10-Q
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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 June 30, 2021

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 July 31, 2021, the number of outstanding shares of the registrant’s common stock, $0.001 par value, was 215,559,148 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, hire, 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, including 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

 

2


 

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.

 

SUMMARY OF SELECTED RISKS ASSOCIATED WITH OUR BUSINESS

Our business faces significant risks and uncertainties. If any of the following risks are realized, our business, financial condition and results of operations could be materially and adversely affected. You should carefully review and consider the full discussion of our risk factors in the section titled “Risk Factors” in Part I, Item 1A of this Quarterly Report. Some of the more significant risks include the following:

Our business, operations and clinical development plans and timelines could be adversely affected by the effects of health epidemics, including the COVID-19 pandemic, on the manufacturing, clinical trial and other business activities performed by us or by third parties with whom we conduct business, including our contract manufacturers, clinical research organizations, or CROs, shippers and others.
We will require substantial additional financial resources to continue ongoing development of our product candidates and pursue our business objectives; if we are unable to obtain these additional resources when needed, we may be forced to delay or discontinue our planned operations, including clinical testing of our product candidates.
Our plans to develop and commercialize non-viral TCR T-cell as well as CAR-T therapies can be considered as new approaches to cancer treatment, the successful development of which is subject to significant challenges.  
Our current product candidates are based on novel technologies and are supported by limited clinical data and we cannot assure you that our current and planned clinical trials will produce data that supports regulatory approval of one or more of these product candidates.
If we are unable to obtain the necessary U.S. or worldwide regulatory approvals to commercialize any product candidate, our business will suffer.
Our product candidates are in various stages of clinical trials, which are very expensive and time-consuming. We cannot be certain when we will be able to submit a BLA to the FDA and any failure or delay in completing clinical trials for our product candidates could harm our business.

 

We have identified a material weakness in our internal controls over financial reporting as of June 30, 2021 and may identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, which may result in material misstatements of our financial statements or could have a material adverse effect on our business and trading price of our securities.
Our cell-based and gene therapy immuno-oncology products rely on the availability of reagents, specialized equipment, and other specialty materials and infrastructure, which may not be available to us on acceptable terms or at all. For some of these reagents, equipment, and materials, we rely or may rely on sole source vendors or a limited number of vendors, which could impair our ability to manufacture and supply our products.
Our immuno-oncology product candidates are based on a novel technology, which makes it difficult to predict the time and cost of product candidate development and subsequently obtaining regulatory approval. Currently, limited numbers of gene therapy and cell therapy products have been approved in the United States and Europe.

 

3


 

Our reliance on third parties to formulate and manufacture our product candidates exposes us to a number of risks that may delay the development, regulatory approval and commercialization of our products or result in higher product costs.
If we are unable either to create sales, marketing and distribution capabilities or enter into agreements with third parties to perform these functions, we will be unable to commercialize our product candidates successfully.
Our immuno-oncology product candidates may face competition in the future from biosimilars and other developing technologies.
If we or our licensors fail to adequately protect or enforce our intellectual property rights or secure rights to patents of others, the value of our intellectual property rights would diminish and our ability to successfully commercialize our products may be impaired.
Our stock price has been, and may continue to be, volatile.

 

4


 

ZIOPHARM Oncology, Inc.

Table of Contents

 

 

 

Page

Part I - Financial Information

 

 

 

Item 1.

Financial Statements

6

 

 

 

 

Balance Sheets as of June 30, 2021 (unaudited) and December 31, 2020

6

 

 

 

 

Statements of Operations for the three and six months ended June 30, 2021 and 2020 (unaudited)

7

 

 

 

 

Statement of Stockholders’ Equity for the three and six months ended June 30, 2021 and 2020 (unaudited)

8

 

 

 

 

Statements of Cash Flows for the six months ended June 30, 2021 and 2020 (unaudited)

10

 

 

 

 

Notes to Financial Statements (unaudited)

11

 

 

 

Item 2.

