SEC Filing | Atreca

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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 September 30, 2023

◻	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)

Not Applicable

(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 November 14, 2023, the registrant had 32,908,634 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.	Financial Statements (Unaudited)
	Balance Sheets	3
	Statements of Operations	4
	Statements of Loss and Comprehensive Loss	5
	Statements of Stockholders’ Equity	6
	Statements of Cash Flows	8
	Notes to Unaudited Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	38
PART II. OTHER INFORMATION		39
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	63
Item 3.	Defaults Upon Senior Securities	63
Item 4.	Mine Safety Disclosures	63
Item 5.	Other Information	63
Item 6.	Exhibits	63

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PART I --- FINANCIAL INFORMATION

Item 1. Financial Statements

Atreca, Inc.

Balance Sheets

(in thousands, except share and per share data)


	September 30,		December 31,
	2023		2022
	(unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	13,470	$	30,819
Investments		7,918		39,676
Prepaid expenses and other current assets		3,305		7,531
Total current assets		24,693		78,026
Property and equipment, net		1,614		37,972
Operating lease right-of-use assets		—		36,056
Deposits and other		35		2,976
Total assets	$	26,342	$	155,030
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	4,062	$	1,741
Accrued expenses		9,292		9,681
Operating lease liabilities, current portion		1,281		3,544
Other current liabilities		948		1,327
Total current liabilities		15,583		16,293
Operating lease liabilities, net of current portion		—		60,331
Total liabilities		15,583		76,624
Commitment and contingencies (Note 9)
Stockholders’ equity
Class A common stock, $0.0001 par value, 650,000,000 shares authorized as of both September 30, 2023 and December 31, 2022; 32,908,634 and 32,351,950 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively		3		3
Class B common stock, $0.0001 par value, 50,000,000 shares authorized as of both September 30, 2023 and December 31, 2022; 6,715,441 shares issued and outstanding as of both September 30, 2023 and December 31, 2022		1		1
Additional paid-in capital		544,094		535,592
Accumulated other comprehensive loss		(4)		(266)
Accumulated deficit		(533,335)		(456,924)
Total stockholders’ equity		10,759		78,406
Total liabilities and stockholders’ equity	$	26,342	$	155,030

See accompanying notes to the unaudited financial statements.

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Atreca, Inc.

Statements of Operations

(in thousands, except share and per share data)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

Expenses
Research and development	$	10,407	$	16,045	$	36,774	$	53,062
General and administrative		5,386		7,247		20,300		23,930
Restructuring and impairment charges		20,856		—		20,856		—
Total expenses		36,649		23,292		77,930		76,992
Interest and other income (expense)
Other income		80		—		243		750
Interest income		354		233		1,276		430
Net other income (expense)	$	434	$	233	$	1,519	$	1,180
Loss before income tax expense		(36,215)		(23,059)		(76,411)		(75,812)
Income tax expense		—		—		—		—
Net loss	$	(36,215)	$	(23,059)	$	(76,411)	$	(75,812)
Net loss per share, basic and diluted	$	(0.92)	$	(0.60)	$	(1.95)	$	(1.97)
Weighted-average shares used in computing net loss per share, basic and diluted		39,354,502		38,720,575		39,202,045		38,434,327

See accompanying notes to the unaudited financial statements.

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Atreca, Inc.

Statements of Loss and Comprehensive Loss

(in thousands)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

Net loss	$	(36,215)	$	(23,059)	$	(76,411)	$	(75,812)
Other comprehensive income (loss):
Unrealized gain (loss) on available-for-sale debt securities		(6)		80		262		(479)
Comprehensive loss	$	(36,221)	$	(22,979)	$	(76,149)	$	(76,291)

See accompanying notes to the unaudited financial statements.

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Atreca, Inc.

