Quarterly Report (10-q)

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Table of Contents

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, 2022

◻	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)

(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 11, 2022, the registrant had 31,875,995 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 Financial Statements (Unaudited)
	Condensed Balance Sheets	3
	Condensed Statements of Operations	4
	Condensed Statements of Loss and Comprehensive Loss	5
	Condensed Statements of Stockholders’ Equity	6
	Condensed Statements of Cash Flows	7
	Notes to Unaudited Condensed 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	77
Item 3.	Defaults Upon Senior Securities	77
Item 4.	Mine Safety Disclosures	77
Item 5.	Other Information	77
Item 6.	Exhibits	77

Table of Contents

PART I --- FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

Atreca, Inc.

Condensed Balance Sheets

(in thousands, except share and per share data)


	March 31,		December 31,
	2022		2021
	(unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	48,573	$	94,746
Investments		69,331		22,287
Prepaid expenses and other current assets		5,096		5,337
Total current assets		123,000		122,370
Property and equipment, net		41,998		43,015
Operating lease right-of-use assets		37,292		—
Long-term investments		7,862		31,042
Deposits and other		3,537		3,630
Total assets	$	213,689	$	200,057
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	4,452	$	3,352
Accrued expenses		5,114		11,555
Current portion of operating lease liabilities		3,221		—
Other current liabilities		70		1,992
Total current liabilities		12,857		16,899
Deferred rent		—		28,229
Operating lease liabilities, net of current portion		63,049		—
Total liabilities		75,906		45,128
Commitment and contingencies (Note 9)
Stockholders’ equity
Class A common stock, $0.0001 par value, 650,000,000 shares authorized as of both March 31, 2022 and December 31, 2021; 31,875,995 and 31,043,356 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively		3		3
Class B common stock, $0.0001 par value, 50,000,000 shares authorized as of both March 31, 2022 and December 31, 2021; 6,715,441 shares issued and outstanding as of both March 31, 2022 and December 31, 2021		1		1
Additional paid-in capital		522,892		514,794
Accumulated other comprehensive income (loss)		(470)		(102)
Accumulated deficit		(384,643)		(359,767)
Total stockholders’ equity		137,783		154,929
Total liabilities and stockholders’ equity	$	213,689	$	200,057

See accompanying notes to the unaudited condensed financial statements.

- 3 -

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Atreca, Inc.

Condensed Statements of Operations

(in thousands, except share and per share data)

(unaudited)


	Three Months Ended March 31,
	2022		2021

Expenses
Research and development	$	17,064	$	18,388
General and administrative		8,606		7,821
Total expenses		25,670		26,209
Interest and other income (expense)
Other income		750		344
Interest income		44		91
Interest expense		—		(1)
Loss before income tax expense		(24,876)		(25,775)
Income tax expense		—		—
Net loss	$	(24,876)	$	(25,775)
Net loss per share, basic and diluted	$	(0.65)	$	(0.70)
Weighted-average shares used in computing net loss per share, basic and diluted		37,982,863		36,841,065

See accompanying notes to the unaudited condensed financial statements.

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Table of Contents

Atreca, Inc.

Condensed Statements of Loss and Comprehensive Loss

(in thousands)

(unaudited)


	Three Months Ended March 31,
	2022		2021

Net loss	$	(24,876)	$	(25,775)
Other comprehensive income (loss):
Unrealized loss on available-for-sale debt securities		(368)		(8)
Comprehensive loss	$	(25,244)	$	(25,783)

See accompanying notes to the unaudited condensed financial statements.

- 5 -

Table of Contents

Atreca, Inc.

Condensed Statements of Stockholders' Equity

(in thousands, except share data)

(unaudited)


						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

						Accumulated
				Additional		Other				Total
Three Months Ended March 31, 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	115,973		—		177		—		—		177
Stock-based compensation	—		—		4,336		—		—		4,336
Unrealized loss on available-for-sale debt securities	—		—		—		(368)		—		(368)
Net loss	—		—		—		—		(24,876)		(24,876)
Balances at March 31, 2022	38,591,436	$	4	$	522,892	$	(470)	$	(384,643)	$	137,783

See accompanying notes to the unaudited condensed financial statements.

- 6 -

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Atreca, Inc.

