10-Q
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Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form 10-Q
 
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number:
001-33038
 
 
ZIOPHARM Oncology, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
84-1475642
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
One First Avenue, Parris Building 34, Navy Yard Plaza
Boston, Massachusetts 02129
(617)
259-1970
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
Common Stock
 
ZIOP
 
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes:  
    No:  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes:  
    No:  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ ‘‘smaller reporting company,’’ and ‘‘emerging growth company’’ in Rule 12b–2 of the Exchange Act.
 
Large Accelerated Filer
     Accelerated Filer  
Non-
Accelerated Filer
     Smaller Reporting Company  
     Emerging Growth Company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes:  ☐    No:  
As of October 29, 2020, the number of outstanding shares of the registrant’s common stock, $0.001 par value, was 214,291,057
 
shares.
 
 
 
 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form
10-Q
contains forward-looking statements that are based on our current beliefs and expectations. These forward-looking statements may be accompanied by such words as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “project,” “target,” “will” and other words and terms of similar meaning, although not all forward-looking statements contain these identifying words. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report, we caution you that these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about which we cannot be certain.
The forward-looking statements in this Quarterly Report include, but are not limited to, statements about:
 
 
 
our ability to raise substantial additional capital to fund our planned operations in the near term;
 
 
 
estimates regarding our expenses, use of cash, timing of future cash needs and anticipated capital requirements;
 
 
 
the development of our product candidates, including statements regarding the initiation, timing, progress and results of our preclinical clinical studies, clinical trials and research and development programs;
 
 
 
our ability to advance our product candidates through various stages of development, especially through pivotal safety and efficacy trials;
 
 
 
the risk that final trial data may not support interim analysis of the viability of our product candidates;
 
 
 
our expectation regarding the safety and efficacy of our product candidates;
 
 
 
the timing, scope or likelihood of regulatory filings and approvals from the U.S. Food and Drug Administration or equivalent foreign regulatory agencies for our product candidates and for which indications;
 
 
 
our ability to license additional intellectual property relating to our product candidates from third parties and to comply with our existing license agreements;
 
 
 
our ability to enter into partnerships or strategic collaboration agreements, our ability to achieve the results contemplated and the potential benefits to be derived from relationships with collaborators;
 
 
 
our ability to maintain and establish collaborations and licenses; developments and projections relating to competition from other pharmaceutical and biotechnology companies or our industry;
 
 
 
our estimates regarding the potential market opportunity for our product candidates;
 
 
 
the anticipated rate and degree of commercial scope and potential, as well as market acceptance of our product candidates for any indication, if approved;
 
 
 
the anticipated amount, timing and accounting of contract liability (formerly deferred revenue), milestones and other payments under licensing, collaboration or acquisition agreements, research and development costs and other expenses;
 
 
 
our intellectual property position, including the strength and enforceability of our intellectual property rights;
 
 
 
our ability to attract and retain qualified employees and key personnel;
 
 
 
the impact of government laws and regulations in the United States and foreign countries;
 
 
 
our expectations regarding the impact of the ongoing coronavirus disease 2019, or
COVID-19,
pandemic, included the expected duration of disruption and immediate and long-term impact and effect on our business and operations;
 
 
 
the diversion of healthcare resources away from the conduct of clinical trials as a result of the ongoing
COVID-19
pandemic, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;

   
the interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel, quarantines or social distancing protocols imposed or recommended by federal or state governments, employers and others in connection with the ongoing
COVID-19
pandemic; and
 
   
other risks and uncertainties, including those listed under Part II, Item 1A, “Risk Factors”.
Any forward-looking statements in this Quarterly Report on Form
10-Q
reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A. “Risk Factors” and elsewhere in this Quarterly Report on Form
10-Q.
Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.
NOTE REGARDING COMPANY REFERENCES
Throughout this Quarterly Report on Form
10-Q,
“Ziopharm,” the “Company,” “we,” “us” and “our” refer to ZIOPHARM Oncology, Inc. and its subsidiaries.
NOTE REGARDING TRADEMARKS
All trademarks, trade names and service marks appearing in this Quarterly Report on Form
10-Q
are the property of their respective owners.
 
2

Table of Contents
ZIOPHARM Oncology, Inc.
Table of Contents
 
        
Page
 
 
Item 1.
 
 
       4  
       5  
       6  
       8  
       9  
Item 2.
       26  
Item 3.
       35  
Item 4.
       36  
 
Item 1.
       38  
Item 1A.
       38  
Item 2.
       75  
Item 3.
       75  
Item 4.
       75  
Item 5.
       75  
Item 6.
       76  
 
3

Table of Contents
Part I - Financial Information
 
Item 1.
Financial Statements
ZIOPHARM Oncology, Inc.
BALANCE SHEETS
(unaudited)
(in thousands, except share and per share data)
 
    
September 30,
2020
   
December 31,
2019
 
ASSETS
    
Current assets:
    
Cash and cash equivalents
   $ 135,471     $ 79,741  
Receivables
     5,428       3,330  
Prepaid expenses and other current assets
     14,172       22,421  
  
 
 
   
 
 
 
Total current assets
     155,071       105,492  
     
Property and equipment, net
     7,577       1,110  
Right of use asset
     2,370       2,272  
Deposits
     130       130  
Other
non-current
assets
     746       110  
  
 
 
   
 
 
 
Total assets
   $ 165,894     $ 109,114  
  
 
 
   
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
    
Current liabilities:
    
Accounts payable
   $ 2,619     $ 906  
Accrued expenses
     15,836       10,846  
Lease liability - current portion
     866       774  
  
 
 
   
 
 
 
Total current liabilities
     19,321       12,526  
     
Lease liability - noncurrent portion
     1,655       1,578  
  
 
 
   
 
 
 
Total liabilities
     20,976       14,104  
  
 
 
   
 
 
 
Commitments and contingencies (Note 6)
   
     
Stockholders’ equity:
    
Common stock, $0.001 par value; 250,000,000 shares authorized; 214,165,690 and 181,803,320 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively
     214       182  
Additional
paid-in
capital
     886,033       778,953  
Accumulated deficit
     (741,329     (684,125
  
 
 
   
 
 
 
Total stockholders’ equity
     144,918       95,010  
  
 
 
   
 
 
 
Total liabilities and stockholders’ equity
   $ 165,894     $ 109,114  
  
 
 
   
 
 
 
The accompanying notes are an integral part of the unaudited interim financial statements.
 
4

ZIOPHARM Oncology, Inc.
STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share and per share data)
 
    
For the Three Months Ended September 30,
   
For the Nine Months Ended September 30,
 
    
2020
   
2019
   
2020
   
2019
 
Operating expenses:
        
Research and development
   $ 13,968     $ 8,641     $ 38,725     $ 28,115  
General and administrative
     6,353       4,807       18,862       13,707  
  
 
 
   
 
 
   
 
 
   
 
 
 
Total operating expenses
     20,321       13,448       57,587       41,822  
  
 
 
   
 
 
   
 
 
   
 
 
 
Loss from operations
     (20,321     (13,448     (57,587     (41,822
         
Other income, net
     6       203       383       523  
Non-cash inducement warrant
 
expense
           (60,751           (60,751
  
 
 
   
 
 
   
 
 
   
 
 
 
Net loss
   $ (20,315   $ (73,996   $ (57,204   $ (102,050
         
Basic and diluted net loss per share
   $ (0.10   $ (0.43   $ (0.27   $ (0.62
  
 
 
   
 
 
   
 
 
   
 
 
 
Weighted average common shares outstanding used to compute basic and diluted net loss per share
     212,837,367       170,613,712       208,497,410       164,053,029  
  
 
 
   
 
 
   
 
 
   
 
 
 
The accompanying notes are an integral part of the unaudited interim financial statements.
 
5

Table of Contents
ZIOPHARM Oncology, Inc.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Three and Nine Months Ended September 30, 2020
(unaudited)
(in thousands, except share and per share data)
For the Three Months Ended September 30, 2020
           
    
Common Stock
    
Additional Paid
In Capital
Common Stock
   
Accumulated
Deficit
   
Total Stockholders’
Equity
 
    
Shares
   
Amount
                    
Balance at June 30, 2020
     214,150,940     $ 214      $ 884,214     $ (721,014     163,414  
Stock-based compensation
     —         —          1,792       —         1,792  
Exercise of employee stock options
     14,750       —          27       —         27  
Net loss
     —         —          —         (20,315     (20,315
  
 
 
   
 
 
    
 
 
   
 
 
   
 
 
 
Balance at September 30, 2020
     214,165,690     $ 214      $ 886,033     $ (741,329   $ 144,918  
  
 
 
   
 
 
    
 
 
   
 
 
   
 
 
 
For the Nine Months Ended September 30, 2020
           
    
Common Stock
    
Additional Paid
In Capital
Common Stock
   
Accumulated
Deficit
   
Total Stockholders’
Equity
 
    
Shares
   
Amount
                    
Balance at December 31, 2019
     181,803,320     $ 182      $ 778,953     $ (684,125   $ 95,010  
Stock-based compensation
     —         —          5,393       —         5,393  
Exercise of employee stock options
     22,916       —          43       —         43  
Restricted stock awards
     555,900       1        (1     —         —    
Cancelled restricted common stock
     (141,230     —          —         —         —    
Issuance of common stock in connection with a public offering, net of commissions and expenses of $5.9 million
     29,110,111       29        88,632       —         88,661  
Issuance of common stock in connection with an at the market offering, net of commissions and expenses of $0.4 million
     2,814,673       2        13,013       —         13,015  
Net loss
     —         —          —         (57,204     (57,204
  
 
 
   
 
 
    
 
 
   
 
 
   
 
 
 
Balance at September 30, 2020
     214,165,690     $ 214      $ 886,033     $ (741,329   $ 144,918  
  
 
 
   
 
 
    
 
 
   
 
 
   
 
 
 
The accompanying notes are an integral part of the unaudited interim financial statements.
 
6

ZIOPHARM Oncology, Inc.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY…continued
For the Three and Nine Months Ended September 30, 2019
(unaudited)
(in thousands, except share and per share data)
For the Three Months Ended September 30, 2019
 
    
Common Stock
    
Additional Paid
In Capital
Common Stock
   
Accumulated
Deficit
   
Total Stockholders’
Deficit
 
    
Shares
   
Amount
                    
Balance at June 30, 2019
     162,477,963     $ 162      $ 656,216     $ (594,383   $ 61,995  
Stock-based compensation
     —         —          1,486       —         1,486  
Exercise of employee stock options
     94,584       —          420       —         420  
Restricted stock awards
     15,000       —          —         —         —    
Issuance of common stock upon exercise of warrants, net
     17,803,031       18        52,481       —         52,499  
Issuance of inducement warrants
     —         —          60,751       —         60,751  
Issuance of common stock in connection with at the market offering, net
     639,442       1        2,970       —         2,971  
Net loss
     —         —          —         (73,996     (73,996
  
 
 
   
 
 
    
 
 
   
 
 
   
 
 
 
Balance at September 30, 2019
     181,030,020     $ 181      $ 774,324     $ (668,379   $ 106,126  
  
 
 
   
 
 
    
 
 
   
 
 
   
 
 
 
For the Nine Months Ended September 30, 2019
           
    
Common Stock
    
Additional Paid
In Capital
Common Stock
   
Accumulated
Deficit
   
Total Stockholders’
Deficit
 
    
Shares
   
Amount
                    
Balance at December 31, 2018
     161,066,136     $ 161      $ 651,732     $ (566,329   $ 85,564  
Stock-based compensation
     —         —          4,741       —         4,741  
Exercise of employee stock options
     352,652       —          1,020       —         1,020  
Restricted stock awards
     1,408,536       1        999       —         1,000  
Issuance of common stock upon exercise of warrants, net
     17,803,031       18        52,481       —         52,499  
Issuance of inducement warrants
     —                  60,751       —         60,751  
Cancelled restricted common stock
     (74,599     —          —         —         —    
Restricted stock
buy-back
at vesting to cover taxes
     (165,178     —          (370     —         (370
Issuance of common stock in connection with at the market offering, net
     639,442       1        2,970       —         2,971  
Net loss
     —         —          —         (102,050     (102,050
  
 
 
   
 
 
    
 
 
   
 
 
   
 
 
 
Balance at September 30, 2019
     181,030,020     $ 181      $ 774,324     $ (668,379   $ 106,126  
  
 
 
   
 
 
    
 
 
   
 
 
   
 
 
 
The accompanying notes are an integral part of the unaudited interim financial statements.
 