Statements of Stockholders' Equity

(in thousands, except share data)

(unaudited)


						Accumulated
				Additional		Other				Total
Three Months Ended September 30, 2022	Common Stock			Paid-In		Comprehensive		Accumulated		Stockholders'
	Shares	Amount		Capital		Income (Loss)		Deficit		Equity
Balances at June 30, 2022	38,591,436	$	4	$	528,380	$	(661)	$	(412,520)	$	115,203
Issuance of common stock under the Employee Stock Purchase Plan	91,565		—		145		—		—		145
Vesting of restricted stock units	384,390		—		—		—		—		—
Stock-based compensation	—		—		3,884		—		—		3,884
Unrealized gain on available-for-sale debt securities	—		—		—		80		—		80
Net loss	—		—		—		—		(23,059)		(23,059)
Balances at September 30, 2022	39,067,391	$	4	$	532,409	$	(581)	$	(435,579)	$	96,253

						Accumulated
				Additional		Other				Total
Three Months Ended September 30, 2023	Common Stock			Paid-In		Comprehensive		Accumulated		Stockholders'
	Shares	Amount		Capital		Income (Loss)		Deficit		Equity
Balances at June 30, 2023	39,156,584	$	4	$	541,787	$	2	$	(497,120)	$	44,673
Issuance of common stock under the Employee Stock Purchase Plan	31,924		—		10		—		—		10
Vesting of restricted stock units	435,567		—		—		—		—		—
Stock-based compensation	—		—		2,297		—		—		2,297
Unrealized loss on available-for-sale debt securities	—		—		—		(6)		—		(6)
Net loss	—		—		—		—		(36,215)		(36,215)
Balances at September 30, 2023	39,624,075	$	4	$	544,094	$	(4)	$	(533,335)	$	10,759

See accompanying notes to the unaudited financial statements.

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Atreca, Inc.

Statements of Stockholders' Equity

(in thousands, except share data)

(unaudited)


						Accumulated
				Additional		Other				Total
Nine Months Ended September 30, 2022	Common Stock			Paid-In		Comprehensive		Accumulated		Stockholders'
	Shares	Amount		Capital		Income (Loss)		Deficit		Equity
Balances at December 31, 2021	37,758,797	$	4	$	514,794	$	(102)	$	(359,767)	$	154,929
Issuance of common stock through "at-the-market" offering, net of underwriter discount and issuance costs	700,000		—		3,509		—		—		3,509
Issuance of common stock upon exercise of options	16,666		—		76		—		—		76
Issuance of common stock under the Employee Stock Purchase Plan	207,538		—		322		—		—		322
Vesting of restricted stock units	384,390		—		—		—		—		—
Stock-based compensation	—		—		13,708		—		—		13,708
Unrealized loss on available-for-sale debt securities	—		—		—		(479)		—		(479)
Net loss	—		—		—		—		(75,812)		(75,812)
Balances at September 30, 2022	39,067,391	$	4	$	532,409	$	(581)	$	(435,579)	$	96,253

						Accumulated
				Additional		Other				Total
Nine Months Ended September 30, 2023	Common Stock			Paid-In		Comprehensive		Accumulated		Stockholders'
	Shares	Amount		Capital		Income (Loss)		Deficit		Equity
Balances at December 31, 2022	39,067,391	$	4	$	535,592	$	(266)	$	(456,924)	$	78,406
Issuance of Class A common stock under the Employee Stock Purchase Plan	121,117		—		119		—		—		119
Vesting of restricted stock units	435,567		—		—		—		—		—
Stock-based compensation	—		—		8,383		—		—		8,383
Unrealized gain on available-for-sale debt securities	—		—		—		262		—		262
Net loss	—		—		—		—		(76,411)		(76,411)
Balances at September 30, 2023	39,624,075	$	4	$	544,094	$	(4)	$	(533,335)	$	10,759

See accompanying notes to the unaudited financial statements.

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Atreca, Inc.

