10-Q
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Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 2021
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
    
    
        
    
to
    
    
        
    
Commission File Number:
001-39425
 
 
Checkmate Pharmaceuticals, Inc.
(Exact Name of Registrant as Specified in its Charter)
 
 
 
Delaware
 
36-4813934
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
245 Main Street, 2
nd
Floor
Cambridge, MA 02142
(617)
682-3625
(Address of principal executive offices including zip code)
Registrant’s telephone number, including area code: (617)
682-3625
 
 
Securities registered pursuant to Section 12(b) of the Exchange Act:
 
Title of each class
 
Trading
Symbol
 
Name of each exchange
on which registered
Common Stock, $0.0001 par value per share
 
CMPI
 
The Nasdaq Global Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated filer      Accelerated filer  
Non-accelerated filer
     Smaller reporting company  
     Emerging growth company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes  ☐    No  
As of November 11, 2021, the registrant had 21,630,752 shares of common stock, $0.0001 par value per share outstanding.
 
 
 

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SUMMARY OF THE MATERIAL RISKS ASSOCIATED WITH OUR BUSINESS
 
   
We are a clinical-stage biopharmaceutical company with a very limited operating history. We have incurred net losses since our inception and anticipate that we will continue to incur substantial and increasing net losses in the foreseeable future. We may never achieve or sustain profitability.
 
   
A pandemic, epidemic, or outbreak of an infectious disease, such as the global novel coronavirus disease 2019
(“COVID-19”)
pandemic, may materially and adversely affect our business, including our preclinical studies, clinical trials, third-parties on whom we rely, our supply chain, our ability to raise capital, and our financial results.
 
   
We have never generated any revenue from product sales, and our ability to generate revenue from product sales and become profitable will depend significantly on our success in achieving a number of goals and on other factors.
 
   
We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our research, product development or commercialization efforts.
 
   
We are heavily dependent on the success of vidutolimod (formerly
CMP-001),
our only current product candidate.
 
   
We will not be able to commercialize vidutolimod and future product candidates if our preclinical studies do not produce successful results and our clinical trials do not demonstrate the safety and efficacy of vidutolimod and future product candidates.
 
   
Vidutolimod is based on a novel approach to the treatment of cancer, which makes it difficult to predict the time and cost of product candidate development.
 
   
Difficulty in enrolling patients could delay or prevent clinical trials of vidutolimod and future product candidates. We may find it difficult to enroll patients in our clinical trials or any subsequent trials that we may conduct.
 
   
Vidutolimod is being, and future product candidates may be, evaluated in combination with third-party drugs, and we do not have control over the supply, regulatory status, or regulatory approval of such drugs.
 
   
We currently rely on third-party contract manufacturing organizations (“CMOs”) for the production of clinical supply of vidutolimod and may rely on CMOs for the production of commercial supply of vidutolimod, if approved. This reliance on CMOs increases the risk that we will not have sufficient quantities of such materials, product candidates, or any therapies that we may develop and commercialize, or that such supply will not be available to us at an acceptable cost, which could delay, prevent, or impair our development or commercialization efforts.
 
   
We rely, and expect to continue to rely, on third parties to conduct, supervise, and monitor our preclinical studies and clinical trials. If those third parties do not perform satisfactorily, we may be unable to obtain regulatory approval for vidutolimod or any future product candidates or any approvals that may be obtained may be delayed.
 
   
Our collaboration agreements with any future third-parties may not be successful, which could adversely affect our ability to develop and commercialize vidutolimod or any future product candidates.
 
   
The regulatory approval processes of the U.S. Food and Drug Administration (the “FDA”) and comparable foreign regulatory authorities are lengthy, time consuming and inherently unpredictable. If we are not able to obtain, or experience delays in obtaining, required regulatory approvals, we will not be able to commercialize vidutolimod and future product candidates as expected, and our ability to generate revenue may be materially impaired or eliminated.
 
   
Our relationships with patients and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, exclusion from government healthcare programs, contractual damages, reputational harm and diminished profits and future earnings.
 
   
We face significant competition, which may result in others discovering, developing or commercializing products more quickly or marketing them more successfully than us. If competitive product candidates are shown to be safer or more effective than ours, our commercial opportunity may be reduced or eliminated.
 
   
If we are unable to obtain, maintain and protect our intellectual property rights for our technology and our product candidates, or if our intellectual property rights are inadequate, our competitive position could be harmed.
 
   
Our success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.
 