Condensed Statements of Cash Flows

(in thousands)

(unaudited)


	Three Months Ended March 31,
	2022		2021
Cash Flows from Operating Activities
Net loss	$	(24,876)	$	(25,775)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,352		579
Amortization of operating right-of-use asset		386		—
Stock-based compensation		4,336		4,400
Amortization of investments		89		465
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(224)		(4,037)
Accounts payable		1,086		(146)
Accrued expenses		(6,703)		(2,453)
Other current liabilities		(205)		(595)
Deferred rent		—		9,864
Operating lease liabilities		(792)		—
Net cash used in operating activities		(25,551)		(17,698)
Cash Flows from Investing Activities
Purchase of property and equipment		(68)		(10,957)
Purchase of investments		(39,141)		(14,921)
Proceeds from maturities of investments		14,820		71,786
Net cash provided by (used in) investing activities		(24,389)		45,908
Cash Flows from Financing Activities
Proceeds from the issuance of common stock under the Employee Stock Purchase Plan		177		484
Proceeds from exercise of stock options		76		241
Proceeds from issuance of common shares in "at-the-market" equity offering, net of issuance costs		3,518		—
Principal payments on capital lease obligations		(4)		(12)
Net cash provided by financing activities		3,767		713
Net change in cash, cash equivalents and restricted cash		(46,173)		28,923
Cash, cash equivalents and restricted cash, beginning of period		96,204		62,441
Cash, cash equivalents and restricted cash, end of period	$	50,031	$	91,364

See accompanying notes to the unaudited condensed financial statements.

- 7 -

Table of Contents

Atreca, Inc.

Condensed Statements of Cash Flows (continued)

(in thousands)

(unaudited)


	Three Months Ended March 31,
	2022		2021
Supplemental Disclosure of Cash Flow Information
Cash paid for interest	$	—	$	1
Supplemental Schedule of Non-Cash Investing and Financing Activities
Costs related to "at-the-market" offering included in accounts payable	$	9	$	—
Purchases of property and equipment included in accounts payable and accrued liabilities	$	300	$	11,051

See accompanying notes to the unaudited condensed financial statements.

- 8 -

Table of Contents

Notes to Unaudited Interim Condensed 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. In April 2022, the Company announced its next clinical candidate, ATRC-301. ATRC-301 is an antibody drug conjugate (“ADC”) that selectively targets a novel, membrane-proximal epitope on erythropoietin-producing hepatocellular receptor A2. 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 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 condensed or omitted pursuant to the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Therefore, these unaudited condensed financial statements should be read in conjunction with the financial statements and related footnotes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Form 10-K”).

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 financial statements and accompanying notes. Actual results could differ from those estimates. Key estimates in the condensed 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 common stock and fair value of options granted under the Company's stock option plan.

Unaudited Interim Condensed Financial Statements

The accompanying condensed financial statements are unaudited. The unaudited interim condensed 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 March 31, 2022 and its results of operations and cash flows for the three months ended March 31, 2022 and 2021. The financial data and the other financial information contained in these notes to the condensed financial statements related to the three-month periods are also unaudited. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any other future annual or interim period. The balance sheet as of December 31, 2021 included herein was derived from the audited financial statements as of that date.

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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 Accounting Standards Codification (“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.

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 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 the Company fully recognized the amount as other income over the service period of 18 months.

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 considerations 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 patent. Receivables under service and license agreements of $0.8 million is included in prepaid expenses and other current assets as of March 31, 2022. The Company recorded no receivables under service and license agreements as of December 31, 2021. The Company recorded no contract liabilities as of both March 31, 2022 and December 31, 2021.

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 ASC 808, Collaboration Agreements. The Company had $114,000 of payable and $25,000 of receivable under the research cost-sharing provision recorded in accrued expenses and prepaid and other current assets, respectively, on the accompanying condensed balance sheets as of March 31, 2022 and December 31, 2021, respectively.

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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”) 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.

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 $1.5 million as of both March 31, 2022 and December 31, 2021. This amount as of March 31, 2022 and December 31, 2021 is included in deposits and other in the accompanying condensed balance sheets and is comprised solely of letters of credit required pursuant to leases for Company facilities.

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


	March 31,		December 31,
	2022		2021
Cash and cash equivalents	$	48,573	$	94,746
Restricted cash		1,458		1,458
Cash, cash equivalents and restricted cash shown in the condensed statements of cash flows	$	50,031	$	96,204

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.