7

Table of Contents
ZIOPHARM Oncology, Inc.
STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
 
    
For the Nine Months Ended
September 30,
 
    
2020
   
2019
 
Cash flows from operating activities:
    
Net loss
   $ (57,204   $ (102,050
Adjustments to reconcile net loss to net cash used in operating activities:
    
Depreciation
     708       453  
Stock-based compensation
     5,393       5,741  
Non-cash
inducement warrant expense
     —         60,751  
Change in operating assets and liabilities
    
(Increase) decrease in:
    
Receivables
     (2,098     (1,577
Prepaid expenses and other current assets
     8,249       (3,047
Right of use asset
     (98     —    
Deposits
     —         (2
Other noncurrent assets
     (636     9,432  
Increase (decrease) in:
    
Accounts payable
     1,713       219  
Accrued expenses
     3,828       810  
Deferred rent
     —         17  
Lease liabilities
     168       7  
  
 
 
   
 
 
 
Net cash used in operating activities
     (39,977     (29,246
  
 
 
   
 
 
 
Cash flows from investing activities:
    
Purchases of property and equipment
     (6,012     (184
  
 
 
   
 
 
 
Net cash used in investing activities
     (6,012     (184
  
 
 
   
 
 
 
Cash flows from financing activities:
    
Repurchase of common stock
     —         (370
Proceeds from exercise of stock options
     43       1,020  
Issuance of common stock in connection with a public offering, net
     88,661       2,971  
Issuance of common stock in connection with at the market offerings, net
     13,015       52,499  
  
 
 
   
 
 
 
Net cash provided by financing activities
     101,719       56,120  
  
 
 
   
 
 
 
Net increase in cash and cash equivalents, and restricted cash
     55,730       26,690  
Cash and cash equivalents, and restricted cash, beginning of period
     79,741       61,729  
  
 
 
   
 
 
 
Cash and cash equivalents, and restricted cash, end of period
   $ 135,471     $ 88,419  
  
 
 
   
 
 
 
Supplementary disclosure of cash flow information:
    
Compensation paid in restricted stock, gross
   $ —       $ 1,000  
  
 
 
   
 
 
 
Accounts included in accounts payable and accrued expenses related to property and equipment
   $ 1,163     $ —    
  
 
 
   
 
 
 
The accompanying notes are an integral part of the unaudited interim financial statements.
 
8

Table of Contents
ZIOPHARM Oncology, Inc.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. Business
Overview
ZIOPHARM Oncology, Inc., which is referred to herein as “ZIOPHARM,” or the “Company,” is a biopharmaceutical company seeking to develop, acquire, and commercialize, on its own or with partners, a diverse portfolio of immuno-oncology therapies.
The Company’s operations to date have consisted primarily of conducting research and development and raising capital to fund those efforts. The Company’s fiscal year ends on December 31.
The Company has operated at a loss since its inception in 2003 and has no recurring revenues from operations. The Company anticipates that losses will continue for the foreseeable future. As of September 30, 2020, the Company had approximately $135.5 million of cash and cash equivalents and the Company’s accumulated deficit was approximately $741.3 million. Given its current development plans, the Company anticipates cash resources will be sufficient to fund operations into
mid-2022. The
Company’s ability to continue operations after its current cash resources are exhausted depends on its ability to obtain additional financing or to achieve profitable operations, as to which no assurances can be given. Cash requirements may vary materially from those now planned because of changes in the Company’s focus and direction of its research and development programs, competitive and technical advances, patent developments, regulatory changes or other developments. If adequate additional funds are not available when required, or if the Company is unsuccessful in entering into partnership agreements for further development of its product candidates, management may need to curtail its development efforts and planned operations to conserve cash.
Basis of Presentation
The accompanying unaudited interim financial statements have been prepared in accordance with the instructions to Form
10-Q
pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC. Certain information and note disclosures required by generally accepted accounting principles in the United States have been condensed or omitted pursuant to such rules and regulations.
It is management’s opinion that the accompanying unaudited interim financial statements reflect all adjustments (which are normal and recurring) that are necessary for a fair statement of the results for the interim periods. The unaudited interim financial statements should be read in conjunction with the audited financial statements and the notes thereto for the year ended December 31, 2019, included in the Company’s Annual Report on Form
10-K
for the fiscal year ended December 31, 2019 filed with the SEC on March 2, 2020, or the Annual Report.
The
year-end
balance sheet data was derived from the audited financial statements but does not include all disclosures required by generally accepted accounting principles in the United States.
The results disclosed in the statements of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the full fiscal year
 2020
.
 
9

ZIOPHARM Oncology, Inc.
NOTES TO FINANCIAL STATEMENTS (unaudited)
 
1. Business (Continued)
 
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Although the Company regularly assesses these estimates, actual results could differ from those estimates. Changes in estimates are recorded in the period in which they become known.
The Company’s most significant estimates and judgments used in the preparation of its financial statements are:
 
 
 
Clinical trial expenses;
 
 
 
Collaboration agreements;
 
 
 
Fair value measurements of stock-based compensation; and
 
 
 
Income taxes
Impact of
COVID-19 Pandemic
With the global spread of the ongoing
COVID-19
pandemic
,
 
the Company has implemented business continuity plans designed to address and mitigate the impact of the
COVID-19
pandemic on its
business and operations
. The extent to which the
COVID-19
pandemic impacts the Company’s business, clinical development and regulatory efforts and the value of its common stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements, and the effectiveness of actions taken globally to contain and treat the disease. The
global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the COVID-19 pandemic could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.
In addition, the Company is subject to other challenges and risks specific to its business and its ability to execute on its business plan and strategy, as well as risks and uncertainties common to companies in the biopharmaceutical industry with development and commercial operations, including, without limitation, risks and uncertainties associated with: obtaining regulatory approval of its product candidates; delays or problems in obtaining clinical supply, loss of single source suppliers or failure to comply with manufacturing regulations; identifying, acquiring or
in-licensing
additional products or product candidates; biopharmaceutical product development and the inherent uncertainty of clinical success; and the challenges of complying with applicable regulatory requirements. In addition, to the extent the ongoing
COVID-19
pandemic adversely affects its business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties discussed above.
Subsequent Events
The Company evaluated all events and transactions that occurred after the balance sheet date through the date of this filing. During this period, the Company did not have any material subsequent events that impacted its financial statements or disclosures.
 
10

ZIOPHARM Oncology, Inc.
NOTES TO FINANCIAL STATEMENTS (unaudited)
 
2. Financings
February 2020 Public Offering
On February 5, 2020, the Company entered into an underwriting agreement with Jefferies, as representative of the several underwriters named therein, relating to the issuance and sale of 27,826,086 shares of its common stock. The price to the public in the offering was $3.25 per share, and the underwriters agreed to purchase the shares from the Company pursuant to the underwriting agreement at a purchase price of $3.055 per share. Under the terms of the underwriting agreement, the Company also granted the underwriters an option, exercisable for 30 days, to purchase up to an additional 4,173,912 shares of common stock at a purchase price of $3.055 per share.
The offering was made pursuant to the Company’s effective registration statement on Form
S-3ASR
(File
No. 333-232283)
previously filed with the SEC, and a prospectus supplement thereunder. The underwriters purchased the 27,826,086 shares on February 5, 2020. The net proceeds from the offering were approximately $84.8 million after deducting underwriting discounts and offering expenses paid by the Company.
On March 10, 2020, the underwriters exercised their option to purchase an additional 1,284,025 shares. The net proceeds were approximately $3.9 million after deducting underwriting discounts and offering expenses paid by the Company.
At-the-market
Offering
In June 2019, the
Company entered into an Open Market Sale Agreement, or sales agreement, with Jefferies LLC, as agent, or (“Jefferies”), pursuant to which the Company may offer and sell, from time to time through Jefferies, shares of its common stock having an aggregate offering price of up
 
to $
100.0
 million. Shares will be sold pursuant to the Company’s effective registration statement on Form
S-3ASR
(File
No
333-232283),
as previously filed with the SEC.
During the nine months ended September 30, 2019, the Company sold an aggregate of 639,442 shares of its common stock. The offering was made pursuant to the Company’s effective registration statement on Form
S-3ASR
(Registration Statement
No. 333-232283)
previously filed with the SEC, and a prospectus supplement thereunder. The net proceeds from the offering were approximately $3.0 million after deducting underwriting discounts and estimated offering expenses payable by the Company.
During the three months ended September 30, 2020, there were no at-the-market sales. During the nine months ended September 30, 2020, the Company issued and sold an
 
aggregate of 2,814,673
shares of its common stock
 under the sales agreement for aggregate net proceeds of 
$13.0
 m
illion after deducting commissions and offering expenses.
 
11

ZIOPHARM Oncology, Inc.
NOTES TO FINANCIAL STATEMENTS (unaudited)
 
2. Financings (
C
ontinued)
 
November 2018 Private Placement and 2019 Inducement Warrants
On November 11, 2018, the Company entered into a securities purchase agreement with certain institutional and accredited investors pursuant to which it sold an aggregate of 18,939,394 immediately separable units at a price per unit of $2.64 to such investors, for net proceeds of approximately $47.1 million. Each unit was comprised of (i) one share of our common stock, par value $0.001 per share and (ii) a warrant to purchase one share of common stock. The securities issued by the Company pursuant to the securities purchase agreement and to be issued upon exercise of the warrants were not registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. When issuing the units, the Company relied on the private placement exemption from registration provided by Section 4(a)(2) of the Securities Act and by Rule 506 of Registration D, promulgated thereunder and on similar exemptions under applicable state laws and filed a Form D with the SEC on November 19, 2018. On February 7, 2019, the Company filed a registration statement on Form
S-3
registering the resale of shares issued pursuant to the securities purchase agreement and the resale of shares that may be issued upon exercise of the warrants.
On July 26, 2019 and September 12, 2019, the Company entered into agreements for the exercise of the warrants issued in November 2018 to purchase common stock in a private placement. Pursuant to the terms of the agreements, investors exercised warrants for an aggregate of 17,803,031 shares of common stock, at an exercise price of $3.01 per share. The Company issued new warrants to purchase up to 17,803,031 additional shares of common stock as an inducement for warrant holders to exercise their 2018 warrants early. The new warrants will become exercisable six months following the date of issuance, will expire on the fifth anniversary of the initial exercise date, and have an exercise price of $7.00 (Note 9). Proceeds from the exercise of the warrants, before deducting placement agent fees and other related expenses of $1.1 million were approximately $52.5 million.
3. Summary of Significant Accounting Policies
The Company’s significant accounting policies were identified in the Company’s Annual Report. There have been no material changes in those policies since the filing of its Annual Report except as noted below.
New Accounting Pronouncements
In December 2019, the FASB issued ASU
2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
, which is intended to simplify various aspects related to accounting for income taxes. ASU
2019-12
removes certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for public entities for fiscal years beginning after December 15, 2020, and for interim periods within those fiscal years. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements.
In August 2018, the FASB issued ASU
No. 2018-13,
Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement
, or ASU
2018-03.
The guidance in this ASU modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. Under the new guidance, transfers between asset classes and the valuation related to Level 3 assets is modified. The new standard is effective for annual reporting periods beginning after December 15, 2019, including interim reporting periods within each annual reporting period. The adoption did not have a material impact on the Company’s financial statements.
 