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on
Form 10-Q
contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements involve risks, uncertainties, and other factors that may cause actual results, levels of activity, performance, or achievements to be materially different from the information expressed or implied by these forward-looking statements. All statements, other than statements of historical facts, contained in this Quarterly Report on
Form 10-Q,
including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management and expected market growth are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
These forward-looking statements include, among other things, statements about:
 
   
our current expectations and anticipated results of operations;
 
   
the timing and the success of preclinical studies and clinical trials of vidutolimod and future product candidates, including our current Phase 2 trial for
anti-PD-1
refractory melanoma, our current randomized Phase 2/3 trial for first-line melanoma, and our current Phase 2 proof of concept study in advanced head and neck squamous cell carcinoma (“HNSCC”) and our currently anticipated Phase 2 proof of concept, multi-indication trial in cutaneous squamous cell carcinoma and Merkel cell carcinoma;
 
   
the initiation and completion of any clinical trials of vidutolimod and future product candidates;
 
   
the ongoing impact of the
COVID-19
pandemic on our business;
 
   
our need to raise additional funding before we can expect to generate any revenues from product sales and our ability to raise capital, including in light of the impact of the ongoing
COVID-19
global pandemic and the related potential impact on the US and global economies;
 
   
our ability to conduct successful clinical trials or obtain regulatory approval for vidutolimod or any future product candidates that we may identify or develop;
 
   
our ability to ensure adequate supply of vidutolimod and any future candidates;
 
   
our ability to maintain third-party relationships necessary to conduct our business;
 
   
our dependence upon the success of our research to generate and advance additional product candidates;
 
   
our ability to establish an adequate safety and efficacy profile for vidutolimod or any future product candidates that we may pursue;
 
   
the implementation of our strategic plans for our business, vidutolimod and any other product candidates we may develop and our technology;
 
   
our intellectual property position, including the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;
 
   
the rate and degree of market acceptance and clinical utility for vidutolimod and any other product candidates we may develop;
 
   
our estimates about the size of our market opportunity;
 
   
our ability to maintain and establish collaborations and strategic relationships, including our clinical trial collaborations with an affiliate of Merck KGaA (“Merck”), Pfizer Inc. (“Pfizer”), Bristol-Myers Squibb Company (“BMS”), and Regeneron Pharmaceuticals, Inc. (“Regeneron”);
 
   
the potential benefits of the continued research, development, testing and manufacturing services provided by contract manufacturing organizations;
 
   
our financial performance and liquidity;
 
   
our ability to effectively manage our anticipated growth;
 
   
developments relating to our competitors and our industry, including the impact of government regulation;
 
   
our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals;
 
   
our ability to maintain adequate internal controls over financial reporting;
 
   
our expectations regarding the period during which we qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act (the “JOBS Act”);
 
   
our expectations regarding the period during which we qualify as a “smaller reporting company”;
 
2

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our use of proceeds from our initial public offering and our expectations regarding our estimated expenses, the sufficiency of our cash resources, our expected cash runway and our need for additional financing, and
 
   
other risks and uncertainties, including those listed under the section titled “Risk Factors.”
The forward-looking statements in this Quarterly Report on Form
10-Q
represent our views as of the date of this Quarterly Report on Form
10-Q.
We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form
10-Q.
We may from
time-to-time
provide estimates, projections and other information concerning our industry, our business and the markets for our product candidate or future product candidates. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, we obtained this industry, business, market, and other data from our own internal estimates and research as well as from reports, research surveys, studies, and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources. These estimates involve numerous assumptions, are subject to risks and uncertainties and are subject to change based on various factors.
 
3

Table of Contents
CHECKMATE PHARMACEUTICS, INC.
QUARTERLY REPORT ON FORM
10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2021
TABLE OF CONTENTS
 
     5  
Item 1.
  Condensed Consolidated Financial Statements      5  
  Condensed Consolidated Balance Sheets (Unaudited) as of September 30, 2021 and December 31, 2020      5  
  Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) for the Three and Nine Months Ended September 30, 2021 and 2020      6  
  Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Unaudited) for the Three and Nine Months Ended September 30, 2021 and 2020      7  
  Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2021 and 2020      8  
  Notes to Unaudited Condensed Consolidated Financial Statements      9  
Item 2.
  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS      16  
Item 3.
  Quantitative and Qualitative Disclosures About Market Risk      25  
Item 4.
  Controls and Procedures      25  
     26  
Item 1.
  Legal Proceedings      26  
Item 1A.
  Risk Factors      26  
Item 2.
  Unregistered Sales of Equity Securities and Use of Proceeds      78  
Item 3.
  Defaults Upon Senior Securities      78  
Item 4.
  Mine Safety Disclosures      78  
Item 5.
  Other Information      78  
Item 6.
  Exhibits      79  
     80  
 