Statements of Cash Flows

(in thousands)

(unaudited)


	Nine Months Ended September 30,
	2023		2022
Cash Flows from Operating Activities
Net loss	$	(76,411)	$	(75,812)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		3,480		4,081
Amortization of operating right-of-use asset		1,359		1,197
Impairment charges		685		—
Stock-based compensation		8,383		13,708
Amortization of discount or premium on available-for-sale securities		(318)		90
Loss on lease termination		8,768		—
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		7,442		(2,133)
Accounts payable		834		(1,671)
Accrued expenses		(1,504)		(2,136)
Other current liabilities		(379)		(236)
Operating lease liabilities		(1,983)		(2,376)
Net cash used in operating activities		(49,644)		(65,288)
Cash Flows from Investing Activities
Purchase of property and equipment		(162)		(739)
Purchase of investments		(16,647)		(60,504)
Proceeds from maturities of investments		48,985		48,442
Net cash provided by (used in) investing activities		32,176		(12,801)
Cash Flows from Financing Activities
Proceeds from the issuance of Class A common stock under the Employee Stock Purchase Plan		119		322
Proceeds from exercise of stock options		—		76
Proceeds from issuance of common shares in "at-the-market" equity offering, net of issuance costs		—		3,509
Principal payments on capital lease obligations		—		(4)
Net cash provided by financing activities		119		3,903
Net change in cash, cash equivalents and restricted cash		(17,349)		(74,186)
Cash, cash equivalents and restricted cash, beginning of period		31,934		96,204
Cash, cash equivalents and restricted cash, end of period	$	14,585	$	22,018

See accompanying notes to the unaudited financial statements.

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Atreca, Inc.

Statements of Cash Flows (continued)

(in thousands)

(unaudited)


	Nine Months Ended September 30,
	2023		2022
Supplemental Schedule of Non-Cash Investing and Financing Activities
Purchases of property and equipment included in accounts payable and accrued liabilities	$	—	$	30
Reclassification of fixed assets held-for-sale	$	275	$	—

See accompanying notes to the unaudited financial statements.

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Notes to Unaudited Interim Financial Statements

1. Business

Nature of Business

Atreca, Inc. (the “Company”) was incorporated in the State of Delaware on June 11, 2010 (“inception”), 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. APN-497444 is a Company-discovered antibody targeting a novel, tumor-specific glycan, which displays uniform and tumor-selective binding with high target prevalence in colorectal cancer and exhibits compelling preclinical anti-tumor activity and initial safety when weaponized as an antibody-drug conjugate (“ADC”). 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.

In August 2023, the Company implemented a reorganization of its operations. As part of the reorganization, the Company undertook cost-saving initiatives, including a workforce reduction of approximately 40% of its employees and the suspension of the development of ATRC-101, its lead product candidate (collectively, the “August 2023 Reorganization”). The total cost related to the workforce reduction was approximately $1.3 million, all of which is cash-based expenditures related primarily to severance payments. The Company recognized substantially all the charges related to the workforce reduction in the quarter ended September 30, 2023.

In September 2023, the Company entered into an Agreement for Modification of Lease and Voluntary Surrender of Premises (the “Lease Modification Agreement”) with ARE-San Francisco No. 63, LLC, a Delaware limited liability company (the “Landlord”), to terminate that certain Lease Agreement dated as of July 17, 2019, as amended by that certain Letter Agreement dated as of August 24, 2020 (the “Lease”), by and between the Company and Landlord, for certain premises located at 835 Industrial Road, San Carlos, California 94070 (the “Premises”) that served as the Company’s headquarters. The term of the Lease was scheduled to expire on April 30, 2033. The Lease Modification Agreement provides that the Lease will terminate on the earlier of (i) April 30, 2024, and (ii) such earlier date that the Landlord elects to terminate the Lease after November 30, 2023, pursuant to certain accelerated termination rights with respect to the Premises. The Company and the Landlord acknowledge and agree that the Company has elected to vacate the Premises as of November 30, 2023. As consideration for the Landlord’s agreement to enter into the Lease Modification Agreement and accelerate the expiration date of the Lease, the Company has agreed to pay a lease modification payment to the Landlord in an amount of $5.1 million. As of September 30, 2023, the Company paid $4.0 million of the lease modification payment. The Company additionally conveyed the ownership of certain assets, including its lab equipment and leasehold improvement, to the Landlord. The net carrying value of the transferred assets was $32.1 million.