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

24

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

32

 

 

 

Item 4.

Controls and Procedures

32

 

Part II - Other Information

 

 

 

Item 1.

Legal Proceedings

34

 

 

 

Item 1A.

Risk Factors

34

 

 

 

Item 2.

Unregistered Sale of Equity Securities and Use of Proceeds

62

 

 

 

Item 3.

Defaults upon Senior Securities

62

 

 

 

Item 4.

Mine Safety Disclosures

62

 

 

 

Item 5.

Other Information

62

 

 

 

Item 6.

Exhibits

63

 

 

5


 

Part I - Financial Information

Item 1. Financial Statements

ZIOPHARM Oncology, Inc.

BALANCE SHEETS

(unaudited)

(in thousands, except share and per share data)

 

 

 

June 30,
2021

 

 

December 31,
2020

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

76,746

 

 

$

115,069

 

Receivables

 

 

7,626

 

 

 

4,665

 

Prepaid expenses and other current assets

 

 

5,035

 

 

 

10,855

 

Total current assets

 

 

89,407

 

 

 

130,589

 

Property and equipment, net

 

 

11,606

 

 

 

10,231

 

Right of use asset

 

 

5,371

 

 

 

4,650

 

Deposits

 

 

365

 

 

 

130

 

Other non-current assets

 

 

16

 

 

 

745

 

Total assets

 

$

106,765

 

 

$

146,345

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

982

 

 

$

960

 

Accrued expenses

 

 

11,846

 

 

 

16,589

 

Lease liability - current portion

 

 

765

 

 

 

819

 

Total current liabilities

 

 

13,593

 

 

 

18,368

 

Lease liability - noncurrent portion

 

 

4,891

 

 

 

3,995

 

Total liabilities

 

 

18,484

 

 

 

22,363

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.001 par value; 350,000,000 shares authorized;
   
215,559,148 and 214,591,906 shares issued and outstanding at
   June 30, 2021 and December 31, 2020, respectively

 

 

216

 

 

 

215

 

Additional paid-in capital

 

 

896,390

 

 

 

887,868

 

Accumulated deficit

 

 

(808,325

)

 

 

(764,101

)

Total stockholders’ equity

 

 

88,281

 

 

 

123,982

 

Total liabilities and stockholders’ equity

 

$

106,765

 

 

$

146,345

 

 

The accompanying notes are an integral part of the unaudited interim financial statements.

 

 

6


 

ZIOPHARM Oncology, Inc.

STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share and per share data)

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

13,570

 

 

$

12,051

 

 

$

26,906

 

 

$

24,757

 

General and administrative

 

 

9,069

 

 

 

6,555

 

 

 

17,296

 

 

 

12,509

 

Total operating expenses

 

 

22,639

 

 

 

18,606

 

 

 

44,202

 

 

 

37,266

 

Loss from operations

 

 

(22,639

)

 

 

(18,606

)

 

 

(44,202

)

 

 

(37,266

)

Other income (expense), net

 

 

(31

)

 

 

10

 

 

 

(22

)

 

 

377

 

Net loss

 

$

(22,670

)

 

$

(18,596

)

 

$

(44,224

)

 

$

(36,889

)

Basic and diluted net loss per share

 

$

(0.11

)

 

$

(0.09

)

 

$

(0.21

)

 

$

(0.18

)

Weighted average common shares outstanding used to compute basic and diluted net loss per share

 

 

214,426,406

 

 

 

212,792,403

 

 

 

214,191,839

 

 

 

206,303,586

 

 

The accompanying notes are an integral part of the unaudited interim financial statements.