12

ZIOPHARM Oncology, Inc.
NOTES TO FINANCIAL STATEMENTS (unaudited)
 
4. Fair Value Measurements
The Company accounts for its financial assets and liabilities using fair value measurements. The authoritative accounting guidance defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value as follows:
 
 
 
Level 1 - Quoted prices in active markets for identical assets or liabilities.
 
 
 
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
 
 
 
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Assets and liabilities measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019 were as follows:
 
($ in thousands)
          Fair Value Measurements at Reporting Date Using  
Description
   Balance as of
September 30, 2020
     Quoted Prices in
Active Markets for
Identical
Assets/Liabilities
(Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Significant
Unobservable Inputs
(Level 3)
 
Assets:
           
Cash equivalents
   $ 75,300      $ 75,300      $ —        $ —    
  
 
 
    
 
 
    
 
 
    
 
 
 
 
($ in thousands)
          Fair Value Measurements at Reporting Date Using  
Description
   Balance as of
December 31, 2019
     Quoted Prices in
Active Markets for
Identical
Assets/Liabilities
(Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Significant
Unobservable Inputs
(Level 3)
 
Assets:
           
Cash equivalents
   $ 68,031      $ 68,031      $ —        $ —    
  
 
 
    
 
 
    
 
 
    
 
 
 
 
13

Table of Contents
ZIOPHARM Oncology, Inc.
NOTES TO FINANCIAL STATEMENTS (unaudited)
 
4. Fair Value Measurements (Continued)
 
The cash equivalents represent deposits in short-term United States treasury money market mutual funds quoted in an active market and classified as a Level 1 asset.
5. Net Loss per Share
Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the period. The Company’s potentially dilutive shares, which include outstanding common stock options, unvested restricted stock and preferred stock, have not been included in the computation of diluted net loss per share for any of the periods presented as the result would be anti-dilutive. Such potentially dilutive shares of common stock at September 30, 2020 and 2019 consisted of the following:
 
     September 30,  
     2020      2019  
Stock options
     6,572,191        4,995,549  
Inducement stock options
     863,333        965,000  
Unvested restricted stock
     1,289,389        1,569,579  
Warrants
     22,272,727        18,939,394  
  
 
 
    
 
 
 
     30,997,640        26,469,522  
  
 
 
    
 
 
 
6. Commitments and Contingencies
License Agreements
Exclusive License Agreement with PGEN Therapeutics
On October 5, 2018, the Company entered into the License Agreement, with PGEN Therapeutics, Inc. or PGEN, a wholly owned subsidiary of Precigen Inc., or Precigen, which was formerly known as Intrexon Corporation. As between the Company and PGEN, the terms of the License Agreement replace and supersede the terms of: (a) that certain Exclusive Channel Partner Agreement by and between the Company and Precigen, dated January 6, 2011, as amended by the First Amendment to Exclusive Channel Partner Agreement effective September 13, 2011, the Second Amendment to the Exclusive Channel Partner Agreement effective March 27, 2015, and the Third Amendment to Exclusive Channel Partner Agreement effective June 29, 2016, which was subsequently assigned by Precigen to PGEN; (b) certain rights and obligations pursuant to that certain License and Collaboration Agreement effective March 27, 2015 between ZIOPHARM, Precigen and ARES TRADING S.A., or Ares Trading, a subsidiary of Merck KGaA, or Merck, as assigned by Precigen to PGEN, or the Ares Trading Agreement; (c) that certain License Agreement between the Company, Precigen, and MD Anderson, with an effective date of January 13, 2015, or the MD Anderson License, which was subsequently assigned by Precigen and assumed by PGEN effective as of January 1, 2018; and (d) that certain Research and Development Agreement between the Company, Precigen and MD Anderson with an effective date of August 17, 2015, or the Research and Development Agreement, and any amendments or statements of work thereto.
 
14

ZIOPHARM Oncology, Inc.
NOTES TO FINANCIAL STATEMENTS (unaudited)
 
6.    Commitments and Contingencies (Continued)
 
Pursuant to the terms of the License Agreement, PGEN has granted the Company exclusive, worldwide rights to research, develop and commercialize (i) products utilizing PGEN’s RheoSwitch
®
gene switch, or RTS
®
, for the treatment of cancer, referred to as
IL-12
Products, (ii) CAR products directed to (A) CD19 for the treatment of cancer, referred to as CD19 Products, and (B) a second target for the treatment of cancer, subject to the rights of Ares Trading to pursue such target under the Ares Trading Agreement, and
(iii) T-cell
receptor, or TCR, products designed for neoantigens for the treatment of cancer. PGEN has also granted the Company an exclusive, worldwide, royalty-bearing,
sub-licensable
license for certain patents relating to the
Sleeping Beauty
technology to research, develop and commercialize TCR products for both neoantigens and shared antigens for the treatment of cancer, referred to as TCR Products.
The Company is solely responsible for all aspects of the research, development and commercialization of the exclusively licensed products for the treatment of cancer. The Company is required to use commercially reasonable efforts to develop and commercialize
IL-12
Products
,
CD19 Products and TCR Products.
In consideration of the licenses and other rights granted by PGEN, the Company pay
s
PGEN an annual license fee of
 $0.1 million.
As of September 30, 2020, the Company had 
$0.1 million
in prepaid expenses and other current assets. The Company did
not
have any annual license expenses for the three and nine months ended September 
30,
 2020 and 
2019.
The Company will also make milestone payments totaling up to an additional $52.5 million for each exclusively licensed program upon the initiation of later stage clinical trials and upon the approval of exclusively licensed products in various jurisdictions. In addition, the Company will pay PGEN tiered royalties ranging from
low-single
digit to high-single digit on the net sales derived from the sales of any approved
IL-12
Products and CAR Products. The Company will also pay PGEN royalties ranging from
low-single
digit to
mid-single
digit on the net sales derived from the sales of any approved TCR Products, up to a maximum royalty amount of $100.0 million in the aggregate. The Company will also pay PGEN 20% of any sublicensing income received by the Company relating to the licensed products.
The Company is responsible for all development costs associated with each of the licensed products, other than Gorilla
IL-12
Products.
PGEN will pay the Company royalties ranging from
low-single
digits to
mid-single
digits on the net sales derived from the sale of PGEN’s CAR products, up to $50.0 million.
During the three and nine months ended September
 30, 2020,
there were no expenses for services performed by PGEN. As of September 
30,
2020
 
 and December 31, 2019, the Company had 
$0 and
 $0.1 million
, respectively, in accrued expenses for amounts due to PGEN. During the three and nine months ended
September 30, 2019,
the Company recorded an expense of $0.3 million and
 $1.7 
 
million, respectively, for services performed by PGEN
.
 
15

ZIOPHARM Oncology, Inc.
NOTES TO FINANCIAL STATEMENTS (unaudited)
 
6.    Commitments and Contingencies (Continued)
 
License Agreement—The University of Texas MD Anderson Cancer Center
On January 13, 2015, the Company, together with Precigen, entered into the MD Anderson License with MD Anderson (which Precigen subsequently assigned to PGEN). Pursuant to the MD Anderson License, the Company, together with Precigen, holds an exclusive, worldwide license to certain technologies owned and licensed by MD Anderson including technologies relating to novel CAR
T-cell
therapies,
non-viral
gene transfer systems, genetic modification and/or propagation of immune cells and other cellular therapy approaches, Natural Killer, or NK Cells, and TCRs, arising from the laboratory of Laurence Cooper, M.D., Ph.D., who became the Company’s Chief Executive Officer in May 2015 and was formerly a tenured professor of pediatrics at MD Anderson and is now currently a visiting scientist under that institution’s policies.
The term of the MD Anderson License expires on the later of (a) the expiration of all patents licensed thereunder, or (b) the twentieth anniversary of the date of the MD Anderson License; provided, however, that following the expiration of the term of the MD Anderson License, the Company, together with PGEN, shall have a fully-paid up, royalty free, perpetual, irrevocable and sublicensable license to use the licensed intellectual property thereunder. After ten years from the date of the MD Anderson License and subject to a
90-day
cure period, MD Anderson will have the right to convert the MD Anderson License into a
non-exclusive
license if ZIOPHARM and PGEN are not using commercially reasonable efforts to commercialize the licensed intellectual property on a
case-by-case
basis. After five years from the date of the MD Anderson License and subject to a
180-day
cure period, MD Anderson will have the right to terminate the MD Anderson License with respect to specific technology(ies) funded by the government or subject to a third-party contract if the Company and PGEN are not meeting the diligence requirements in such funding agreement or contract, as applicable. MD Anderson may also terminate the agreement with written notice upon material breach by us and PGEN, if such breach has not been cured within 60 days of receiving such notice. In addition, the MD Anderson License will terminate upon the occurrence of certain insolvency events for both the Company and PGEN and may be terminated by the mutual written agreement of the Company, PGEN, and MD Anderson.
On August 17, 2015, the Company, Precigen and MD Anderson entered into the Research and Development, or the 2015 Agreement, to formalize the scope and process for the transfer by MD Anderson, pursuant to the terms of the MD Anderson License, of certain existing research programs and related technology rights, as well as the terms and conditions for future collaborative research and development of new and ongoing research programs.
Pursuant to the 2015 Agreement, the Company, Precigen and MD Anderson formed a joint steering committee to oversee and manage the new and ongoing research programs. Under the License Agreement with PGEN, the Company and PGEN agreed that PGEN would no longer participate on the joint steering committee after the date of the License Agreement. As provided under the MD Anderson License, the Company provided funding for research and development activities in support of the research programs under the Research and Development Agreement for a period of three years and in an amount of no less than $15.0 million and no greater than $20.0 million per year. On October 22, 2019, the Company entered into an amendment to the Research and Development Agreement extending its term until December 31, 2026.
During the nine months ended September 30, 2020 and 2019, the Company made no payments to MD Anderson. The net balance of cash resources on hand at MD Anderson available to offset expenses and future costs is $11.2 million, which is included in prepaid expenses and other current assets on the Company’s balance sheet at September 30, 2020.
On October 22, 2019, the Company entered into the 2019 Research and Development Agreement, or the 2019 Agreement, with MD Anderson, pursuant to which the parties agreed to collaborate with respect to the Company’s
Sleeping Beauty
immunotherapy program, which uses
non-viral
gene transfer to stably express and clinically evaluate neoantigen-specific TCRs in T cells. Under the 2019 Agreement, the parties will, among other things, collaborate on programs to expand the Company’s TCR library and conduct clinical trials.
 