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 COVID-19, 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 three financial institutions and were in excess of the Federal Deposit Insurance Corporation insurable limit at March 31, 2022 and December 31, 2021. 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.

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. 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 condensed financial statements may not be comparable to companies that

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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 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 requires lessees to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The Company adopted the new lease accounting standard on January 1, 2022, using the modified retrospective transition method. The Company implemented processes, and internal controls to enable the preparation of financial information. The adoption of this standard had a material impact on the Company’s condensed balance sheet, with the recognition of right-of-use assets and corresponding lease liabilities in the amounts of $37.7 million and $67.1 million respectively, and the derecognition of approximately $10.9 million of deferred rent and $19.1 million of tenant improvement incentives. The adoption of this standard did not have a material impact on the Company’s condensed statements of operations or cash flows. The Company provided detailed right-of-use asset and liability disclosures as required by the new standard in the notes to the Company’s condensed financial statements under Note 8 Leases. The Company adopted the transitional provisions allowed under ASU 2018-11 and as such, the condensed balance sheets and condensed statements of operations for prior periods are not comparable in the year of adoption of ASU 2016-02.

Recent Accounting Pronouncements Not Yet Adopted

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 2020-02 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. 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 financial statements and related disclosures.

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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 condensed 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):


	March 31, 2022
	Level 1		Level 2		Level 3		Total
Assets
Money market funds	$	41,151	$	—	$	—	$	41,151
Certificates of deposit		1,419		—		—		1,419
Corporate debt securities		—		5,135		—		5,135
U.S. Treasury securities		70,639		—		—		70,639
Total	$	113,209	$	5,135	$	—	$	118,344

	December 31, 2021
	Level 1		Level 2		Level 3		Total
Assets
Money market funds	$	90,251	$	—	$	—	$	90,251
Certificates of deposit		1,672		—		—		1,672
Corporate debt securities		—		6,089		—		6,089
U.S. Treasury securities		45,568		—		—		45,568
Total	$	137,491	$	6,089	$	—	$	143,580

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 both March 31, 2022 and December 31, 2021, the remaining contractual maturity of all marketable securities was less than two years.

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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		Short-term		Long-term
March 31, 2022	Cost		Gains		Losses		Value		Equivalents		Investment		Investment
Cash, cash equivalents and money market funds	$	48,573	$	—	$	—	$	48,573	$	48,573	$	—	$	—
Available-for-sale:
U.S. Treasury securities		71,093		—		(454)		70,639		—		62,777		7,862
Corporate debt securities		5,144		—		(9)		5,135		—		5,135		—
Certificates of deposit		1,426		—		(7)		1,419		—		1,419		—
Total	$	126,236	$	—	$	(470)	$	125,766	$	48,573	$	69,331	$	7,862


			Gross		Gross		Estimated		Cash and
	Amortized		Unrealized		Unrealized		Fair		Cash		Short-term		Long-term
December 31, 2021	Cost		Gains		Losses		Value		Equivalents		Investment		Investment
Cash, cash equivalents and money market funds	$	94,746	$	—	$	—	$	94,746	$	94,746	$	—	$	—
Available-for-sale:
U.S. Treasury securities		45,665		—		(97)		45,568		—		15,015		30,554
Corporate debt securities		6,093		—		(4)		6,089		—		6,089		—
Certificates of deposit		1,673		—		(1)		1,672		—		1,184		488
Total	$	148,177	$	—	$	(102)	$	148,075	$	94,746	$	22,287	$	31,042

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 March 31, 2022.

5. Prepaid Expenses and Other Current Assets

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


	March 31,		December 31,
	2022		2021
Vendor prepayments and deposits	$	2,810	$	2,681
Prepaid insurance		749		1,531
Prepaid facility expense		529		807
Other receivables		852		—
Interest receivables and other current assets		156		318
Total prepaid expenses and other current assets	$	5,096	$	5,337

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6. Property and Equipment, net

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


	March 31,		December 31,
	2022		2021
Laboratory equipment	$	13,441	$	13,128
Furniture and fixtures		1,915		1,897
Computer hardware and software		1,438		1,433
Leasehold improvements		37,871		37,871
		54,665		54,329
Less accumulated depreciation and amortization		(12,667)		(11,314)
Total property and equipment, net	$	41,998	$	43,015

Depreciation and amortization expense was $1.4 million and $0.6 million for the three months ended March 31, 2022 and 2021, respectively.