 

 

7


 

ZIOPHARM Oncology, Inc.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Six Months Ended June 30, 2021 and 2020

(unaudited)

(in thousands, except share and per share data)

 

For the Three Months Ended June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional
Paid
In Capital

 

 

Accumulated
Deficit

 

 

Total
Stockholders’
Equity

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2021

 

 

215,257,674

 

 

$

215

 

 

$

891,081

 

 

$

(785,655

)

 

$

105,641

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

5,290

 

 

 

-

 

 

 

5,290

 

Exercise of employee stock options

 

 

10,667

 

 

 

-

 

 

 

20

 

 

 

-

 

 

 

20

 

Restricted stock awards

 

 

412,898

 

 

 

1

 

 

 

(1

)

 

 

-

 

 

 

-

 

Cancelled restricted common stock

 

 

(122,091

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(22,670

)

 

$

(22,670

)

Balance at June 30, 2021

 

 

215,559,148

 

 

$

216

 

 

$

896,390

 

 

$

(808,325

)

 

$

88,281

 

 

The accompanying notes are an integral part of the unaudited interim financial statements.

 

 

For the Six Months Ended June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional
Paid
In Capital

 

 

Accumulated
Deficit

 

 

Total
Stockholders’
Equity

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2020

 

 

214,591,906

 

 

$

215

 

 

$

887,868

 

 

$

(764,101

)

 

$

123,982

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

7,486

 

 

 

-

 

 

 

7,486

 

Exercise of employee stock options

 

 

363,109

 

 

 

-

 

 

 

1,036

 

 

 

-

 

 

 

1,036

 

Restricted stock awards

 

 

726,224

 

 

 

1

 

 

 

-

 

 

 

-

 

 

 

1

 

Cancelled restricted common stock

 

 

(122,091

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(44,224

)

 

 

(44,224

)

Balance at June 30, 2021

 

 

215,559,148

 

 

$

216

 

 

$

896,390

 

 

$

(808,325

)

 

$

88,281

 

 

The accompanying notes are an integral part of the unaudited interim financial statements.  

 

8


 

ZIOPHARM Oncology, Inc.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY…continued

For the Six Months Ended June 30, 2021 and 2020

(unaudited)

(in thousands, except share and per share data)

 

For the Three Months Ended June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional
Paid
In Capital

 

 

Accumulated
Deficit

 

 

Total
Stockholders’
Equity

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2020

 

$

214,286,337

 

 

$

214

 

 

$

882,541

 

 

$

(702,418

)

 

$

180,337

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

1,661

 

 

 

-

 

 

 

1,661

 

Exercise of employee stock options

 

 

5,833

 

 

 

-

 

 

 

12

 

 

 

-

 

 

 

12

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(18,596

)

 

 

(18,596

)

Balance at June 30, 2020

 

$

214,292,170

 

 

$

214

 

 

$

884,214

 

 

$

(721,014

)

 

$

163,414

 

 

The accompanying notes are an integral part of the unaudited interim financial statements.

 

 

For the Six Months Ended June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional
Paid
In Capital

 

 

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

 

 

-

 

 

 

-

 

 

 

3,601

 

 

 

-

 

 

 

3,601

 

Exercise of employee stock options

 

 

8,166

 

 

 

-

 

 

 

16

 

 

 

-

 

 

 

16

 

Issuance of restricted common stock

 

 

555,900

 

 

 

1

 

 

 

(1

)

 

 

-

 

 

 

-

 

Issuance of common stock in connection with a public offering, net of commissions and expense 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 of $0.4 million

 

 

2,814,673

 

 

 

2

 

 

 

13,013

 

 

 

-

 

 

 

13,015

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(36,889

)

 

 

(36,889

)

Balance at June 30, 2020

 

 

214,292,170

 

 

$

214

 

 

$

884,214

 

 

 

(721,014

)

 

 

163,414

 

 

The accompanying notes are an integral part of the unaudited interim financial statements.

 

9


 

ZIOPHARM Oncology, Inc.

STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

 

 

 

For the Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(44,224

)

 

$

(36,889

)

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

 

 

 

 

 

 

Depreciation

 

 

1,219

 

 

 

390

 

Stock-based compensation

 

 

7,486

 

 

 

3,601

 

(Increase) decrease in:

 

 

 

 

 

 

Receivables

 

 

(2,961

)

 

 

(742

)

Prepaid expenses and other current assets

 

 

5,820

 

 

 

6,838

 

Right of use asset

 

 

(721

)

 

 

389

 

Other noncurrent assets

 

 

493

 

 

 

(634

)

Increase (decrease) in:

 

 

 

 

 

 

Accounts payable

 

 

22

 

 

 

176

 

Accrued expenses

 

 

(4,742

)

 

 

3,320

 

Lease liabilities

 

 

843

 

 

 

(361

)

Net cash used in operating activities

 

 

(36,765

)

 

 

(23,912

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(2,594

)

 

 

(4,000

)

Net cash used in investing activities

 

 

(2,594

)

 

 

(4,000

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

1,036

 

 

 

16

 

Issuance of common stock in connection with a public offering, net

 

 

-

 

 

 

88,661

 

Issuance of common stock in connection with at the market offerings, net

 

 

-

 

 

 

13,015

 

Net cash provided by financing activities

 

 

1,036

 

 

 

101,692

 

Net increase in cash and cash equivalents, and restricted cash

 

 

(38,323

)

 

 

73,780

 

Cash and cash equivalents, beginning of period

 

 

115,069

 

 

 

79,741

 

Cash and cash equivalents, end of period

 

$

76,746

 

 

$

153,521

 

Supplementary disclosure of cash flow information:

 

 

 

 

 

 

Accounts included in accrued expenses and accounts payable related
   to property and equipment

 

$

258

 

 

$

1,026

 

 

The accompanying notes are an integral part of the unaudited interim financial statements.

 

 

10


 

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. In May 2021, the Company announced that it will be winding down our existing Controlled IL-12 clinical program for the treatment of recurrent glioblastoma multiforme. The Company will continue to seek a partner for this program and have also begun exploring potential synergies between this technology and our cell therapy programs. Costs incurred during the three and six months ended June 30, 2021 under the program wind down have been immaterial. 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 June 30, 2021, the Company had approximately $76.7 million of cash and cash equivalents. The Company’s accumulated deficit at June 30, 2021 was approximately $808.3 million. Given its current development plans, the Company anticipates cash resources at June 30, 2021, plus the $25.0 million gross debt proceeds raised in August 2021, will be sufficient to fund operations into the fourth quarter of 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.

The Company’s amended and restated certificate of incorporation authorizes it to issue 350,000,000 shares of common stock. As of July 31, 2021, there were 215,559,148 shares of common stock outstanding and an additional 34,088,731 shares of common stock reserved for issuance pursuant to outstanding stock options and warrants.

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, 2020, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC on March 1, 2021, 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 six months ended June 30, 2021 are not necessarily indicative of the results to be expected for the full fiscal year 2021.

 

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.

 

11


 

The Company’s most significant estimates and judgments used in the preparation of its financial statements are:

Clinical trial expenses and other research and development expenses;
Collaboration agreements;
Fair value measurements of stock-based compensation; and
Income taxes.

Impact of COVID-19 Pandemic

With 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 Company continues to evaluate the impact of the COVID-19 global pandemic on patients, healthcare providers and its employees, as well as its operations and the operations of its business partners and healthcare communities. In response to the COVID-19 pandemic, the Company has implemented policies at its locations to mitigate the risk of exposure to COVID-19 by its personnel, including restrictions on the number of staff in any given research and development laboratory and a work-from-home policy for non-laboratory functions, along with encouraging voluntary vaccination and voluntary sharing of vaccination data. 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.

Subsequent Events

 

The Company has evaluated subsequent events from the balance sheet date through the date on which these financial statements were issued. Except as disclosed below, the Company did not have any material subsequent events that impacted its financial statements or disclosures.  