16

ZIOPHARM Oncology, Inc.
NOTES TO FINANCIAL STATEMENTS (unaudited)
 
6.    Commitments and Contingencies (Continued)
 
The Company will own all intellectual property developed under the 2019 Agreement and will retain all rights to intellectual property for oncology products manufactured using
non-viral
gene transfer technologies under the Agreement, including the Company’s
Sleeping Beauty
technology. The Company has granted MD Anderson an exclusive license for such intellectual property outside the field of oncology and to develop and commercialize autologous TCR products manufactured using viral gene transfer technologies, and a
non-exclusive
license for allogeneic TCR products manufactured using viral-based technologies.
The Company has agreed, beginning on January 1, 2021, to reimburse MD Anderson up to a total of $20.0 million for development costs incurred starting after January 1, 2021 under the 2019 Agreement. In addition, the Company will pay MD Anderson royalties on net sales of its TCR products at rates in the low single digits. The Company is required to make performance-based payments upon the successful completion of clinical and regulatory benchmarks relating to its TCR products. The aggregate potential benchmark payments are $36.5 million, of which only $3.0 million will be due prior to the first marketing approval of the Company’s TCR products. The royalty rates and benchmark payments owed to MD Anderson may be reduced upon the occurrence of certain events. The Company also agreed that it will sell the Company’s TCR products to MD Anderson at preferential prices and will sell its TCR products in Texas exclusively to MD Anderson for a limited period of time following the first commercial sale of the Company’s TCR products.
In connection with the execution of the 2019 Agreement, the Company issued MD Anderson a warrant to purchase 3,333,333 shares of common stock. Refer to Note 9 –
Warrants
for further details.
License Agreement with the National Cancer Institute
On May 28, 2019, the Company entered into a patent license agreement, or the Patent License, with the National Cancer Institute, or the NCI. Pursuant to the Patent License, the Company holds an exclusive, worldwide license to certain intellectual property to develop and commercialize patient-derived (autologous), peripheral blood
T-cell
therapy products engineered by transposon-mediated gene transfer to express TCRs reactive to mutated KRAS, TP53 and EGFR. In addition, pursuant to the Patent License, the Company holds an exclusive, worldwide license to certain intellectual property for manufacturing technologies to develop and commercialize autologous, peripheral blood
T-cell
therapy products engineered by
non-viral
gene transfer to express TCRs, as well as a
non-exclusive,
worldwide license to certain additional manufacturing technologies.
Pursuant to the terms of the Patent License, the Company is required to pay the NCI a cash payment in the aggregate amount of $1.5 million payable in $0.5 million installments within sixty days,
six-months,
and the twelve-month anniversary of the effective date of the agreement of the Patent License. The $1.5 million was
 
paid
 
as of
the nine months ended September 30,
 
20
20
.
On January 8, 2020, the Company entered into an amendment to the patent license agreement which expanded the TCR library to include additional TCR’s reactive to mutated KRAS and TP53. Under the amendment, the Company paid $0.6 million during the nine months ending September 30, 2020.
 
The Company recognized $0 and $0.6 million of expense for the three and nine months ended September 30, 2020, respectively.
The terms of the Patent License also require the Company to pay the NCI minimum annual royalties in the amount of $0.3 million, which amount will be reduced to $0.1 million once the aggregate minimum annual royalties paid by the Company equals $1.5 million. The first minimum annual royalty payment is payable on the date that is eighteen months following the date of the Patent License. As of September 30, 2020, the Company included a prepayment of $0.3 million related to the Patent License as prepaid expenses and other current assets on the Company’s
b
alance
s
heet.
 
17

Table of Contents
ZIOPHARM Oncology, Inc.
NOTES TO FINANCIAL STATEMENTS (unaudited)
 
6.    Commitments and Contingencies (Continued)
 
On September 28, 2020, the Company entered into a second amendment to the patent license agreement which expanded the TCR library to include additional TCR’s receptors. Under the second amendment, the Company will pay the NCI an additional $0.4 million. The Company recorded $0.4 million as an accrued expense as of September 30, 2020.
 
The Company is also required to make performance-based payments upon successful completion of clinical and regulatory benchmarks relating to the licensed products. The aggregate potential benchmark payments are $4.3 million, of which aggregate payments of $3.0 million are due only after marketing approval in the United States or in Europe, Japan, Australia, China or India. The first benchmark payment of $0.1 million will be due upon the initiation of the Company’s first sponsored Phase 1 clinical trial of a licensed product or licensed process in the field of use licensed under the Patent License.
In addition, the Company is required to pay the NCI
one-time
benchmark payments following aggregate net sales of licensed products at certain net sales up to $1.0 billion. The aggregate potential amount of these benchmark payments is $12.0 million. The Company must also pay the NCI royalties on net sales of products covered by the Patent License at rates in the low to
mid-single
digits depending upon the technology included in a licensed product. To the extent the Company enters into a sublicensing agreement relating to a licensed product, the Company is required to pay the NCI a percentage of all consideration received from a sublicensee, which percentage will decrease based on the stage of development of the licensed product at the time of the sublicense.
The Patent License will expire upon expiration of the last patent contained in the licensed patent rights, unless terminated earlier. The NCI may terminate or modify the Patent License in the event of a material breach, including if the Company does not meet certain milestones by certain dates, or upon certain insolvency events that remain uncured following the date that is 90 days following written notice of such breach or insolvency event. The Company may terminate the Patent License, or any portion thereof, in the Company’s sole discretion at any time upon 60 days’ written notice to the NCI. In addition, the NCI has the right to: (i) require the Company to sublicense the rights to the product candidates covered by the Patent License upon certain conditions, including if the Company is not reasonably satisfying required health and safety needs and (ii) terminate or modify the Patent License, including if the Company is not satisfying requirements for public use as specified by federal regulations.
Cooperative Research and Development Agreement (CRADA) with the National Cancer Institute
On January 10, 2017, the Company announced the signing of a CRADA, with the NCI for the development of adoptive cell transfer, or ACT,-based immunotherapies genetically modified using the
Sleeping Beauty
transposon/transposase system to express TCRs for the treatment of solid tumors. The principal goal of the CRADA is to develop and evaluate ACT for patients with advanced cancers using autologous peripheral blood lymphocytes, or PBL, genetically modified using the
non-viral
Sleeping Beauty
system to express TCRs that recognize neoantigens expressed within a patient’s cancer. Research conducted under the CRADA will be at the direction of Steven A. Rosenberg, M.D., Ph.D., Chief of the Surgery Branch at the NCI, in collaboration with the Company. In February 2019, the Company extended the CRADA with the NCI for two years, committing an additional $5.0 million to this program. The Company
 
recorded
$0.6 million and
$1.3 
 million of expense for the three and nine months ended September 30, 2020 and 2019, respectively.
Ares Trading License and Collaboration Agreement
On March 27, 2015, the Company, together with PGEN, signed the Ares Trading Agreement, with Ares Trading S.A., a subsidiary of the biopharmaceutical business of Merck KGaA, Darmstadt, Germany, through which the parties established a collaboration for the research and development and commercialization of certain products for the prophylactic, therapeutic, palliative or diagnostic use for cancer in humans.
 
18

ZIOPHARM Oncology, Inc.
NOTES TO FINANCIAL STATEMENTS (unaudited)
 
6.    Commitments and Contingencies (Continued)
PGEN was entitled to receive $5.0 million, from Ares Trading, payable in equal quarterly installments over two years for each identified product candidate, which will be used to fund discovery work. The Company was responsible for costs exceeding the quarterly installments and all other costs of the preclinical research and development. For the nine months ended September 30, 2020 and 2019, the Company incurred no expenses under the Ares Trading Agreement.
Ares Trading paid a
non-refundable
upfront fee of $115.0 million to PGEN as consideration for entry into the Ares Trading Agreement. Pursuant to the Third Amendment to Exclusive Channel Partner Agreement, or the 2016 ECP Amendment, the Company was entitled to receive 50% of the upfront fee, or $57.5 million, which was received from PGEN in July 2015.
Under the License Agreement, PGEN agreed to perform all future obligations of the Company under the Ares Trading Agreement other than certain payment obligations. Accordingly, the Company recognized the remaining deferred revenue as part of the settlement of a related party relationship in 2018.
Patent and Technology License Agreement—The University of Texas MD Anderson Cancer Center and the Texas A&M University System
On August 24, 2004, the Company entered into a patent and technology license agreement with MD Anderson and the Texas A&M University System, which the Company refers to, collectively, as the Licensors. Under this agreement, the Company was granted an exclusive, worldwide license to rights (including rights to U.S. and foreign patent and patent applications and related improvements and
know-how)
for the manufacture and commercialization of two classes of organic arsenicals (water- and lipid-based) for human and animal use. The class of water-based organic arsenicals includes darinaparsin.
Under the terms of the agreement, the Company may be required to make additional payments to the Licensors upon achievement of certain other milestones in varying amounts which, on a cumulative basis could total up to an additional $4.5 million. In addition, the Licensors are entitled to receive single digit percentage royalty payments on sales from a licensed product and will also be entitled to receive a portion of any fees that the Company may receive from a possible sublicense under certain circumstances.
Collaboration Agreement with Solasia Pharma K.K.
On March 7, 2011, the Company entered into a License and Collaboration Agreement with Solasia Pharma K.K., or Solasia, which was amended on July 31, 2014 to include an exclusive worldwide license. Pursuant to the License and Collaboration Agreement, the Company granted Solasia an exclusive license to develop and commercialize darinaparsin in both intravenous and oral forms and related organic arsenic molecules, in all indications for human use.
As consideration for the license, the Company is eligible to receive from Solasia development- and sales-based milestones, a royalty on net sales of darinaparsin, once commercialized, and a percentage of any sublicense revenues generated by Solasia. Solasia will be responsible for all costs related to the development, manufacturing and commercialization of darinaparsin. The Company’s Licensors, as defined in the agreement, will receive a portion of all milestone and royalty payments made by Solasia to the Company in accordance with the terms of the license agreement with the Licensors.
 
19

ZIOPHARM Oncology, Inc.
NOTES TO FINANCIAL STATEMENTS (unaudited)
 
7. Leases
In June 2012, the Company entered into a master lease for the Company’s corporate office headquarters in Boston, which was originally set to expire in August 2016, but renewed through August 31, 2021. As of September 30, 2020 and December 31, 2019, a total security deposit of $0.1 million is included in deposits on the Company’s balance sheet. On January 30, 2018, the Company entered into a lease agreement for office space in Houston at MD Anderson. Under the terms of the Houston lease agreement, the Company leased approximately two hundred and ten square feet and were required to make rental payments at an average monthly rate of approximately $1 thousand. This lease was terminated effective March 31, 2020.
On March 12, 2019, the Company entered into a lease agreement for office space in Houston. Under the terms of the Houston lease agreement, the Company leases approximately one thousand and thirty-eight square feet and is required to make rental payments at an average monthly rate of approximately $2 thousand through April 2021. On October 15, 2019, the Company entered into a lease agreement for additional office space in Houston. Under the terms of the Second Houston Lease, the Company leases, from MD Anderson, approximately eight thousand four hundred and forty-three square feet and is initially required to make rental payments of approximately $17 thousand per month through February 2027, subject to an annual base rent increase of approximately 3.0% throughout the term.
 Effective April 13, 2020, the Company leased an additional
five thousand five hundred eighty-four
square feet from MD Anderson. The Company is initially required to make rental payments of approximately $12 thousand per month through February 2027, subject to an annual base rent increase of approximately 3.0% throughout the term.
 