Further to the Company’s ongoing reorganization efforts, the Company is devoting substantial time and resources to exploring potential strategic transactions and business alternatives focused on maximizing stockholder value, including, but not limited to, a merger, sale of part or all its clinical, preclinical and discovery platform assets, business combination, and/or similar transaction. In November 2023, the Company implemented a further reduction in its workforce while maintaining the necessary support to continue exploring potential strategic transactions and business alternatives (the “November 2023 Reorganization”). Refer to Note 16, Subsequent Events.

Despite devoting significant efforts to identifying and evaluating potential strategic alternatives, there can be no assurance that this strategic review process will result in the Company pursuing any transaction or that any transaction, if pursued, will be completed on attractive terms or at all. The Company’s board of directors has not approved a definitive course of action. Additionally, there can be no assurances that any particular course of action, business arrangement or transaction, or series of transactions, will be pursued, successfully consummated or lead to increased stockholder value.

Nasdaq Delisting Notification

On September 8, 2023, the Company received a notice from The Nasdaq Stock Market LLC, or Nasdaq,

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notifying us that on September 7, 2023, the average closing price of our Class A common stock, $0.0001 par value per share, over the prior 30 consecutive trading days had fallen below $1.00 per share, which is the minimum average closing price required to maintain listing on Nasdaq under Nasdaq Listing Rule 5450(a)(1), or the Minimum Bid Requirement.

In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company have 180 calendar days to regain compliance with the Minimum Bid Requirement, or the Grace Period, subject to a potential 180 calendar day extension, as described below. To regain compliance, the closing bid price of the Class A common stock must be at least $1.00 per share for a minimum of ten consecutive business days within the Grace Period.

If the Company does not achieve compliance with the Minimum Bid Requirement by March 6, 2024, the end of the Grace Period, the Company may be eligible for an additional 180 calendar day period to regain compliance. To qualify, the Company will be required to meet the continued listing requirement for market value of our publicly held shares and all other Nasdaq initial listing standards, with the exception of the bid price requirement, and will need to provide written notice to Nasdaq of our intention to cure the deficiency during the second compliance period by effecting a reverse stock split if necessary. However, if it appears to Nasdaq staff that the Company will not be able to cure the deficiency, or if the Company do not meet the other Nasdaq listing standards, Nasdaq could provide notice that the Class A common stock will be subject to delisting. In the event the Company receive notice that the Class A common stock is being delisted, the Company would be entitled to appeal the determination to a Nasdaq Listing Qualifications Panel and request a hearing.

There can be no assurance that the Company will be able to regain compliance with the Minimum Bid Requirement or maintain compliance with the other listing requirements. The notice has no immediate effect on the listing or trading of the Class A common stock, which will continue to be listed and traded on Nasdaq, subject to our compliance with the other Nasdaq listing standards.

2. Summary of Significant Accounting Policies

Basis of Presentation

The 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. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been or omitted pursuant to the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Therefore, these unaudited financial statements should be read in conjunction with the audited financial statements and related footnotes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on March 29, 2023.

Going Concern

In accordance with Accounting Standards Codification (“ASC”) 205-40, Going Concern, the Company evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of our plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, we evaluate whether the mitigating effect of its plans sufficiently alleviates substantial doubt about our ability to continue as a going concern. The mitigating effect of our plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued. In performing this analysis, we excluded certain elements of our operating plan that cannot be considered probable.