7. Accrued Expenses

Accrued expenses consist of the following (in thousands):


	March 31,		December 31,
	2022		2021
Compensation and related benefits	$	2,077	$	4,866
Contract research fees		1,755		5,521
Professional fees		473		189
Accrued cease-use liabilities		—		475
Other		809		504
Total accrued expenses	$	5,114	$	11,555

8. 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 Company was not party to any finance leases as of March 31, 2022.

The Company vacated its former office space in September 2021, prior to the expiration of the lease in March 2022. The remaining rent payable, deferred rent and associated prepaid rent for the former office space were expensed in full on September 30, 2021 and resulted in a charge of $1.5 million, recorded as a general and administrative operating expense in the Company’s condensed statement of operations. The associated cease-use liability was settled by March 2022 and the lease was terminated.

The Company's future lease payments as of March 31, 2022, which are presented as current portion of operating lease liabilities, and operating lease liabilities, net of current portion on the Company's condensed balance sheets (in thousands, except weighted-average data) are as follows:

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	Operating
(in thousands)	Leases
Periods
2022 - remainder	$	5,610
2023		7,635
2024		7,846
2025		8,064
2026		8,288
Thereafter		57,290
Total lease payments	$	94,733
Less: imputed interest		28,463
Present value of lease liabilities	$	66,270

Lease liabilities, current		3,221
Lease liabilities, noncurrent		63,049
Total lease liabilities	$	66,270

Weighted-average remaining lease term (in years)		11.2
Weighted-average discount rate		6.64%

Lease expense under the Company’s operating leases was $2.2 million for the three months ended March 31, 2022. Variable lease expense for operating leases was $0.7 million for the three months ended March 31, 2022. Rent expense recognized under ASC 840, inclusive of operating and maintenance costs, was $3.9 million during the three months ended March 31, 2021.

Cash paid for amounts included in the measurement of lease liabilities for the three months ended March 31, 2022 was $1.9 million.

Practical Expedients

Leases with an initial term of 12 months or less are not recorded on the condensed balance sheet. The Company recognizes the lease expense for such leases on a straight-line basis over the lease term.

The Company has elected to account for lease (e.g., fixed payments including rent) and non-lease components (e.g., common-area maintenance costs) as a single combined lease component under ASC 842 as the lease components are the predominant elements of the combined components.

As part of the transition to ASC 842, the Company elected to use the modified retrospective transition method with the new standard being applied as of the January 1, 2022 adoption date. Additionally, the Company has elected, as of the adoption date, not to reassess whether expired or existing contracts contain leases under the new definition of a lease, not to reassess the lease classification for expired or existing leases, and not to reassess whether previously capitalized initial direct costs would qualify for capitalization under ASC 842.

9. Commitments and Contingencies

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.

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10. 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 is 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 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, 2022, the Company issued and sold 1,493,361 shares of our Class A common stock. Net proceeds from the sales were $7.9 million after deducting underwriting fees of $0.3 million and issuance costs of $0.3 million.

11. 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.

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Stock Options

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, 2021	7,162,676	$	11.25	8.2	$	21
Granted	14,200		2.37
Exercised	(16,666)		4.56
Cancelled	(201,627)		10.19
Balances, March 31, 2022	6,958,583	$	11.28	7.9	$	34
Vested and expected to vest at March 31, 2022	6,958,583	$	11.28	7.9	$	34
Exercisable at March 31, 2022	3,605,676	$	11.93	7.1	$	22
Vested at March 31, 2022	3,587,710	$	11.96	7.1	$	22

The weighted-average grant date fair value of options granted in the three months ended March 31, 2022 and 2021 was $1.70 and $10.42, 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,
	2022		2021
Expected life (in years)	6.06		5.98
Volatility	84.4	%	91.7	%
Risk-free interest rate	1.9	%	0.6	%

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.

Restricted Stock Units

The 2019 Plan provides for the issuance of RSU to employees, directors and consultants. RSUs vest over a period of two years with 50% vesting on the one year anniversary of the award and the remainder vesting on the two year anniversary of the award.