 

On August 6, 2021, the Company entered into a credit and security agreement with a lender (the “Term Loan Agreement”). The Term Loan Agreement provides for an initial term loan of $25.0 million funded at the closing, with an additional tranche of $25.0 million available if certain funding and clinical milestones are met by August 31, 2022. Interest on the term loan is payable monthly in arrears at an annual interest rate of the greater of 7.75% or the prime rate plus a margin of 4.5%. The term loan amortization date is April 1, 2022; provided, however, if the Company raises $50M in funding on or prior to March 31, 2022, the term loan first payment date shall automatically be extended to September 1, 2022. Further, if the Company raised $50M on or prior to March 31, 2022 and an additional $50M on or prior to August 31, 2022, the term loan amortization shall automatically be extended to September 1, 2023. The term loan maturity date is March 1, 2023; provided, however, if Company achieves the funding milestones, the term loan maturity date shall automatically be extended to August 1, 2025. There is a final payment due of 5.75%. The Company granted a warrant at the closing to purchase 432,843 shares at $2.22 per share. The Company will grant a similar warrant if it draws the second $25.0 million tranche. 

 

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.

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.

 

12


 

At-the-Market Facility

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 six months ended June 3, 2020, the Company sold an aggregate of 2,814,673 shares of its common stock at an average price of $4.77 per share under the ATM program. The net proceeds from sales under the ATM program were approximately $13.0 million after deducting underwriting discounts.

During the six months ended June 30, 2021, there were no sales under the Company’s ATM program.

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 adoption did not have a material impact on the Company’s financial statements.

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 June 30, 2021 and December 31, 2020 were as follows:

 

($ in thousands)

 

 

 

 

Fair Value Measurements at Reporting Date Using

 

Description

 

Balance as of
June 30,
2021

 

 

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

 

$

71,809

 

 

$

71,809

 

 

$

 

 

$

 

 

($ in thousands)

 

 

 

 

Fair Value Measurements at Reporting Date Using

 

Description

 

Balance as of
December 31,
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

 

$

75,990

 

 

$

75,990

 

 

$

 

 

$

 

 

 

13


 

 

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, inducement stock options, unvested restricted stock and warrants, 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 consisted of the following as of June 30, 2021 and 2020, respectively:

 

 

 

June 30,

 

 

 

2021

 

 

2020

 

Stock options

 

 

10,186,829

 

 

 

6,561,513

 

Inducement stock options

 

 

463,333

 

 

 

863,333

 

Unvested restricted stock

 

 

1,065,175

 

 

 

1,354,306

 

Warrants

 

 

22,272,727

 

 

 

22,272,727

 

 

 

33,988,064

 

 

 

31,051,879

 

 

6. Related Party Transactions

Collaborations with Precigen/ PGEN

During the year ended December 31, 2018, the Company and PGEN Therapeutics, Inc. or PGEN, a wholly owned subsidiary of Precigen Inc., or Precigen, which was formerly known as Intrexon Corporation, entered into an Exclusive License Agreement (Note 7).

Collaboration with PGEN and MD Anderson

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 PGEN, hold 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 served as the Company’s Chief Executive Officer from May 2015 to February 2021 and was formerly a tenured professor of pediatrics at MD Anderson. In partial consideration for entering into the MD Anderson License, the Company issued MD Anderson an aggregate of 11,722,163 shares of common stock for which the Company incurred a $67.3 million charge recorded in 2015.

During the six months ended June 30, 2021 and 2020, the Company did not make any payments to MD Anderson. The total aggregate payments made in connection with this agreement have been $41.9 million since inception. The net balance of cash resources on hand at MD Anderson available to offset expenses and future costs is $1.8 million, which is included in prepaid expenses and other current assets. The classification is based on management’s current estimate of plans to utilize the prepaid balance and is subject to revision on a quarterly basis. At June 30, 2021 and December 31, 2020, the Company had accounts receivable due from MD Anderson of $7.6 million and $4.7 million, respectively.

Collaboration with Vineti Inc.