All future rent expense incurred in Houston, will be deducted from the Company’s prepayments at MD Anderson.
 
Effective June 1, 2020, the Company entered into a noncancelable lease for a period of less than a year with monthly payments of approximately $10 thousand
. Effective September 1, 2020, the Company added additional space to the noncancelable lease for a period of less than a year with monthly payments now totaling approximately $15 thousand
.
The components of lease expense were as follows:
 
     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
(in thousands)    2020     2020  
Operating lease cost
   $ 267     $ 768  
  
 
 
   
 
 
 
Total lease cost
   $ 267     $ 768  
  
 
 
   
 
 
 
Weighted-average remaining lease term (years)
     4.99       4.99  
Weighted-average discount rate
     8.00     8.00
 
20

ZIOPHARM Oncology, Inc.
NOTES TO FINANCIAL STATEMENTS (unaudited)
 
7. Leases (Continued)
 
     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
(in thousands)    2019     2019  
Operating lease cost
   $ 184     $ 585  
  
 
 
   
 
 
 
Total lease cost
   $ 184     $ 585  
  
 
 
   
 
 
 
Weighted-average remaining lease term (years)
     2.15       2.15  
Weighted-average discount rate
     8.00     8.00
 
As of September 30, 2020, the maturities of the Company’s operating lease liabilities for the years ended December 31, were as follows (in thousands):
 
2020 (excluding the
nine
months ended
September
 30, 2020)
   $ 318  
2021
     896  
2022
     353  
2023
     364  
2024
     375  
Thereafter
     851  
  
 
 
 
Total lease payments
     3,157  
Less: Imputed interest and adjustments
     (637
  
 
 
 
Present value of lease payments
   $ 2,520  
  
 
 
 
 
21

Table of Contents
8. Stock-Based Compensation
The Company recognized stock-based compensation expense on all employee and
non-employee
awards as follows:
 
    
For the three months ended September 30,
    
For the nine months ended September 30,
 
(in thousands)
  
2020
    
2019
    
2020
    
2019
 
Research and development
   $ 522      $ 339      $ 1,587      $ 1,068  
General and administrative
     1,270        1,147        3,806        3,673  
  
 
 
    
 
 
    
 
 
    
 
 
 
Stock-based compensation expense
   $ 1,792      $ 1,486      $ 5,393      $ 4,741  
  
 
 
    
 
 
    
 
 
    
 
 
 
The Company granted an aggregate of 203,178 and 1,252,178 stock options during the three and nine months ended September 30, 2020 with a weighted-average grant date fair value of $1.96 and $2.45 per share, respectively. The Company granted an aggregate of 140,000 and 1,835,755 stock options during the three and nine months ended September 30, 2019 with a weighted average grant date fair value of $3.05 and $1.90 per share, respectively.
On January 6, 2019, the Company
sett
l
e
d
an accrued annual performance bonus by issuing 446,428 shares of common stock.
On May 26, 2020
,
the Company extended the contractual life of 448,130 fully vested stock options and 31,220 stock options that vested on June 30, 2020
,
 held by an officer of the Company. Additionally, on May 26, 2020
,
 the Company accelerated the vesting of 45,277 shares of restricted stock held by an officer. These extensions and acceleration of vesting resulted in additional stock compensation expense of $65
thousand
and $154 thousand in the three and nine months ended September 30, 2020
,
 respectively.
On September 18, 2020
,
the Company extended the contractual life of 113,350 fully vested stock options and 25,281 stock options that vested on September 18, 2020
,
 held by a director of the Company. Additionally, on September 18, 2020
,
 the Company accelerated the vesting of 25,281 stock options and 15,890 shares of restricted stock held by
a director of the Company
. These extensions and acceleration of vesting resulted in additional stock compensation expense of
 $(250)
 in the three and nine months ended September 30, 2020.
For the three months ended September 30, 2020 and 2019
,
 the fair value of stock options was estimated on the date of grant using a Black-Scholes option valuation model with the following assumptions:
 
    
For the three months ended September 30,
    
2020
 
2019
Risk-free interest rate
  
0.36 - 0.39%
 
1.39 - 1.92%
Expected life in years
  
5.75 - 6.25
  6.25
Expected volatility
  
73.59 -
 
74.18%
 
72.87 - 78.34%
Expected dividend yield
   0%   0%

At September 30, 2020
,
 there were 863,333
stock options that had been issued outside the 2012 Equity Incentive Plan, or the 2012 Plan. These options are excluded from the schedule below.
 
22

ZIOPHARM Oncology, Inc.
NOTES TO FINANCIAL STATEMENTS (unaudited)
 
8. Stock-Based Compensation (Continued)
 
Stock option activity under the Company’s stock option plans for the nine months ended September 30, 2020 is as follows:
 
(in thousands, except share and per share data)
  
Number of
Shares
    
Weighted-
Average Exercise
Price
    
Weighted-
Average
Contractual
Term (Years)
    
Aggregate
Intrinsic Value
 
Outstanding, December 31, 2019
     5,842,879      $ 3.21        
         
Granted
     1,252,178        3.89        
Exercised
     (22,916      1.87        
Cancelled
     (499,950      3.84        
  
 
 
    
 
 
       
Outstanding, September 30, 2020
     6,572,191      $ 3.93        7.82      $ 978  
  
 
 
    
 
 
    
 
 
    
 
 
 
Options exercisable, September 30, 2020
     3,711,684      $ 4.10        6.96      $ 704  
  
 
 
    
 
 
    
 
 
    
 
 
 
Options exercisable, December 31, 2019
     2,765,357      $ 4.39        6.70      $ 3,603  
  
 
 
    
 
 
    
 
 
    
 
 
 
Options available for future grant
     6,986,610           
  
 
 
          
At September 30, 2020, total unrecognized compensation costs related to unvested stock options outstanding amounted to $8.0 million. The cost is expected to be recognized over a weighted-average period of 1.82 years.
A summary of the status of unvested restricted stock for the nine months ended September 30, 2020 is as follows:
 
    
Number of Shares
    
Weighted-Average

Grant Date Fair Value
 
Non-vested,
December 31, 2019
     939,636      $ 2.93  
Granted
     555,900        4.21  
Vested
     (64,917      3.42  
Cancelled
     (141,230      3.15  
  
 
 
    
 
 
 
Non-vested,
September 30, 2020
     1,289,389      $ 3.43  
  
 
 
    
 
 
 
At September 30, 2020, total unrecognized compensation costs related to unvested restricted stock outstanding amounted to $3.0 million. The cost is expected to be recognized over a weighted-average period of 1.57 years.
At the Company’s annual meeting held on June 29, 2020, the shareholders approved the 2020 Equity Incentive Plan, or the 2020 Plan, which is a successor to and continuation of the Company’s 2012 Equity Incentive Plan, or the 2012 plan. The 2020 Plan ha
d
 21 million shares
authorized,
plus the shares remaining for issuance under the 2012 Plan. Our ability to utilize the total shares authorized under the 2020 Plan will be limited by the total number of shares authorized in our certificate of incorporation.
 
As of September 30, 2020, there are 6,986,610 Shares available to grant from the 2020 plan.
 
No
additional awards can be granted from the 2012 Plan or the Company’s 2003 Stock Option Plan.
 
23

ZIOPHARM Oncology, Inc.
NOTES TO FINANCIAL STATEMENTS (unaudited)
 
9. Warrants
In connection with the Company’s November 2018 private placement which provided net proceeds of approximately $47.1 million, the Company issued warrants to purchase an aggregate of 18,939,394 shares of common stock, or the 2018 warrants, which became exercisable six months after the closing of the private placement. The warrants have an exercise price of $3.01 per share and have a five-year term. The relative fair value of the warrants was estimated at $18.4 million using a Black-Scholes model with the following assumptions: expected volatility of 71%, risk free interest rate of 2.99%, expected life of five years and no dividends.
The Company assessed whether the warrants require accounting as derivatives. The Company determined that the warrants were (1) indexed to the Company’s own stock and (2) classified in stockholders’ equity in accordance with Financial Accounting Standards Board
, or
(“FASB”) Accounting Standards Codification (“ASC”) Topic 815,
Derivatives and Hedging
. As such, the Company has concluded the warrants meet the scope exception for determining whether the instruments require accounting as derivatives and should be classified in stockholders’ equity.
On July 26, 2019 and September 12, 2019, the Company entered into agreements with existing investors for the exercise of previously issued warrants to purchase common stock in the private placement. Pursuant to the terms of the agreements, investors exercised their 2018 warrants for an aggregate of 17,803,031 shares of common stock, at an exercise price of $3.01 per share. Proceeds from the warrant exercise, after deducting placement agent fees and other related expenses of $1.1 million were approximately $52.5 million. The Company issued participating investors new warrants to purchase up to 17,803,031 additional shares of common stock, or the 2019 warrants, as an inducement for the warrant holders to exercise their 2018 warrants. The 2019 warrants will expire on the fifth anniversary of the initial exercise date and have an exercise price of $7.00. The 2019 warrants were valued using a Black-Scholes valuation model and resulted in a $60.8 million
non-cash
 
charge to the Company’s statement of operations in 2019.
On October 22, 2019, the Company entered into the 2019 Agreement with MD Anderson.
 
Refer to Note 6 –
Commitments and Contingencies 
for further details 
In connection with the execution of the 2019 Agreement, the Company issued MD Anderson a warrant to purchase 3,333,333 shares of common stock. The warrant has an initial exercise price of $0.001 per share and grant date fair value of $14.5 million. The warrant expires on December 31, 2026 and vests upon the occurrence of certain clinical milestones. The Company will recognize expense on the warrant in the same manner as if the Company paid cash for services to be rendered.
As of
September 30, 2020, work related to the clinical milestones has not been started and therefore, the Company did not recognize any expense related to the warrant.
10. Joint Venture
On December 18, 2018, the Company entered into a Framework Agreement with TriArm Therapeutics, Ltd., or TriArm, pursuant to which the parties agreed to launch Eden BioCell, Ltd., or Eden BioCell, to lead clinical development and commercialization of certain
Sleeping Beauty-
generated
CAR-T
therapies as set forth in a separate license agreement.
On January 3, 2019, Eden BioCell was incorporated in Hong Kong as a private company. Eden BioCell, the Company and TriArm entered into a Share Subscription Agreement on January 23, 2019, where the Company and TriArm agreed to contribute certain intellectual property, services and cash (only with respect to TriArm) to Eden BioCell to subscribe for a certain number of newly issued ordinary shares in the share capital of Eden BioCell. On the closing date, upon the issuance and subscription of the shares, in respect of the aforementioned consideration, 10,000,000 ordinary shares were issued to the Company and 10,000,000 ordinary shares were issued to TriArm.
 
