shipping that may affect the transport of clinical trial materials;
delays in necessary interactions with local regulators, ethics committees and other agencies and contractors due to limitations in employee resources or forced furlough of government personnel;
delays and decreased productivity as a result of the majority of our personnel working remotely or as a result of our onsite personnel complying with restrictions related to COVID-19 at our laboratory and office locations, including our COVID-19 onsite safety protocols;
the potential closure of our laboratories and offices again due to future COVID-19 outbreaks where our laboratories and offices are located;
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disruptions, delays and decreased productivity in the event that any of our personnel contract COVID-19, including as a result of the reopening of our laboratories and office locations and the return of certain personnel to these locations, which could necessitate quarantining and contact tracing efforts;
disruptions or delays in using and expanding our discovery platform; and
delays or difficulties in our ability to access capital.

Currently, patient screening continues in our clinical trial for ATRC-101.  However, COVID-19 may impact our ability to initiate additional clinical trial sites quickly, which may result in enrollment delays. In addition, we experienced slower enrollment in the second and third quarters of fiscal 2020, although we have not experienced enrollment delays since that time.  

The spread of COVID-19, which has caused a broad impact globally, may materially impact us economically. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, the pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity, or could result in a recession or market correction, which could materially affect our business and the value of our common stock.

COVID-19 continues to evolve rapidly, and multiple variants of the virus that causes COVID-19 are circulating globally. We cannot predict the potential future impacts of COVID-19, including its variants, on us and third parties with whom we conduct business, including on our clinical studies and our clinical trial for ATRC-101 and related timelines, as well as our preclinical activities. These impacts will depend on future developments that are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, containment measures and other limitations and restrictions, business disruptions and the effectiveness of actions taken in the United States and other countries to contain, vaccinate against, and treat the disease.  Accordingly, we do not yet know the full extent of the potential impacts on our business, our clinical and regulatory activities, healthcare systems or the global economy as a whole.  However, these impacts could adversely affect our business, financial condition, results of operations and growth prospects, which could also have the effect of heightening many of the other risks and uncertainties described in this ‘‘Risk Factors’’ section.


Failure to successfully validate, develop and obtain regulatory approval for companion diagnostics for our product candidates could harm our drug development strategy and operational results.

As one of the elements of our clinical development approach, we may seek to develop lab-based tests to screen and identify subsets of patients who are more likely to benefit from our product candidates, more commonly referred to as companion diagnostics. To achieve this, we may seek to develop and commercialize such companion diagnostics ourselves or through third-party collaborators. Companion diagnostics are generally developed in conjunction with clinical programs for the associated product and can be helpful in enrolling patients in clinical studies who are more likely to respond to the specific therapeutic being developed. The approval of a companion diagnostic as part of the product label could limit the use of the product candidate to those patients who are more likely to benefit from our product candidate.

Companion diagnostics are subject to regulation by the FDA and other regulatory authorities as medical devices and require separate clearance or approval prior to their commercialization. To date, the FDA has required premarket approval of all companion diagnostics for oncology therapies. We and our third-party collaborators may encounter difficulties in developing and obtaining approval for these companion diagnostics. Any delay or failure by us or third-party collaborators to develop or obtain regulatory approval of a companion diagnostic could delay or prevent approval of our related product candidates. The time and cost associated with developing a companion diagnostic may not prove to have been necessary in order to successfully market the product.

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We may not be successful in our efforts to use and expand our discovery platform to build a pipeline of product candidates.

A key element of our strategy is to use and expand our discovery platform to build a pipeline of product candidates and progress these product candidates through clinical development for the treatment of various diseases. Although our research and development efforts to date have resulted in our discovery and preclinical development of ATRC-101, ATRC-101 may not be safe or effective as a cancer treatment, and we may not be able to develop any other product candidates. In addition, as a result of COVID-19, we expect disruptions and delays in our efforts, both internally and externally with third parties, to use and expand our discovery platform.