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The Company expects to generate operating losses and negative operating cash flows in the future and the need for additional funding to support its planned operations raise substantial doubt regarding its ability to continue as a going concern for a period of one year after the date of the unaudited financial statements are issued. In August 2023, the Company commenced a reorganization plan to preserve capital and reduce operating costs. The Company has also begun the exploration of strategic alternatives, which may include a merger, sale of part or all its clinical, preclinical and discovery platform assets, business combination, and/or similar transaction. The Company has concluded the likelihood that its plan to successfully obtain sufficient funding from one or more of these sources or adequately reduce expenditures, while reasonably possible, is less than probable. As a result, the Company believes that its existing cash, cash equivalents and investments will only be sufficient to fund its planned operating and capital needs into the first quarter of 2024. Accordingly, the Company has concluded that substantial doubt exists about its ability to continue as a going concern for a period of at least twelve months from the date of issuance of these unaudited financial statements.

The accompanying unaudited financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The unaudited financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above.

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 financial statements and accompanying notes. Actual results could differ from those estimates. Key estimates in the 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 available-for-sale debt securities and fair value of options granted under the Company's stock option plan.

Unaudited Interim Financial Statements

The accompanying financial statements are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual 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 September 30, 2023 and its results of operations for the three and nine months ended September 30, 2023 and 2022, and statements of cash flows for the nine months ended September 30, 2023 and 2022. The financial data and the other financial information contained in these notes to the financial statements related to the three-month and nine-month periods ended September 30, 2023 and 2022 are also unaudited. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any other future annual or interim period. The balance sheet as of December 31, 2022 included herein was derived from the audited financial statements as of that date.

Other Income

Other income is comprised of amounts earned from services performed under service agreements. 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.

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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.

In March 2022, the Company entered into an agreement with a third party for the assignment of certain non-core intellectual property. The initial consideration was classified as other income and recognized upon completion of the assignment. The agreement provides for additional consideration in the event of commercial exploitation of the intellectual property. The term of the agreement extends to the date of expiration of the last to expire of any of the assigned patents.

In October, 2022, the Company entered into the Grant Agreement with the Bill & Melinda Gates Foundation under which it was awarded a grant totaling up to $1.2 million for its malaria program. The parties amended the agreement in December 2022 to extend the grant term. During the three months and nine months ended September 30, 2023, the Company recognized $80,000 and $243,000 of income related to the Grant Agreement, respectively, and had $0.9 million of unused funds received recorded as deferred revenue within accrued and other current liabilities. The Company recorded no receivables under service and license agreements as of September 30, 2023 and December 31, 2022.

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. (the “Xencor Agreement”), to research, develop and commercialize novel CD3 bispecific antibodies as potential therapeutics in oncology. The Company evaluated the Xencor Agreement under the provisions of ASC 606 and ASU 2018-18, Collaborative Arrangements (Topic 808) Clarifying the Interaction between Topic 808 and Topic 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. The Company’s share of any collaboration expense is recognized as a research and development expense on the Company’s statement of operations.

For the cost-sharing related to the research program, the Company will follow the presentation and disclosure guidance of ASC 808, Collaboration Agreements. The Company had a receivable of $180,000 and a payable of $12,000 under the research cost-sharing provision recorded in prepaid and other current assets and accrued expenses, respectively, on the accompanying balance sheets as of September 30, 2023 and December 31, 2022, respectively.

The Company and Xencor recently elected to terminate the joint program commenced in early 2023.

In-Licensing Arrangements – Development

In April 2022, the Company entered into an Option and License Agreement (the “Option and License Agreement”), by and between the Company and Zymeworks Inc (“Zymeworks”). The Company received a license under certain of Zymeworks’ proprietary drug conjugate patents and know-how to perform preclinical research and development of ADCs. The aggregate consideration for the research license is $5.0 million. The Company also received an option to obtain an exclusive license to research, develop, manufacture, and commercialize certain ADCs for additional license fees and royalties. Unless earlier terminated or extended, the term of the research license and the commercial option is two years from the effective date.

The Company will be required to use commercially reasonable efforts to develop and commercialize at least one licensed product and the Company will pay to Zymeworks an option exercise fee, and lump sum payments upon the achievement of certain development and regulatory milestones and commercial milestones. In addition, with respect to

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each licensed product, the Company will pay tiered royalties on net sales of licensed products at single-digit royalty rates.