On July 9, 2020, the Company entered into a master service agreement and statement of work with Vineti, Inc., or Vineti. Pursuant to the agreements, Vineti is developing a software platform to coordinate and orchestrate the order, cell collection and manufacturing process for the Company’s TCR-T clinical programs. Heidi Hagen, who became a director of the Company in June 2019 and the Interim Chief Executive Officer on February 25, 2021, is a co-founder and former officer, of Vineti. During the three and six months ended June 30, 2021, the Company recorded expenses of approximately $0.1 million and $0.3 million for services performed by Vineti, respectively.

Joint Venture with TriArm Therapeutics/Eden Biocell

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

 

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Sleeping Beauty-generated CAR-T therapies as set forth in a separate license agreement. Eden BioCell is a joint venture in the People’s Republic of China (including Macau and Hong Kong), Taiwan and Korea. The Company licensed to Eden BioCell the rights in Greater China for its third-generation Sleeping Beauty-generated CAR-T therapies targeting the CD19 antigen. Eden BioCell is owned equally by the Company and TriArm and the parties share decision-making authority. TriArm has contributed $10.0 million to Eden BioCell. TriArm also manages all clinical development in the territory pursuant to a Master Services Agreement between TriArm and Eden BioCell. James Huang, who became a director of the Company in July 2020, Chairman of the Board of Directors in January 2021 and Executive Chairman in February 2021, was the founder and serves as managing partner of Panacea Venture, which is an investor in TriArm. Mr. Huang also serves as a member of Eden BioCell’s Board of Directors.

For the six months ended June 30, 2021 and 2020, Eden Biocell incurred a net loss and the Company continues to have no commitment to fund its operations.

7. Commitments and Contingencies

License Agreements

Exclusive License Agreement with PGEN Therapeutics

On October 5, 2018, the Company entered into an exclusive license agreement, or the License Agreement, with PGEN. 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.

 

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 pays PGEN an annual license fee of $0.1 million. The Company did not have any annual license expenses for the three and six months ended June 30, 2021 and 2020.

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.

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 months ended June 30, 2021 and June 30, 2020 there were no expenses for services performed by PGEN. During the six months ended June 30, 2021 there were $0.1 million of expenses for services performed by PGEN and no expenses incurred

 

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during the six months ended June 30, 2020. As of June 30, 2021, the Company did not have any outstanding liabilities related to services performed by PGEN. As of December 31, 2020, the Company had $0.1 million in accrued expenses related to services for amounts due to PGEN.

 

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 was the Company’s Chief Executive Officer from May 2015 to February 2021 and was formerly a tenured professor of pediatrics at MD Anderson. On February 25, 2021, the Company announced that Dr. Cooper was stepping down from his role as Chief Executive Officer and as a member of the Board of Directors, but will be remaining with the Company in a scientific advisory consulting role to support the Company's operations. Under the of a Separation Agreement, in exchange for a release of claims and certain post-employment covenants and in lieu of any severance benefits under his employment agreement, Dr. Cooper is entitled to receive continuing payments of his base salary and COBRA premiums for a period of 18 months, a cash payment $143,250, representing a pro-rata target amount of his annual performance bonus for 2021, a fully-vested restricted stock award with a grant value of $917,000, equivalent to the 2020 annual bonus Dr. Cooper would have been entitled to had his employment not terminated, and certain limited reimbursements for legal fees and housing. Dr. Cooper is not entitled to any equity acceleration in connection with his separation, however his equity awards are eligible to continue to vest pursuant to their terms based on his consulting services to the Company .Additionally, under Dr. Cooper's consulting agreement, he may earn consulting fees in amounts of up to $0.6 million for the first year and $0.3 million for each of the following two years and is also eligible for reimbursement of reasonable out-of-pocket business expenses.

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 had 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 did not meet 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 three and six months ended June 30, 2021 and 2020, 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 $1.8 million, which is included in prepaid expenses and other current assets on the Company’s balance sheet at June 30, 2021. There were also accounts receivable of $7.6 and $4.7 million due from MD Anderson at June 30, 2021 and December 31, 2020, respectively.