4

Table of Contents
PART I. – FINANCIAL INFORMATION
 
Item 1.
Condensed Consolidated Financial Statements
CHECKMATE PHARMACEUTICALS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
 
    
September 30,
   
December 31,
 
    
2021
   
2020
 
Assets
                
Current Assets:
                
Cash and cash equivalents
   $ 53,494     $ 43,055  
Restricted cash
     20       20  
Short-term investments
     27,350       51,831  
Prepaid expenses and other current assets
     7,807       7,195  
 
  
 
 
   
 
 
 
Total current assets
     88,671       102,101  
    
 
 
   
 
 
 
Investments,
non-current
     —         30,973  
Machinery and equipment, net
     668       —    
    
 
 
   
 
 
 
Total assets
   $ 89,339     $ 133,074  
    
 
 
   
 
 
 
Liabilities and Stockholders’ Equity
                
Current Liabilities:
                
Accounts payable
   $ 2,521     $ 2,297  
Accrued expenses
     5,291       5,578  
 
  
 
 
   
 
 
 
Total current liabilities
     7,812       7,875  
 
  
 
 
   
 
 
 
Total liabilities
     7,812       7,875  
    
 
 
   
 
 
 
Commitments and Contingencies (Note 9)
            
Stockholders’ Equity:
                
Preferred stock, $0.0001 par value, 10,000,000 shares authorized as of September 30, 2021 and December 31, 2020; no shares outstanding as of September 30, 2021 and December 31, 2020
            
Common stock, $0.0001 par value; 300,000,000 authorized as of September 30, 2021 and December 31, 2020; 21,626,891 and 21,560,398 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
     2       2  
Additional
paid-in
capital
     269,662       265,342  
Accumulated other comprehensive gain (loss)
     (2     (74
Accumulated deficit
     (188,135     (140,071
    
 
 
   
 
 
 
Total stockholders’ equity
     81,527       125,199  
    
 
 
   
 
 
 
Total liabilities and stockholders’ equity
   $ 89,339     $ 133,074  
    
 
 
   
 
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
5

Table of Contents
CHECKMATE PHARMACEUTICALS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share amounts)
(Unaudited)
    
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
    
2021
   
2020
   
2021
   
2020
 
Operating expenses:
                                
Research and development
   $ 11,375     $ 6,673     $ 36,618     $ 19,462  
General and administrative
     3,605       3,160       11,498       6,465  
    
 
 
   
 
 
   
 
 
   
 
 
 
Total operating expenses
     14,980       9,833       48,116       25,927  
    
 
 
   
 
 
   
 
 
   
 
 
 
Loss from operations
     (14,980     (9,833     (48,116     (25,927
    
 
 
   
 
 
   
 
 
   
 
 
 
Other income (expense), net:
                                
Interest income
     14       4       87       32  
Loss on sale of
available-for-sale
investments
     —         —         (35     —    
Change in fair value of convertible loan notes
     —         —         —         (83
    
 
 
   
 
 
   
 
 
   
 
 
 
Total other income (expense), net
     14       4       52       (51
    
 
 
   
 
 
   
 
 
   
 
 
 
Net loss
   $ (14,966   $ (9,829   $ (48,064   $ (25,978
    
 
 
   
 
 
   
 
 
   
 
 
 
Reconciliation of net loss attributable to common stockholders:
                                
Net loss
   $ (14,966   $ (9,829   $ (48,064   $ (25,978
Accretion of issuance costs on redeemable convertible preferred stock
     —         (5     —         (461
Accrued dividends on redeemable convertible preferred stock
     —         (1,579     —         (5,536
    
 
 
   
 
 
   
 
 
   
 
 
 
Net loss attributable to common stockholders
   $ (14,966   $ (11,413   $ (48,064   $ (31,975
    
 
 
   
 
 
   
 
 
   
 
 
 
Weighted-average common shares outstanding—basic and diluted
     21,625,902       13,580,105       21,611,119       5,519,028  
    
 
 
   
 
 
   
 
 
   
 
 
 
Net loss per share attributable to common stockholders—basic and diluted
   $ (0.69   $ (0.84   $ (2.22   $ (5.79
    
 
 
   
 
 
   
 
 
   
 
 
 
Comprehensive loss:
                                
Net loss
   $ (14,966   $ (9,829   $ (48,064   $ (25,978
Unrealized gain on
available-for-sale
investments
     31       —         72       —    
    
 
 