24

ZIOPHARM Oncology, Inc.
NOTES TO FINANCIAL STATEMENTS (unaudited)
 
10. Joint Venture (Continued)
 
The closing of the transaction occurred on July 5, 2019. The Framework Agreement and Share Subscription Agreements were each respectively amended to be effective as of this date. Upon consummation of the joint venture, Eden BioCell and the Company also entered into a license agreement, pursuant to which the Company licensed the rights to Eden BioCell for third-generation
Sleeping Beauty
-generated
CAR-T
therapies targeting the CD19 antigen for the territory of China (including Macau and Hong Kong), Taiwan and Korea. Eden BioCell will be responsible for certain milestone and royalty payments related to the Company’s license agreements with MD Anderson and PGEN (
see
Note 6). TriArm entered into a Master Services Agreement with Eden BioCell and contributed $10.0 million of cash on the closing date. TriArm also committed to contribute an additional $25.0 million to Eden BioCell over time through the achievement of
certain
 
spec
ified
milestones. TriArm and the Company each received a 50% equity interest in the joint venture in exchange for their contributions to Eden BioCell.
As of July 5, 2019, as a result of the design and purpose of Eden BioCell, the Company determined that Eden BioCell was considered a variable interest entity, or VIE, and concluded that it is not the primary beneficiary of the VIE as it did not have the power to direct the activities of the VIE that most significantly impact its performance. Rather, the Company accounts for the equity interest in Eden BioCell under the equity method of accounting as it has the ability to exercise significant influence over the operations of Eden BioCell.
The Company determined that Eden BioCell was not a customer and therefore, accounted for the transaction as the transfer of nonfinancial assets to be recognized at their fair value on the contribution date. The fair value of the intellectual property contributed to Eden BioCell had a de minimis value due to the early stage of the technology and the likelihood of clinical success. Due to the de minimis fair value of the intellectual property contributed, the Company did not record a gain or loss on this transaction and recognized no value for its equity-method investment.
 
25

Table of Contents
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following information should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included in this Quarterly Report on Form
10-Q
and the audited financial information and the notes thereto included in our Annual Report on Form
10-K,
which was filed with the Securities and Exchange Commission, or the SEC, on March 2, 2020, or the Annual Report.
Except for the historical information contained herein, the matters discussed in this Quarterly Report on Form
10-Q
may be deemed to be forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. In this Quarterly Report on Form
10-Q,
words such as “may,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” and similar expressions (as well as other words or expressions referencing future events, conditions or circumstances) are intended to identify forward-looking statements.
Our actual results and the timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report, they may not be predictive of results or developments in future periods.
The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report on Form
10-Q,
including those risks identified under Part II, Item 1A. Risk Factors.
We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.
Overview
We are a clinical-stage biopharmaceutical company focused on discovering, acquiring, developing and commercializing next generation immuno-oncology platforms that leverage cell- and gene-based therapies to treat patients with cancer. We are developing two immuno-oncology platform technologies that utilize the immune system by employing innovative cell engineering and novel, controlled gene expression technologies designed to deliver safe, effective, and scalable
non-viral
cell- and viral-based gene therapies for the treatment of multiple cancer types. Our first platform is referred to as
Sleeping Beauty
and is based on the genetic engineering of immune cells using a
non-viral
transposon/transposase system that is intended to stably reprogram T cells outside of the body for subsequent infusion. Our second platform is referred to as Controlled
IL-12
and is designed to stimulate expression of interleukin 12, or
IL-12,
a master regulator of the immune system, in a controlled and safe manner to focus the patient’s immune system to more effectively attack cancer cells. We intend to use both of our platforms to become a leading immuno-oncology company focused on developing innovative, cost-effective therapies primarily aimed at the large unmet needs in solid tumors.
 
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Using our
Sleeping Beauty
platform, we are developing T cell receptor, or TCR, T cell therapies to target solid tumors. Our program designs and manufactures T cells that are intended to target tumor-specific antigens, thereby delivering personalized therapy that can attack patients’ malignancies. These genetic changes are referred to as neoantigens as they are only expressed by the tumor, reducing the potential for toxicity upon targeting normal cells. Under our Cooperative Research and Development Agreement, the National Cancer Institute, or NCI, is conducting a Phase 2 clinical trial to evaluate autologous peripheral blood lymphocytes genetically modified with the
Sleeping Beauty
system to express autologous (personalized) TCRs. In addition, we are currently planning a clinical program to study our TCR approach with The University of Texas MD Anderson Cancer Center, or MD Anderson. Under this program, we expect to clinically evaluate both our Personalized TCR Approach and our Library TCR Approach.
Our Controlled IL-12 platform uses virotherapy based on an engineered replication-incompetent adenovirus, referred to as
Ad-RTS-hIL-12,
plus veledimex as a gene delivery system to conditionally produce IL-12, a potent, naturally occurring anti-cancer protein, to treat patients with solid tumors where a specific target is unknown. Our Controlled IL-12 platform allows us to deliver
IL-12
in a tunable dose as the cytokine is under transcriptional control of the RheoSwitch Therapeutic System
®
(RTS
®
). We are currently studying our Controlled IL-12 Platform as a monotherapy for the treatment of recurrent glioblastoma multiforme, or rGBM, and for the treatment of glioma in the pontine region of the brain, known as diffuse intrinsic pontine glioma, or DIPG. We are currently evaluating Ad-RTS-hIL-12 plus veledimex in a Phase 1/2 clinical trial for the treatment of DIPG and expect to dose up to 12 patients in the initial portion of the clinical trial. We are also developing our Controlled IL-12 platform in combination with immune checkpoint inhibitors. We have completed dosing in a Phase 1 dose-escalation clinical trial of Ad-RTS-hIL-12 plus veledimex in combination with PD-1 antibody OPDIVO
®
(nivolumab) in patients with rGBM. We have also completed dosing in a Phase 2 clinical trial evaluating Ad-RTS-hIL-12 plus veledimex in combination with PD-1 antibody Libtayo
®
(cemiplimab) for the treatment of recurrent or progressive glioblastoma multiforme in adults.
We are developing chimeric antigen receptor, or CAR, T cell, or CAR
+
T, therapies targeting CD19 on malignant B cells using our
Sleeping Beauty
platform in collaboration with MD Anderson. In a Phase 1 trial, we plan to infuse donor-derived T cells after allogeneic bone marrow transplantation, or BMT, for recipients who have relapsed with CD19
+
leukemias and lymphomas with our CD19-specific CAR
+
T therapies manufactured using our rapid personalized manufacturing, or RPM, technology. RPM enables T cells to be infused as soon as the day after gene transfer which is made possible by the genetic modification of resting T cells to express CAR and membrane bound
IL-15,
or mbIL15. We are also advancing our RPM technology in Greater China with Eden BioCell, Ltd., or Eden BioCell, our joint venture with TriArm Therapeutics, Ltd. Eden BioCell will lead the clinical development and commercialization of
Sleeping Beauty
-generated CD19-specific RPM CAR
+
T therapies using patient-derived (autologous) T cells in order to treat patients with relapsed or refractory CD19
+
leukemias and lymphomas.
We have not generated significant revenue and have incurred significant net losses in each year since our inception. For the nine months ended September 30, 2020, we had a net loss of $57.2 million, and, as of September 30, 2020, we have incurred approximately $741.3 million of accumulated deficit since our inception in 2003. We expect to continue to incur significant operating expenditures and net losses. Further development of our product candidates will likely require substantial increases in our expenses as we:
 
   
continue to undertake clinical trials for product candidates;
 
   
seek regulatory approvals for product candidates;
 
   
work with regulatory authorities to identify and address program-related inquiries;
 
   
implement additional internal systems and infrastructure;
 
   
hire additional personnel; and
 
   
scale-up
the formulation and manufacturing of our product candidates.
 
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We continue to seek additional financial resources to fund the further development of our product candidates. If we are unable to obtain sufficient additional capital, one or more of these programs could be delayed, and we may be unable to continue our operations at planned levels and be forced to reduce our operations. Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability.
Recent Developments
The ongoing
COVID-19
global pandemic has presented a significant health and economic challenge around the world and is affecting our employees, partners and business operations. The full extent to which the
COVID-19
pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted. We have implemented work-from-home policies for most of our employees in response to the
COVID-19
pandemic. The effects of our work-from-home policies may negatively impact productivity, disrupt our business and delay our clinical programs and timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. These and similar, and perhaps more severe, disruptions in our operations could negatively impact our business, operating results and financial condition. We continue to work with our partners, including the NCI and MD Anderson, to mitigate the impact the
COVID-19
pandemic is having on our business and clinical programs.
Clinical and Regulatory Developments
We expect to initiate our clinical trial with MD Anderson for our Library TCR-T approach in mid-2021. This study will evaluate treatments using TCR+ T cells expressing third party (allogeneic) TCRs in autologous (patient-derived) T cells to treat several cancers, including gynecologic, colorectal, pancreatic, non-small cell lung cancer and cholangiocarcinoma. We expect to submit an Investigational New Drug, or IND, application for this clinical trial to the FDA in the first quarter of 2021.
Under our Cooperative Research and Development Agreement, the NCI is undertaking a Phase 2 Personalized TCR-T clinical trial under an IND cleared by the FDA. In this study, the NCI will test autologous peripheral blood lymphocytes genetically modified with the
Sleeping Beauty
system to express TCRs that recognize neoantigens expressed by patients with a broad range of solid tumors. The NCI’s manufacturing facility is validating our non-viral manufacturing approach, which has been authenticated by the NCI at laboratory scale. Patient enrollment will be determined by the NCI and is expected to occur after the process validation, the completion of regulatory requirements and the NCI has identified and screened patients for neoantigens and TCRs to render them eligible for the trial.
Eden BioCell has continued to make significant progress preparing for a clinical trial of
Sleeping Beauty
-generated CD19-specific RPM CAR+ T therapies using patient-derived (autologous) T cells to treat patients with relapsed or refractory CD19+ leukemias and lymphomas. Eden BioCell has commenced the filing of its IND for a clinical trial in Taiwan. In addition, Eden BioCell and our partners in this joint venture have informed us that preliminary observations from several patients dosed under compassionate use requests in Greater China confirm the presence of infused autologous T cells measured weeks after infusion, which appears to support the benefit of genetically modifying T cells with our RPM technology.
In July 2020, we announced the initiation of our U.S. Phase 1 trial clinical trial infusing donor-derived T cells after allogeneic BMT for recipients who have relapsed with CD19
+
leukemias and lymphomas with our CD19-specific CAR
+
T therapies manufactured using our RPM technology. This clinical trial is being performed in collaboration with MD Anderson.
Each of the clinical trials of our Controlled IL-12 program continues to progress. We previously completed enrollment in our Phase 1 clinical trial of adult patients with rGBM evaluating Ad-RTS-hIL-12 plus daily veledimex in combination with OPDIVO
®
. In June 2020, we completed patient enrollment in our Phase 2 clinical trial evaluating Controlled IL-12 in combination with PD-1 antibody Libtayo
®
for the treatment of rGBM. In July 2020, we announced the first patient had been dosed in a Phase 1/2 clinical trial evaluating Ad-RTS-hIL-12 plus veledimex for the treatment of DIPG. Data will be presented from all three trials at the 2020 Society for Neuro-Oncology Annual Meeting (SNO).
 