Our discovery platform is evolving and may not reach a state at which building a pipeline of product candidates is possible. Even if we are successful in building our pipeline of product candidates, the potential product candidates that we identify may not be suitable for clinical development or generate acceptable clinical data, including as a result of being shown to have unacceptable toxicity or other characteristics that indicate that they are unlikely to be products that will receive marketing approval from the FDA or other regulatory authorities or achieve market acceptance. If we do not successfully develop and commercialize product candidates, we will not be able to generate product revenue in the future.

Our approach to developing and identifying our antibodies using our discovery platform is novel and unproven and may not result in marketable products.

We plan to develop a pipeline of product candidates using our discovery platform. We believe that we may be able to overcome certain key limitations of the current oncology drug discovery paradigm by focusing on an active human anti-tumor immune response that develops over time. However, our scientific research that forms the basis of our efforts to discover product candidates based on our discovery platform is ongoing. Further, the scientific evidence to support the feasibility of developing therapeutic antibodies based on our platform has not been established. We may not be correct in our beliefs about the differentiated nature of our platform to competing technologies, and our platform may not prove to be superior. If our discovery platform is not able to develop approved antibody constructs that are effective at the necessary speed or scale, it could have a material and adverse effect on our business, financial condition, results of operations and prospects.

The market may not be receptive to our current or potential future product candidates, and we may not generate any revenue from the sale or licensing of our product candidates.

Even if regulatory approval is obtained for a product candidate, including ATRC-101, we may not generate or sustain revenue from sales of the product. Market acceptance of our current and potential future product candidates will depend on, among other factors:

the timing of our receipt of any marketing and commercialization approvals;
the terms of any approvals and the countries in which approvals are obtained;
the safety and efficacy of our product candidates;
the prevalence and severity of any adverse side effects associated with our product candidates;
limitations or warnings contained in any labeling approved by the FDA or other regulatory authority;
relative convenience and ease of administration of our product candidates;
the success of our physician education programs;
the availability of coverage and adequate government and third-party payor reimbursement;
the pricing of our products, particularly as compared to alternative treatments; and
availability of alternative effective treatments for the disease indications our product candidates are intended to treat and the relative risks, benefits and costs of those treatments.

If any product candidate we commercialize fails to achieve market acceptance, it could have a material and adverse effect on our business, financial condition, results of operations and prospects.

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If there are undesirable side effects caused by ATRC-101 or any potential future product candidate in clinical trials or after receiving marketing approval, our ability to market and derive revenue from the product candidate could be compromised.

Undesirable side effects caused by ATRC-101 or any potential future product candidate could cause regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other regulatory authorities. It is likely that there will be side effects associated with the use of ATRC-101 or any potential future product candidate. Results of our clinical trials could reveal a high and unacceptable severity and prevalence of these side effects. In such an event, our trials could be suspended or terminated and the FDA or other regulatory authorities could order us to cease further development of or deny approval of a product candidate for any or all targeted indications. Such side effects could also affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may materially and adversely affect our business and financial condition and impair our ability to generate revenues.

Further, clinical trials by their nature utilize a sample of the potential patient population. With a limited number of patients and limited duration of exposure, rare and severe side effects of a product candidate may only be uncovered when a significantly larger number of patients are exposed to the product candidate or when patients are exposed for a longer period of time.

In the event that any of our current or potential future product candidates receive regulatory approval and we or others identify undesirable side effects caused by one of these products, any of the following adverse events could occur, which could result in the loss of significant revenue to us and materially and adversely affect our results of operations and business:

regulatory authorities may withdraw their approval of the product or seize the product;
we may be required to recall the product or change the way the product is administered to patients;
additional restrictions may be imposed on the marketing of the particular product or the manufacturing processes for the product or any component thereof;
we may be subject to fines, injunctions or the imposition of civil or criminal penalties;
regulatory authorities may require the addition of labeling statements, such as a ‘‘black box’’ warning or a contraindication;
we may be required to create a Medication Guide outlining the risks of such side effects for distribution to patients;
we could be sued and held liable for harm caused to patients;
the product may become less competitive; and
our reputation may suffer.