   
 
 
   
 
 
   
 
 
 
Comprehensive loss
   $ (14,935   $ (9,829   $ (47,992   $ (25,978
    
 
 
   
 
 
   
 
 
   
 
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
6

Table of Contents
CHECKMATE PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands, except share and per share amounts)
(Unaudited)
 
 
 
Series A Redeemable Convertible
Preferred Stock
 
 
Series B Redeemable Convertible
Preferred Stock
 
 
Series C Redeemable Convertible
Preferred Stock
 
 
Common Stock
 
 
Additional Paid-In
 
 
Accumulated
 
 
Accumulated
Other
Comprehensive
 
 
Total
Stockholders’
 
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Capital
 
 
Deficit
 
 
Gain/(Loss)
 
 
Equity (Deficit)
 
Balances at December 31, 2020
 
 
—  
 
 
$
—  
 
 
 
—  
 
 
$
—  
 
 
 
—  
 
 
$
—  
 
 
 
21,560,398
 
 
$
2
 
 
$
265,342
 
 
$
(140,071
 
$
(74
 
$
125,199
 
Exercise of stock options
    —         —         —         —         —         —         59,225       —         118       —         —         118  
Stock-based compensation expense
    —         —         —         —         —         —         —         —         1,216               —         1,216  
Unrealized losses on
available-for-sale
investments
    —         —         —         —         —         —         —         —         —         —         (9     (9
Net loss
    —         —         —         —         —         —         —         —         —         (14,128     —         (14,128
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balances
 
at
 
March 31, 2021
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
21,619,623
 
 
 
2
 
 
 
266,676
 
 
 
(154,199
 
 
(83
 
 
112,396
 
Exercise of stock options
    —         —         —         —         —         —         6,268       —         16       —         —         16  
Stock-based compensation expense
    —         —         —         —         —         —         —         —         1,487       —         —         1,487  
Unrealized gains on
available-for-sale
investments
    —         —         —         —         —         —         —         —         —         —         50       50  
Net loss
    —         —         —         —         —         —         —         —         —         (18,970     —         (18,970
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balances at June 30, 2021
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
21,625,891
 
 
 
2
 
 
 
268,179
 
 
 
(173,169
 
 
(33
 
 
94,979
 
Exercise of stock options
    —         —         —         —         —         —         1,000       —         3       —         —         3  
Stock-based compensation expense
    —         —         —         —         —         —         —         —         1,480       —         —         1,480  
Unrealized gains on
available-for-sale
investments
    —         —         —         —         —         —         —         —         —         —         31       31  
Net loss
    —         —         —         —         —         —         —         —         —         (14,966     —         (14,966
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balances at September 30, 2021
 
—  
 
 
$
—  
 
 
 
—  
 
 
$
—  
 
 
 
—  
 
 
$
—  
 
 
 
21,626,891
 
 
$
2
 
 
$
269,662
 
 
$
(188,135
 
$
(2
 
$
81,527
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
 
Series A Redeemable Convertible
Preferred Stock
 
 
Series B Redeemable Convertible
Preferred Stock
 
 
Series C Redeemable Convertible
Preferred Stock
 
 
Common Stock
 
 
Additional Paid-In
 
 
Accumulated
 
 
Accumulated
Other
Comprehensive
 
 
Total
Stockholders’
 
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Capital
 
 
Deficit
 
 
Gain/(Loss)
 
 
Equity (Deficit)
 
Balances at December 31, 2019
  
25,000,000
 
 
$
32,482
 
 
 
26,283,386
 
 
$
64,446
 
 
 
—  
 
 
$
—  
 
 
 
1,488,489
 
  
$
1
 
  
$
—  
 
 
$
(97,437
 
$
—  
 
  
$
(97,436
Issuance of series B redeemable convertible preferred stock at $2.1687
 
per
 
share,
 
net
 
of
issuance
 
costs of $27
     —         —         3,688,898       7,973       —         —         —          —          —         —         —          —    
Exercise of series B preferred stock tranche right
     —         —         —         300       —         —         —          —          —         —         —          —    
Accretion of issuance costs related to redeemable convertible preferred stock
     —         —         —         27       —         —         —          —          —         (27     —          (27
Stock-based compensation expense
     —         —         —         —         —         —         —          —          101       —         —          101  
Accrued dividends on redeemable convertible preferred stock
     —         498       —         1,272       —         —         —          —          (101     (1,669     —          (1,770
Net loss
     —         —         —         —         —         —         —          —          —         (7,801     —          (7,801
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
 