The research license fee of $5.0 million was expensed to research and development expense in April 2022 in accordance with the Company's research and development expense policy.

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 $1.1 million as of both September 30, 2023 and December 31, 2022. These amounts as of September 30, 2023 and December 31, 2022 are included in prepaids and other current assets and deposits and other, respectively, in the accompanying balance sheets and is comprised solely of letter of credit required pursuant to the lease for Company facilities.

The Company’s reconciliation of cash and cash equivalents and restricted cash reported within the balance sheets that sum to the total of the same amounts shown in the statements of cash flows were as follows (in thousands):


	September 30,		December 31,
	2023		2022
Cash and cash equivalents	$	13,470	$	30,819
Restricted cash		1,115		1,115
Cash, cash equivalents and restricted cash shown in the condensed statements of cash flows	$	14,585	$	31,934

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 debt securities sold is based on specific identification. Interest and dividends on securities classified as available-for-sale are included in interest income.

Leases

The Company determines if an arrangement is, or contains, a lease at inception. The Company measures lease liabilities based on the present value of lease payments over the lease term. As the Company’s leases generally do not provide an implicit discount rate, the net present value of future minimum lease payments is determined using the Company’s incremental borrowing rate. Options in the lease terms to extend or terminate the lease are not reflected in the lease liabilities unless it is reasonably certain that any such option will be exercised.

The Company measures right-of-use assets at the lease commencement date based on the corresponding lease liabilities adjusted for (i) prepayments made to the lessor at or before the commencement date, (ii) initial direct costs incurred and (iii) certain tenant incentives under the lease. The Company evaluates the recoverability of the right-of-use assets for possible impairment in accordance with the long-lived assets policy. The Company has elected not to recognize right-of-use assets or lease liabilities for leases with an initial lease term of twelve months or less.

The Company’s lease agreements do not contain residual value guarantees or covenants. Lease expense is recognized on a straight-line basis over the terms of the leases. Incentives granted under the Company’s facilities lease,

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including rent holidays, are recognized as adjustments to lease expense on a straight-line basis over the terms of the leases.

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 included in prepaid and other current assets. Cash and cash equivalents are held at three financial institutions and were in excess of the Federal Deposit Insurance Corporation insurable limit at September 30, 2023 and December 31, 2022. Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company’s financial condition, result of operations, and cash flows. 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 does not require collateral or other security for other receivables.

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, and other costs associated with preclinical and clinical development.

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. For restricted stock units, fair value is based on the closing price of the Company’s Class A common stock on the grant date. 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 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.

Restructuring and Impairment Charges

During the three months ended September 30, 2023, the Company undertook certain operational and organizational steps in connection with a strategic reorganization plan and related cost-saving measures. These measures

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included discontinuing the ongoing clinical trial of ATRC-101, modifying the primary premises Lease and reducing overall workforce. Refer to Note 8, Leases and Note 10, Reorganization and Other Charges.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, or 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, ASU 2020-03, and ASU 2020-02 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. The Company adopted this accounting standard as of January 1, 2023. The adoption of this standard did not have any impact to the Company’s financial statements as credit losses at the transition date were not expected, based on the evaluation of the Company’s available-for-sale debt securities.

3. Fair Value of Financial Instruments

The fair value of the Company's assets and liabilities, which qualify as financial instruments under FASB ASC 820, Fair Value Measurements and Disclosures, approximates their carrying value represented in the balance sheets. 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 (in thousands):


	September 30, 2023
	Level 1		Level 2		Level 3		Total
Assets
Money market funds	$	11,940	$	—	$	—	$	11,940
U.S. Treasury securities		7,918		—		—		7,918
Total	$	19,858	$	—	$	—	$	19,858

	December 31, 2022
	Level 1		Level 2		Level 3		Total
Assets
Money market funds	$	29,658	$	—	$	—	$	29,658
Certificates of deposit		483		—		—		483
Corporate debt securities		—		1,996		—		1,996
U.S. Treasury securities		37,197		—		—		37,197
Total	$	67,338	$	1,996	$	—	$	69,334