The following table summarizes RSU activity for the three months ended March 31, 2022:


		Weighted-Average
	Number	Grant Date
	of Shares	Fair Value per RSU
Unvested Balances, December 31, 2021	867,730	$	6.15
RSUs Cancelled	(31,750)		6.15
Unvested Balances, March 31, 2022	835,980	$	6.15

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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. During the three months ended March 31, 2022 and 2021, the expense related to the ESPP was $245,000 and $216,000, 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,
	2022		2021
Expected life (in years)	0.5 - 2.0		0.5 - 2.0
Volatility	79.0 - 89.9	%	93.9 - 107.6	%
Risk-free interest rate	0.6 - 1.3	%	0.1	%

The Company recognized $4.3 million and $4.4 million of stock-based compensation expense related to the 2019 Plan, 2010 Plan, and ESPP for the three months ended March 31, 2022 and 2021, 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,
	2022		2021
Research and development	$	2,067	$	2,216
General and administrative		2,269		2,184
	$	4,336	$	4,400

No income tax benefits have been recognized in the condensed 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, 2022.

Unrecognized compensation expense as of March 31, 2022 totaled $23.6 million related to non-vested stock options with a remaining weighted-average requisite service period of 2.2 years and $3.7 million related to non-vested RSUs with a remaining weighted-average requisite service period of 1.4 years.

12. 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 both of the three months ended March 31, 2022 and March 31, 2021.

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13. Net Loss Per Share

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


	Three Months Ended March 31,
	2022		2021
Common stock options		6,958,583		5,986,289
Unvested restricted stock units		835,980		—
Common stock warrants		49,997		49,997
		7,844,560		6,036,286

14. Related Party Transactions

The Company recorded expense of $0.4 million and $0.5 million during the three months ended March 31, 2022 and 2021, respectively, related to intellectual property and other legal services performed by a related party. The Company owed $0.3 million and $0.2 million to the related party at March 31, 2022 and December 31, 2021, respectively.

The Company recorded expense of $0.7 million and $0.3 million during the three months ended March 31, 2022 and 2021, respectively, related to legal services performed by a related party. The Company owed $0.4 million and $0.1 million to the related party at March 31, 2022 and December 31, 2021, respectively.

The Company recorded research and development expense of $63,000 during both the three months ended March 31, 2022 and 2021, under consulting agreements with a member of the Company’s board of directors. The Company owed $74,000 to the member of the Company’s board of directors as of both March 31, 2022 and December 31, 2021.

15. Subsequent Events

The Company has evaluated subsequent events that may require adjustments to or disclosure in the unaudited interim condensed financial statements through May 11, 2022, the date on which the unaudited interim condensed financial statements were issued.

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.

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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 financial statements and related notes appearing in Part I, Item I of this Quarterly Report on Form 10-Q and (2) the audited financial statements and the related notes and the discussion in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the fiscal year ended December 31, 2021 included in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission, or SEC, on March 3, 2022, or 2021 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 of 1933, as amended, or 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 therapeutics 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 oncology targets. We believe the fact that our approach has the potential to deliver novel, previously unexplored 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. In 2020, we commenced clinical development of ATRC-101 with a Phase 1b clinical trial evaluating ATRC-101 as a monotherapy in patients with select solid tumors which is ongoing, and in 2021

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we expanded clinical development by opening a new cohort to evaluate ATRC-101 in combination with a PD-1 checkpoint inhibitor. Our efforts beyond ATRC-101 are focused on expanding our clinical pipeline by advancing additional product candidates using our large library of hit antibodies that bind preferentially to tumor tissue across patients. To that end, in April 2022, as part of our virtual R&D Day, we provided an update on our preclinical pipeline in oncology. In particular, we announced our next clinical candidate, ATRC-301. ATRC-301 is an antibody drug conjugate that selectively targets a novel, membrane-proximal epitope on erythropoietin-producing hepatocellular receptor A2. ATRC-301 has demonstrated potent, dose-dependent in vivo tumor regression in mice with no significant toxicity signals yet observed in rats after single doses of up to and including 30mg/kg. 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 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 $24.9 million and $25.8 million for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, we had an accumulated deficit of $384.6 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, 2022, we had cash, cash equivalents and investments of $125.8 million. Although it is difficult to predict our funding requirements, we anticipate that our cash, cash equivalents and marketable securities as of March 31, 2022, 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 over time as we:

◾

complete clinical trials for ATRC-101 and advance preclinical studies on ATRC-301 and any other 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 response to the COVID-19 pandemic, 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. We transitioned to a fully remote working environment in March 2020 and partially re-opened in June 2020 for lab-based personnel and certain essential personnel only. In July 2021, a limited number of additional personnel resumed working on site for a portion of the year, and in April 2022 the majority of our personnel resumed working on site. All onsite personnel are required to adhere to our COVID-19 safety protocols for their protection. In addition, in our clinical trial for ATRC-101, we experienced delays related to COVID-19 in 2020 and 2021, and we continue to experience such delays in 2022, primarily in enrolling and treating patients due to COVID-19 infections and resulting site staff shortages.

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To date, the COVID-19 pandemic has not had a material adverse impact on our productivity or our business, and as of March 31, 2022, 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 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 and spread of COVID-19, including its variants, 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 Quarterly Report on Form 10-Q. Given these uncertainties, COVID-19 and related global economic conditions could impact our business operations and our ability to execute on our associated business strategies and initiatives, and adversely impact our 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, results of operations, and financial condition.

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, 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)

Interest and other income (expense) includes amounts received from partners for research and discovery services and for assignment to other parties of non-core intellectual property, interest income earned on our cash, cash equivalents and investments, interest expense 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, 2022 and 2021

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


	Three Months Ended
	March 31,				Change
	2022		2021		$		%

	(in thousands)
Operating expenses:
Research and development	$	17,064	$	18,388	$	(1,324)	(7)	%
General and administrative		8,606		7,821		785	10	%
Total operating expenses		25,670		26,209		(539)	(2)	%
Operating Loss		(25,670)		(26,209)		539	(2)	%
Other income (expense), net:
Other income		750		344		406	118	%
Interest income		44		91		(47)	(52)	%
Interest expense		—		(1)		1	(100)	%
Total other income, net		794		434		360	83	%
Income tax expense		—		—		—		*
Net Loss	$	(24,876)	$	(25,775)	$	899	(3)	%

*	Not meaningful

Research and Development

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


	Three Months Ended
	March 31,
	2022		2021

	(in thousands)
Personnel related (including stock‑based compensation)	$	8,208	$	8,388
Product and other contract services		3,207		2,843
Laboratory supplies and equipment		2,239		2,353
Facility related		1,843		3,127
Consulting, legal and other services		518		1,160
Other		1,049		517
Total research and development expenses	$	17,064	$	18,388

Research and development expenses decreased by $1.3 million, or 7%, during the three months ended March 31, 2022 compared to the same period in 2021. The decrease was primarily attributable to a lower facility related cost of $1.3 million due to the consolidation to the single San Carlos location, a $0.6 million decrease in consulting, legal and other services, offset by a $0.4 million increase in product and preclinical contract services for increased activities on new pipeline 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,
	2022		2021

	(in thousands)
Personnel related (including stock‑based compensation)	$	4,529	$	4,389
Consulting, legal and other services		1,697		1,017
Facility related		600		1,024
Other		1,780		1,391
Total general and administrative expenses	$	8,606	$	7,821

General and administrative expenses increased by $0.8 million, or 10%, during the three months ended March 31, 2022 compared to the same period in 2021. The increase consists of a $0.7 million increase in consulting, legal and other services attributable to an increase in legal activities related to license agreements, and a $0.4 million increase in other expenses due mainly to a $0.2 million increase in amortization expenses attributable to the San Carlos lease offset by a lower facility related cost of $0.4 million due to the completion of San Carlos premises construction.

Other Income

Other income is comprised of amounts earned from research and discovery services provided to partners under service agreements and assignment to third parties of non-core intellectual property. Other income increased by $0.4 million during the three months ended March 31, 2022 compared to the same period in 2021 partially offset by the completion of the services provided to a third party partner.

Interest Income

Interest income decreased to $44,000 during the three months ended March 31, 2022 as compared to $91,000 during the three months ended March 31, 2021 due primarily to decrease in the investment balance.

Interest Expense

Interest expense during the three months ended March 31, 2022 and 2021 pertained to the interest portion of payments made on capital leases under which we acquired certain property and equipment.