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Appointment of Personnel
In September 2020, our Board of Directors appointed J. Kevin Buchi to our Board to fill the vacancy created by the resignation of Douglas Pagán. Mr. Buchi was Chief Executive Officer of Cephalon, Inc., which was acquired by Teva Pharmaceutical Industries Limited in October 2011. Following the acquisition of Cephalon by Teva in 2011, Mr. Buchi served as corporate vice president of global branded products at Teva. Following Teva, he was Chief Executive Officer of TetraLogic Pharmaceuticals and Biospecifics Technologies.
In June 2020, we announced the appointment of Carl June, M.D., as Chairman of our newly formed Scientific Advisory Board, or SAB. Dr. June is recognized in the oncology field for his groundbreaking work in the development and commercialization of gene therapy and T-cell therapies. In September 2020, we announced Adi Barzel, Ph.D., Gavin Dunn, M.D., Ph.D., Matthew Porteus, M.D., Ph.D., and Kole Roybal, Ph.D had joined the SAB. The SAB will provide strategic counsel to guide the efficient development of our innovative technologies and pipeline of immunotherapies.
Financial Overview
Overview of Results of Operations
Three and Nine Months Ended September 30, 2020 Compared to Three and Nine Months Ended September 30, 2019
Research and development expenses.
Research and development expenses during the three and nine months ended September 30, 2020 and 2019 were as follows:
 
    
Three months ended
September 30,
                 
Nine months ended
September 30,
               
    
2020
    
2019
    
Change
   
2020
    
2019
    
Change
 
($ in thousands)
                                                      
Research and development
   $ 13,968      $ 8,641      $ 5,327        62   $ 38,725      $ 28,115      $ 10,610        38
Research and development expenses for the three months ended September 30, 2020 increased by $5.3 million when compared to the three months ended September 30, 2019. The increase in research and development expenses for the three months ended September 30, 2020, is primarily due to $3.9 million in increased gene therapy manufacturing costs and $2.0 million related to increased headcount and facilities costs, offset by $0.6 million of decreased manufacturing technology initiatives and preclinical costs.
Research and development expenses for the nine months ended September 30, 2020 increased by $10.6 million when compared to the nine months ended September 30, 2019. The increase in research and development expenses for the nine months ended September 30, 2020, is primarily due to $7.1 million in increased gene therapy manufacturing costs and $5.1 million related to increased headcount and facilities costs, offset by $1.3 million of decreased cell therapy costs and $0.3 million in travel and other.
 
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Our research and development expense consists primarily of salaries and related expenses for personnel, costs of contract manufacturing services, costs of facilities and equipment, fees paid to professional service providers in conjunction with our clinical trials, fees paid to contract research organizations in conjunction with preclinical animal studies, costs of materials used in research and development, consulting, license and milestone payments and sponsored research fees paid to third parties.
We have not accumulated and tracked our internal historical research and development costs or our personnel and personnel-related costs on a
program-by-program
basis. Our employee and infrastructure resources are allocated across several projects, and many of our costs are directed to broadly applicable research endeavors. As a result, we cannot state the costs incurred for each of our programs on a
program-by-program
basis.
For the nine months ended September 30, 2020, our clinical stage projects included a Phase 1 clinical trial with
Ad-RTS-IL-12
plus veledimex in progressive glioblastoma; a Phase 1 clinical trial infusing our 2nd generation CD19-specific CAR
+
T cells in patients with advanced lymphoid malignancies; and a Phase 1/2 clinical trial of
Ad-RTS-hIL-12
with veledimex for the treatment of pediatric brain tumors. The expenses incurred by us to third parties for our Phase 1 clinical trial with
Ad-RTS-IL-12
plus veledimex in progressive glioblastoma were $2.5 million for the nine months ended September 30, 2020 and $13.8 million from the project’s inception in September 2015 through September 30, 2020. The expenses incurred by us to third parties for our Phase 1 clinical trial infusing our 2nd generation CD19-specific CAR
+
T cells in patients with advanced lymphoid malignancies were $0.1 million for the nine months ended September 30, 2020 and $6.2 million from the project’s inception in December 2015 through September 30, 2020. The expenses incurred by us to third parties for our Phase 1/2 clinical trial of Ad-RTS-hIL-12 with veledimex for the treatment of pediatric brain tumors were $0.1 million for the nine months ended September 30, 2020 and $2.1 million from the project’s inception in October 2017 through September 30, 2020. The expense incurred by us to third parties for our
investigator-led
Phase 2 clinical trial of
Ad-RTS-hIL-12
with veledimex in combination with cemiplimab-rwlc in progressive glioblastoma were $3.8 million for the nine months ended September 30, 2020 and $5.4 million from the projects inception in June 2019 through September 30, 2020.
Our future research and development expenses in support of our current and future programs will be subject to numerous uncertainties in timing and cost to completion. We test potential products in numerous preclinical studies for safety, toxicology and efficacy. We may conduct multiple clinical trials for each product. As we obtain results from trials, we may elect to discontinue or delay clinical trials for certain products to focus our resources on more promising products or indications. Completion of clinical trials may take several years or more, and the length of time generally varies substantially according to the type, complexity, novelty and intended use of a product. It is not unusual for preclinical and clinical development of each of these types of products to require the expenditure of substantial resources.
We estimate that clinical trials of the type generally needed to secure new drug approval are typically completed over the following timelines:
 
Clinical Phase
   Estimated Completion Period
Phase 1
  
1 - 2 years
Phase 2
   2 - 3 years
Phase 3
   2 - 4 years
The duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development, including, among others, the following:
 
   
The number of clinical sites included in the trials;
 
   
The length of time required to enroll suitable patents;
 
   
The number of patients that ultimately participate in the trials;
 
   
The cost to manufacture the clinical products for patients;
 
   
The duration of patient
follow-up
to ensure the absence of long-term product-related adverse events; and
 
   
The efficacy and safety profile of the product.
 
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As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our programs or when and to what extent we will receive cash inflows from the commercialization and sale of a product. Our inability to complete our programs in a timely manner or our failure to enter into appropriate collaborative agreements could significantly increase our capital requirements and could adversely impact our liquidity. These uncertainties could force us to reduce or eliminate our activities in one or more of our programs or seek additional, external sources of financing from
time-to-time
in order to continue with our product development strategy. Our inability to raise additional capital, or to do so on terms reasonably acceptable to us, would jeopardize the future success of our business.
General and administrative expenses.
General and administrative expenses during the three and nine months ended September 30, 2020 and 2019 were as follows:
 
    
Three months ended
September 30,
                 
Nine months ended
September 30,
               
    
2020
    
2019
    
Change
   
2020
    
2019
    
Change
 
($ in thousands)
                                                      
General and administrative
   $ 6,353      $ 4,807      $ 1,546        32   $ 18,862      $ 13,707      $ 5,155        38
General and administrative expenses for the three months ended September 30, 2020 increased by $1.5 million as compared to three months ended September 30, 2019. The increase during the three months ended September 30, 2020 was primarily due to an increase of $0.8 million of legal expenses incurred as a result of our expanded patent portfolio and an increase of $0.7 million of salary and employee related expenses, including stock compensation expense.
General and administrative expenses for the nine months ended September 30, 2020 increased by $5.2 million as compared to nine months ended September 30, 2019. The increase during the nine months ended September 30, 2020 was primarily due to an increase of $2.5 million of salary and employee related expenses, including stock compensation expense, along with an increase of $2.0 million of legal expenses incurred as a result of our expanded patent portfolio, and an increase of $1.4 million in facilities expenses, offset by a decrease of $0.7 million of business development expenses.
Other income, (net).
Other income, net for the three and nine months ended September 30, 2020 and 2019 was as follows:
 
    
Three months ended
September 30,
                 
Nine months ended
September 30,
               
    
2020
    
2019
    
Change
   
2020
    
2019
    
Change
 
($ in thousands)
                                                      
Other income, net
   $ 6      $ 203      $ (197)        (97 %)    $ 383      $ 523      $ (140)        (27 %) 
Noncash inducement warrants
     —          (60,751)      $ 60,751        (100 %)      —          (60,751)      $ 60,751        (100 %) 
  
 
 
    
 
 
         
 
 
    
 
 
       
Total
   $ 6      $ (60,548)           $ 383      $ (60,228)        
  
 
 
    
 
 
         
 
 
    
 
 
       
Other income for the three months ended September 30, 2020 decreased by $0.2 million as compared to the three months ended September 30, 2019 because interest rates decreased due to market fluctuations. Other income for the nine months ended September 30, 2020 decreased by $0.1 million as compared to the nine months ended September 30, 2019 because interest rates decreased due to market fluctuations.
 
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On July 26, 2019 and September 12, 2019, we entered into agreements with existing investors for the exercise of previously issued 2018 warrants. Pursuant to the terms of the agreements, we issued the investors new warrants to purchase an aggregate of 17,803,031 shares of common stock, as an inducement to exercise their 2018 warrants early. The 2019 warrants became exercisable six months following the date of issuance, will expire on the fifth anniversary of the initial exercise date, and have an exercise price of $7.00. The Black-Scholes valuation of the 2019 warrants resulted in a
non-cash
charge to the statement of operations of $60.8 million for the three and nine months ended September 30, 2019.
Liquidity and Capital Resources
Source of liquidity
We have not generated any revenue from product sales. Since inception, we have incurred net losses and negative cash flows from our operations.
As of September 30, 2020, we have approximately $135.5 million of cash and cash equivalents. During the nine months ended September 30, 2020, we completed an underwritten public offering of 29,110,111 shares of common stock, which includes a partial exercise by the underwriters of its over-allotment option of 1,284,025 shares from us at a price to the public of $3.25, less underwriting discounts. Our net proceeds from the sale of the shares, after deducting the underwriting discounts and offering expenses of $5.9 million, were $88.7 million.
At-the-market
offering program
In June 2019, we entered into an Open Market Sale Agreement, or sales agreement, with Jefferies LLC, or Jefferies, as a sale agent pursuant to which we may offer and sell, from time to time through Jefferies, shares of our common stock having an aggregate offering value of up to $100.0 million. Shares will be sold pursuant to the Company’s effective registration statement on Form
S-3ASR
(File
No. 333-232283),
as previously filed with the Securities and Exchange Commission. Subject to the terms of the sales agreement, we are able to determine, at our sole discretion, the timing and number of shares to be sold under this ATM facility. The compensation to Jefferies for sales of our common stock pursuant to the sales agreement will be an amount equal to 3% of the gross proceeds of any shares of common stock sold under the sales agreement. During the nine months ended September 30, 2020, we issued and sold 2,814,673 shares of common stock under the sales agreement for aggregate net proceeds of $13.0 million, after deducting commission and offering expenses of $0.4 million. During the nine months ended September 30, 2019, we issued and sold 639,442 shares of common stock under the sales agreement for aggregate net proceeds of $3.0 million, after deducting commission and offering expenses of $0.1 million.
Funding requirements
Given our current development plans, we expect that our existing cash and cash equivalents will be sufficient to fund our current operations into
mid-2022.
We currently do not have any committed sources of additional capital at this time. The forecast of cash resources is forward-looking information that involves risks and uncertainties, and the actual amount of our expenses could vary materially and adversely as a result of a number of factors. We have based our estimates on assumptions that may prove to be wrong, and our expenses could prove to be significantly higher than we currently anticipate. Management does not know whether additional financing will be on terms favorable or acceptable to us when needed, if at all. In addition, we have issued or reserved for future issuance shares nearing the maximum number of shares of common stock authorized by our certificate of incorporation. If we are unable to increase the total number of authorized shares, we may be unable to effectively utilize our common stock to raise capital. If adequate additional funds are not available when required, or if we are unsuccessful in entering into partnership agreements for further development of our products, management may need to curtail development efforts. The
COVID-19
pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets. If the disruption persists and deepens, we could experience an inability to access additional capital when and if needed. If we are unable to obtain funding, we could be forced to delay, reduce or eliminate some or all of our research and development programs, product portfolio expansion or commercialization efforts, which would adversely affect our business prospects, or we may be unable to continue operations.
 