The Company utilized the market approach and Level 1 valuation inputs to value its money market funds, certificates of deposit, and U.S. government treasury securities because published fair market values were readily available. The Company measured the fair value of corporate debt securities using Level 2 valuation inputs, which are based on quoted prices and market observable data of similar instruments. As of both September 30, 2023 and December 31, 2022, 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):


			Gross		Gross		Estimated		Cash and
	Amortized		Unrealized		Unrealized		Fair		Cash
September 30, 2023	Cost		Gains		Losses		Value		Equivalents		Investment
Cash, cash equivalents and money market funds	$	13,470	$	—	$	—	$	13,470	$	13,470	$	—
Available-for-sale:
U.S. Treasury securities		7,922		—		(4)		7,918		—		7,918
Total	$	21,392	$	—	$	(4)	$	21,388	$	13,470	$	7,918


			Gross		Gross		Estimated		Cash and
	Amortized		Unrealized		Unrealized		Fair		Cash		Short-term
December 31, 2022	Cost		Gains		Losses		Value		Equivalents		Investment
Cash, cash equivalents and money market funds	$	30,819	$	—	$	—	$	30,819	$	30,819	$	—
Available-for-sale:
U.S. Treasury securities		37,458		—		(261)		37,197		—		37,197
Corporate debt securities		1,999		—		(3)		1,996		—		1,996
Certificates of deposit		485		—		(2)		483		—		483
Total	$	70,761	$	—	$	(266)	$	70,495	$	30,819	$	39,676

The Company evaluated the securities for other-than-temporary impairment and considered the decline in market value for the securities to be primarily attributable to current economic and market conditions. It is not more likely than not that the Company will be required to sell the securities, and the Company has no intention to do so prior to the recovery of the amortized cost basis. Based on this analysis, these marketable securities were not considered to be other-than-temporarily impaired as of September 30, 2023.

5. Prepaid Expenses and Other Current Assets

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


	September 30,		December 31,
	2023		2022
Vendor prepayments and deposits	$	1,064	$	2,010
Restricted cash deposits		1,115		—
Prepaid insurance		614		1,026
Prepaid facility maintenance fee		—		336
Other receivables		180		3,985
Interest receivables and other current assets		332		174
Total prepaid expenses and other current assets	$	3,305	$	7,531

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6. Property and Equipment, net

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


	September 30,		December 31,
	2023		2022
Laboratory equipment	$	6,762	$	13,191
Furniture and fixtures		—		1,929
Computer hardware and software		864		1,518
Leasehold improvements		—		37,908
Construction in process		—		178
		7,626		54,724
Less accumulated depreciation and amortization		(6,012)		(16,752)
Total property and equipment, net	$	1,614	$	37,972

Depreciation and amortization expense was $0.9 million and $1.4 million for the three months ended September 30, 2023 and 2022, respectively, and $3.5 million and $4.1 million for the nine months ended September 30, 2023 and 2022, respectively.

In December 2022, the Company identified certain long-lived assets no longer utilized under current or expected future operations. Accordingly, the Company recognized impairment expense of $0.4 million in 2022. In January 2023, certain long-lived assets with carrying value of $0.1 million met the criteria to be classified as held for sale and classified as current assets included in prepaid and other current assets.

In September 2023, as a part of the Company’s 2023 August 2023 Reorganization, the Company identified certain long-lived assets no longer utilized for current or expected future operations. Accordingly, the Company recognized impairment expense of $0.7 million during the nine months ended September 30, 2023. Certain long-lived assets with a carrying value of $0.3 million met the criteria to be classified as held for sale and classified as current assets included in prepaid and other current assets. Additionally, the Company transferred ownership of certain long-lived assets with a carrying value of $32.1 million to the Landlord as additional consideration for the Lease Modification Agreement.

7. Accrued Expenses

Accrued expenses consist of the following (in thousands):