We will need substantial additional funds to advance development of product candidates and our discovery platform, and we cannot guarantee that we will have sufficient funds available in the future to develop and commercialize our current or potential future product candidates.

The development of biopharmaceutical product candidates is capital-intensive. If ATRC-101 or potential future product candidates advance through preclinical studies and clinical trials, we will need substantial additional funds to expand our development, regulatory, manufacturing, marketing and sales capabilities. We have used substantial funds to develop our discovery platform and ATRC-101 and will require significant funds to continue to develop our discovery platform and conduct further research and development, including preclinical studies and clinical trials of ATRC-101 and additional potential future product candidates, to seek regulatory approvals for ATRC-101 and potential future product candidates and to manufacture and market products, if any, that are approved for commercial sale. In addition, we expect to incur additional costs associated with operating as a public company.

As of March 31, 2021, we had $211.7 million in cash, cash equivalents, and investments. Based on our current operating plan, we believe that our cash, cash equivalents, and investments as of March 31, 2021 will be sufficient to fund our operations for at least the next 12 months. Our future capital requirements and the period for which we expect our existing resources to support our operations may vary significantly from what we expect. Our monthly spending

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levels vary based on new and ongoing research and development and other corporate activities. Because the length of time and activities associated with successful research and development of product candidates is highly uncertain, we are unable to estimate the actual funds we will require for development and any approved marketing and commercialization activities. The timing and amount of our operating expenditures will depend largely on:

the timing and progress of preclinical and clinical development activities;
the timing and progress of our development of our discovery platform;
the price and pricing structure that we are able to obtain from our third-party contract manufacturers to manufacture our preclinical study and clinical trial materials and supplies;
the number and scope of preclinical and clinical programs we decide to pursue;
our ability to maintain our current licenses and research and development programs and to establish new collaborations;
the progress of the development efforts of parties with whom we may in the future enter into collaboration and research and development agreements;
the costs involved in obtaining, maintaining, enforcing and defending patents and other intellectual property rights;
the cost and timing of regulatory approvals; and
our efforts to enhance operational systems, secure sufficient laboratory space and hire additional personnel, including personnel to support development of our product candidates and satisfy our obligations as a public company.

To date, we have primarily financed our operations through the sale of equity securities and payments and other income received under discovery services agreements not related to our primary business. We may seek to raise any necessary additional capital through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. We cannot assure you that we will be successful in acquiring additional funding at levels sufficient to fund our operations or on terms favorable to us. As a result of COVID-19, there could be a significant disruption of global financial markets, reducing our ability to raise capital. If we are unable to obtain adequate financing when needed, we may have to delay, reduce the scope of or suspend one or more of our preclinical studies, clinical trials, research and development programs or commercialization efforts. Because of the numerous risks and uncertainties associated with the development and commercialization of our current and potential future product candidates and the extent to which we may enter into collaborations with third parties to participate in their development and commercialization, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated preclinical studies and clinical trials. To the extent that we raise additional capital through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our current and potential future product candidates, future revenue streams or research programs or to grant licenses on terms that may not be favorable to us. If we do raise additional capital through public or private equity or convertible debt offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

We do not expect to realize revenue from product sales or royalties from licensed products in the foreseeable future, if at all, and unless and until our current and potential future product candidates are clinically tested, approved for commercialization and successfully marketed.

We may expend our limited resources to pursue a particular product candidate and fail to capitalize on product candidates that may be more profitable or for which there is a greater likelihood of success.

Because we have limited financial and managerial resources, we intend to focus our efforts on specific research and development programs, including clinical development of ATRC-101. As a result, we may forgo or delay pursuit of other opportunities, including with potential future product candidates that later prove to have greater commercial