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In addition to these factors, our actual cash requirements may vary materially from our current expectations due to a number of other factors that may include, but are not limited to, changes in the focus and direction of our development programs, competitive and technical advances, costs associated with the development of our product candidates, our ability to secure partnering arrangements, and the costs of filing, prosecuting, defending and enforcing our intellectual property rights. If we exhaust our capital reserves more quickly than anticipated, regardless of the reason, and we are unable to obtain additional financing on terms acceptable to us or at all, we will be unable to proceed with development of some or all of our product candidates on expected timelines and will be forced to prioritize among them.
Cash flows
The following table summarizes our net decrease in cash, cash equivalents, and restricted cash for the nine months ended September 30, 2020:
 
    
Nine months ended September 30,
 
    
2020
    
2019
 
($ in thousands)
             
Net cash provided by (used in):
     
Operating activities
   $ (39,977    $ (29,246
Investing activities
     (6,012      (184
Financing activities
     101,719        56,120  
  
 
 
    
 
 
 
Net increase in cash, cash equivalents, and restricted cash
   $ 55,730      $ 26,690  
  
 
 
    
 
 
 
Cash flows from operating activities represent the cash receipts and disbursements related to all of our activities other than investing and financing activities. Operating cash flow is derived by adjusting our net loss for:
 
   
Non-cash
operating items such as depreciation and stock-based compensation; and
 
   
Changes in operating assets and liabilities, which reflect timing differences between the receipt and payment of cash associated with transactions and when they are recognized in results of operations.
Net cash used in operating activities for the nine months ended September 30, 2020 was $40.0 million, as compared to net cash used in operating activities of $29.2 million for the nine months ended September 30, 2019. The net cash used in operating activities for the nine months ended September 30, 2020 was primarily due to our net loss of $57.2 million, the change in receivables of $2.1 million, other noncurrent assets of $0.6 million, offset by the change in prepaid and other current assets of $8.2 million primarily related to the use of our funds at MD Anderson, the change in accrued expenses of $3.8 million, the change in accounts payable of $1.7 million and
non-cash
stock-based compensation on $5.4 million.
Net cash used in investing activities was $6.0 million for the nine months ended September 30, 2020 compared to $0.2 million for the nine months ended September 30, 2019.
 
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Net cash provided by financing activities the nine months ended September 30, 2020 was $101.7 million. The net cash was provided by $88.7 million from the issuance of common stock in our
follow-on
public offering, net and $13.0 million from the issuance of common stock pursuant to our ATM facility. Net cash provided by financing activities for the nine months ended September 30, 2019 was $56.1 million. During the quarter, we received $52.5 million in proceeds from the exercise of warrants (Note 2), $3.0 million in proceeds through ATM offerings (Note 2) and $1.0 million in proceeds from the exercise of stock options.
Operating capital and capital expenditure requirements
We anticipate that losses will continue for the foreseeable future. At September 30, 2020, our accumulated deficit was approximately $741.3 million. Our actual cash requirements will depend on and could increase significantly as a result of a number of factors, including:
 
   
the scope, number, initiation, progress, timing, costs, design, duration, any potential delays, and results of clinical trials and nonclinical studies for our current or future product candidates;
 
   
changes in the focus, direction and pace of our development programs;
 
   
the effect of competitive and technical advances and market developments;
 
   
costs associated with the development of our product candidates;
 
   
our ability to establish and maintain partnering, collaborations or similar arrangements on favorable terms and whether and to what extent we retain development or commercialization responsibilities under any new licensing, collaboration or similar arrangement;
 
   
diversion of healthcare resources away from the conduct of clinical trials as a result of the ongoing
COVID-19
pandemic, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;
 
   
the interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel, quarantines or social distancing protocols imposed or recommended by federal or state governments, employers and others in connection with the ongoing
COVID-19
pandemic;
 
   
our need and ability to hire additional management and scientific and medical personnel;
 
   
the costs of acquiring, licensing or investing in businesses, product candidates and technologies;
 
   
costs of filing, prosecuting, defending and enforcing any patent claims and any other intellectual property rights, or other developments; and
 
   
other matters identified under Part II, Item 1A. “Risk Factors.”
Working capital as of September 30, 2020 was $135.8 million, consisting of $155.1 million in current assets and $19.3 million in current liabilities. Working capital as of December 31, 2019 was $93.0 million, consisting of $105.5 million in current assets and $12.5 million in current liabilities.
Contractual Obligations
The following table summarizes our outstanding obligations as of September 30, 2020 and the effect those obligations are expected to have on our liquidity and cash flows in future periods:
 
           
Less than
                  
More than
 
($ in thousands)
  
Total
    
1 year
    
2 - 3 years
    
4 - 5 years
    
5 years
 
Operating leases
   $ 3,157      $ 1,128      $ 712      $ 755      $ 562  
CRADA
     3,125        2,500        625        —          —    
Royalty and license fees
     3,461        434        700        700        1,627  
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
   $ 9,743      $ 4,062      $ 2,037      $ 1,455      $ 2,189  
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
 
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Our commitments for operating leases relate to the lease for our corporate headquarters in Boston, Massachusetts, and office and laboratory space in Houston, Texas. On December 21, 2015 and April 15, 2016, we renewed the sublease for our corporate headquarters in Boston, Massachusetts through August 31, 2021. On March 12, 2019, we entered into a lease agreement for additional office space in Houston through April 2021. On October 15, 2019, we entered into another lease agreement for additional office and laboratory space in Houston through February 2027. On April 13, 2020, we entered into another lease agreement for additional office and laboratory space in Houston through February 2027. On June 1, 2020, we entered into a short-term lease in Houston for office and laboratory space. On September 1, 2020, we entered an additional short-term lease in Houston for additional office and laboratory space.
On January 10, 2017, we announced the signing of the CRADA with the NCI for the development of
ACT-based
immunotherapies genetically modified using the
Sleeping Beauty
transposon/transposase system for the treatment of solid tumors. In February 2019, we extended the CRADA with the NCI until January 9, 2022.
On October 5, 2018, we entered into the License Agreement with PGEN. Under the License Agreement, we are obligated to pay PGEN an annual licensing fee of $0.1 million expected to be paid through the term of the agreement.
On May 28, 2019, we entered into a patent license agreement, or the Patent License, with the NCI. The terms of the Patent License require us to pay the NCI minimum annual royalties in the amount of $0.3 million, which amount will be reduced to $0.1 million once the aggregate minimum annual royalties paid by us equals $1.5 million. The first minimum annual royalty payment is payable on the date that is eighteen months following the date of the Patent License.
On January 8, 2020, we entered into an amendment of Patent License agreement. Under this agreement, we paid $0.6 million. On September 28, 2020, we entered into a second amendment of the Patent License with the NCI. The terms of the second Amendment require us to pay the NCI a
one-time
payment of $0.4 million, which is included in the “less than 1-year” category in the chart above.
Off-balance
Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any
off-balance
sheet arrangements, as defined in the rules and regulations of the SEC.
Critical Accounting Policies and Estimates
In our Annual Report, our most critical accounting policies and estimates upon which our financial status depends were identified as those relating to clinical trial expenses; collaboration agreements; fair value measurements for stock-based compensation; and income taxes. We reviewed our policies and determined that those policies remain our most critical accounting policies for the nine months ended September 30, 2020.
 
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
Our exposure to market risk is limited to our cash. The goals of our investment policy are preservation of capital, fulfillment of liquidity needs and fiduciary control of cash. We also seek to maximize income from our investments without assuming significant risk. To achieve our goals, we maintain our cash in interest-bearing bank accounts in global banks, United States treasuries and other government-backed investments, which are subject to minimal interest rate risk.
Effect of Currency Exchange Rates and Exchange Rate Risk Management
We currently have no clinical studies or clinical trials taking place outside of the United States. Therefore, any currency fluctuations will not have a material impact on our financial position, results of operations or cash flows.
 
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Item 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures, as such term is defined under Rule
13a-15(e)
or
15d-15(e)
promulgated under the Exchange Act, as of September 30, 2020. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2020, our disclosure controls and procedures were not effective due to a material weakness identified in our internal control over financial reporting as described below under “Management’s Report on Internal Control over Financial Reporting”.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for us. Internal control over financial reporting (as defined in Rule
13a-15(f)
of the Exchange Act) is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.
As of December 31, 2019, Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in
Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
As previously disclosed under “Item 9A. Controls and Procedures” in our Annual Report on Form
10-K
for our fiscal year ended December 31, 2019, we identified the following deficiency that existed as of December 31, 2019 which continued to exist at September 30, 2020. This deficiency represented a material weakness in our internal control over financial reporting. A material weakness is a control deficiency or a combination of control deficiencies that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.
 
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As of December 31, 2019 and September 30, 2020, management identified a material weakness in the design and effectiveness of our internal control over financial reporting. We did not design and maintain effective controls relating to the monitoring and oversight of expensing third party clinical trial costs. Specifically, our internal controls were not designed effectively to provide reasonable assurance regarding the accurate and timely evaluation of the amount of third-party costs to record.
Based on this evaluation, management concluded that our internal control over financial reporting was not effective at September 30, 2020 because of the material weakness described above.
Despite the existence of the material weakness described above, our financial statements as of September 30, 2020, are presented fairly, in all material respects, in conformity with accounting principles generally accepted in the United States of America.
Remediation
We have implemented measures to remediate the control deficiency that constituted the above material weakness by implementing changes to our internal control over financial reporting. We have designed, implemented and tested measures to work towards remediating the underlying causes of the control deficiency that gave rise to the material weakness. In addition, we have provided
in-house
accounting personnel training to ensure that they have the relevant expertise related to the monitoring and oversight of expensing third party clinical trial costs. We will continue to monitor the effectiveness of these controls and will make any further changes management determines appropriate.
Changes in Internal Controls over Financial Reporting
Except for the material weakness and related remediation efforts discussed above, there were no other changes in our internal control over financial reporting (as defined in Rule
13a-15(f)
of the Exchange Act) that occurred during the fiscal quarter ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
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Part II - Other Information
 
Item 1.
Legal Proceedings
In the ordinary course of business, we may periodically become subject to legal proceedings and claims arising in connection with ongoing business activities from time to time. The results of litigation and claims cannot be predicted with certainty, and unfavorable resolutions are possible and could materially affect our results of operations, cash flows or financial position. In addition, regardless of the outcome, litigation could have an adverse impact on us b