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Liquidity and Capital Resources; Plan of Operations

Liquidity and Capital Resources

As of March 31, 2022, we had cash, cash equivalents and investments totaling $125.8 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 and corporate debt securities.

As of March 31, 2022, we had an accumulated deficit of $384.6 million. Due to our significant research and development expenditures, we have generated significant operating losses since inception. To date, 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 million after deducting underwriting discounts and commissions of $8.1 million and other offering expenses of $0.6 million.

In August 2020, we entered into a sales agreement, or Sales Agreement, with Cowen and Company, LLC, or Cowen, pursuant to which we may, upon the terms and subject to the conditions set forth therein, issue and sell through Cowen, acting as our sales agent and/or principal, shares of our Class A common stock, having an aggregate offering price of up to $100.0 million. As of March 31, 2022, we issued and sold 1,493,361 shares of our Class A common stock under the Sales Agreement. The net proceeds from the sales were $7.9 million after deducting underwriting fee of $0.3 million and issuance costs of $0.3 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, cash equivalents and investments will be sufficient to fund our operating and capital needs for at least the next 12 months. We believe we will meet longer-term expected future cash requirements and obligations through a combination of available cash, cash equivalents and marketable securities, our Sales Agreement, and access to other private and public financing sources. The adequacy of our available funds and our ability to raise any necessary additional capital to meet longer-term operating and capital requirements will depend on many factors, including 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.

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.

Material Cash Requirements

We expect our net losses to increase substantially as we continue clinical development of our lead product candidate, ATRC-101. We have used substantial funds to develop our discovery platform and ATRC-101 and we will continue to 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, ATRC-301 and additional potential future product candidates, to seek regulatory approvals for ATRC-101, ATRC-301 and potential future product candidates and to manufacture and market products, if any, that are approved for commercial sale. We may seek to raise any necessary

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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. 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.

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. 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 in April 2033. Base rent for the San Carlos Lease is $557,519 per month, with annual increases of 3%. We are obligated to maintain a security deposit of $1.1 million in the form of a letter of credit. The operating lease obligations discussed in Note 8, Leases, in our Notes to Condensed Financial Statements (Unaudited) included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Leases represent operating lease obligations related to the San Carlos Lease.

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 and 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.

Cash Flows

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


	Three Months Ended
	March 31,
	2022		2021

	(in thousands)
Cash used in operating activities	$	(25,551)	$	(17,698)
Cash provided by (used in) investing activities		(24,389)		45,908
Cash provided by financing activities		3,767		713
Net increase (decrease) in cash and cash equivalents and restricted cash	$	(46,173)	$	28,923

Cash Flows from Operating Activities

For the three months ended March 31, 2022, cash used in operating activities was $25.6 million, which consisted of a net loss of $24.9 million and a net change of $6.8 million in our net operating assets and liabilities, partially offset by $6.2 million in non-cash charges. The non-cash charges consisted of depreciation and amortization of $1.7 million and stock-based compensation of $4.3 million. The change in operating assets and liabilities was primarily due to a $6.7 million decrease in accrued expenses attributable to payment of accrued bonus expenses, settlement of cease use liabilities and payment of accrued contract manufacturing expense. These activities were partially offset by a $1.1 million increase in account payable attributable to increase in payables to one of our contract manufacturers.

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.

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Cash Flows from Investing Activities

For the three months ended March 31, 2022, cash used in investing activities of $24.4 million was primarily related to $24.3 million in net purchase of investments.

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.

Cash Flows from Financing Activities

For the three months ended March 31, 2022, cash provided by financing activities was $3.8 million, which primarily related to $3.5 million proceeds from the common stock sales related to the ATM program, net of underwriting discounts and commissions, $0.2 million and $0.1 million of proceeds from our 2019 Employee Stock Purchase Plan, or ESPP, and employee stock option exercises, respectively.

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 ESPP program and employee stock option exercises, respectively.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed financial statements, which have been prepared in accordance with generally accepted accounting principles, or GAAP. The preparation of these condensed 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 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 Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the 2021 Form 10-K.

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.

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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.

Recent Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies, in our Notes to Condensed 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 $125.8 million and $148.1 million as of March 31, 2022 and December 31, 2021, 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.

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 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, 2022, 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, 2022 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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