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

 

16


 

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.

 

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. No costs have been incurred under this agreement as of June 30, 2021.

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 10 – 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 December 31, 2020.

On January 8, 2020, the Company entered into an amendment to the Patent License which expanded the TCR library to include additional TCRs reactive to mutated KRAS and TP53.

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. This payment was expensed during the first quarter of 2021.

 

On September 28, 2020, the Company entered into a second amendment to the patent license agreement which expanded the TCR library to include additional TCRs.

 

On April 16, the Company entered into a third amendment to the patent license agreement which modified the terms governing termination, modification and surrender of rights under the license.

 

On  May 4, 2021, the Company entered into a fourth amendment to the patent license agreement which expanded the TCR library to include additional TCRs.

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, which has not been met at June 30, 2021.

 

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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.

During the three and six month periods ended June 30, 2021, the Company expensed $0.1 million and $0.3 million related to the patent services under this agreement. The Company did not incur expenses related to patent services during the three and six month periods ended June 30, 2020. Additionally, the Company recorded $0.3 million in accrued expenses as of June 30, 2021 related to patent services.

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 $1.3 million of expense for both six-month periods ended June 30, 2021 and 2020 and $0.6 million of expenses for both three-month periods ended June 30, 2021 and 2020 respectively.

 

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. No amounts were accrued or paid during the three or six months ended June 30, 2021 and 2020.

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

 

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accordance with the terms of the license agreement with the Licensors. No amounts were received during the three or six months ended June 30, 2021 and 2020.

Collaboration with KBI 

 

On July 9, 2020, the Company entered into a master service agreement and statement of work with KBI Biopharma, a contract manufacturing organization serving the biotechnology industry, including cell therapy.  Pursuant to the agreements, KBI will provide cGMP cell therapy manufacturing and testing for the Company’s library TCR-T cell clinical program. 

 

Collaboration with Aldevron 

 

On March 3, 2019, the Company entered into a master services agreement with Aldevron, a plasmid DNA manufacturer. On June 25, 2020 Aldevron announced an agreement for Aldevron to produce DNA plasmids under their neoGMP® service to be utilized in the manufacture of the Company’s TCR-T cell therapies for treatment of solid tumors. 

 

8. Leases

In June 2012, the Company entered into a master lease for the Company’s corporate office headquarters in Boston, Massachusetts, which was originally set to expire in August 2016, but renewed through August 31, 2021. As of June 30, 2021 and December 31, 2020, 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, Texas, at MD Anderson. Under the terms of the Houston lease agreement, the Company leased approximately 210 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 January 30, 2018, the Company entered into a lease agreement, or the First Houston Lease, for office space in Houston, Texas at MD Anderson through April 2021. On March 12, 2019, the Company entered into a lease agreement, or the Second Houston Lease, for additional office space in Houston through April 2021. Under the terms of the First Houston Lease agreement, the Company leases approximately 1,038 square feet and is required to make rental payments at an average monthly rate of approximately $2 thousand through April 2021. Under the terms of the Second Houston Lease, the Company leases from MD Anderson, approximately 8,443 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 5,584 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 to MD Anderson.

Effective December 15, 2020, the Company leased an additional 35,482 square feet from MD Anderson. The Company is initially required to make rental payments of approximately $37 thousand per month through April 2028, subject to an annual base rent increase of approximately 3.0% throughout the term beginning in April 2023. Future rent expense incurred in Houston, will be deducted from the Company’s prepayments to MD Anderson.

On April 22, 2021, the Company extended its lease for a 9,800 square foot portion of its corporate office headquarters in Boston. The renewal for its corporate office headquarters was originally set to expire on August 31, 2021, but has now been extended through August 2026. Under the terms of the renewal, the Company is required to make rental payments of approximately $26 thousand per month.

The components of lease expense were as follows:

 

 

 

Three Months Ended
June 30,

 

 

For the Six Months Ended
June 30,

 

(in thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Operating lease cost

 

$