Balances
 
at
March 31, 2020
  
 
25,000,000
 
 
 
32,980
 
 
 
29,972,284
 
 
 
74,018
 
 
 
—  
 
 
 
—  
 
 
 
1,488,489
 
  
 
1
 
  
 
—  
 
 
 
(106,934
 
 
—  
 
  
 
(106,933
Issuance of series C redeemable convertible preferred stock at $1.6016 per share, net of issuance costs of $429
     —         —         —         —         46,828,167       74,571       —          —          —         —         —          —    
Conversion of convertible notes into series C convertible redeemable preferred stock
     —         —         —         —         6,295,756       10,083       —          —          —         —         —          —    
Accretion of issuance costs related to redeemable convertible preferred stock
     —         —         —         —         —         429       —          —          —         (429     —          (429
Exercise of stock options
                                                           —                   
  
                         —    
Vesting of restricted stock awards
                                                           —                                                —    
Stock-based compensation expense
     —         —         —         —         —         —         —          —          100       —         —          100  
Accrued dividends on redeemable convertible preferred stock
     —         499       —         1,296       —         392       —          —          (100     (2,087     —          (2,187
Net loss
     —         —         —         —         —         —         —          —          —         (8,348     —          (8,348
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
 
Balances
 
at
 
June 30, 2020
  
 
25,000,000
 
 
 
33,479
 
 
 
29,972,284
 
 
 
75,314
 
 
 
53,123,923
 
 
 
85,475
 
 
 
1,488,489
 
  
 
1
 
  
 
—  
 
 
 
(117,798
 
 
—  
 
  
 
(117,797
Stock issuance costs related series C preferred stock
     —         —         —         —         —         (5     —          —          —         —         —          —    
Accretion of issuance costs related to redeemable convertible preferred stock
     —         —         —         —         —         5       —          —          —         (5     —          (5
Exercise of stock options
     —         —         —         —         —         —         3,956        —          4       —         —          4  
Stock-based compensation expense
     —         —         —         —         —         —         —          —          852       —         —          852  
Accrued dividends on redeemable convertible preferred stock
     —         225       —         584       —         770       —          —          (70     (1,509     —          (1,579
Conversion of redeemable convertible preferred stock
     (25,000,000     (33,704     (29,972,284     (75,898     (53,123,923     (86,245     14,948,241        1        195,846       —         —          195,847  
Issuance of common shares upon initial public offering net of underwriting discounts, commissions and offering costs
     —         —         —         —         —         —         5,109,861        —          67,712       —         —          67,712  
Net loss
     —         —         —         —         —         —         —          —                  (9,829     —          (9,829
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
 
Balances at September 30, 2020
  
 
—  
 
 
$
—  
 
 
 
—  
 
 
$
—  
 
 
 
—  
 
 
$
—  
 
 
 
21,550,547
 
  
$
2
 
  
$
264,344
 
 
$
(129,141
 
$
—  
 
  
$
135,205
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
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CHECKMATE PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
    
Nine Months Ended
September 30,
 
    
2021
   
2020
 
Cash flows from operating activities
                
Net loss
   $ (48,064   $ (25,978
Adjustments to reconcile net loss to net cash used in operating activities:
                
Stock based compensation
     4,183       1,053  
Depreciation
     11       —    
Change in fair value of notes payable
     —         83  
Amortization/accretion of investments
     509       —    
Change in operating assets and liabilities:
                
Prepaid expenses and other current assets
     (295     (5,784
Accounts payable
     224       1,473  
Accrued expenses
     (286     1,735  
    
 
 
   
 
 
 
Net cash used in operating activities
     (43,718     (27,418
    
 
 
   
 
 
 
Cash flows from investing activities
                
Purchases of investments
     (10,167     —    
Maturities of investments
     34,491       —    
Sale of investments
     30,692       —    
Purchase of machinery and equipment
     (679     —    
    
 
 
   
 
 
 
Net cash provided by investing activities
     54,337       —    
Cash flows from financing activities
                
Proceeds from stock option exercises
     137       4  
Cash paid for deferred offering costs
 
 
(317
)
 
 
 
 
 
Proceeds from initial public offering of common stock, net of underwriting discounts, commissions and issuance costs
     —         68,030  
Proceeds from issuance of convertible preferred stock, net of issuance costs
     —         82,539  
Proceeds from issuance of convertible loan notes
     —         10,000  
    
 
 
   
 
 
 
Net cash provided by
(
used in
)
financing activities
     (180 )     160,573  
    
 
 
   
 
 
 
Net increase in cash, cash equivalents and restricted cash
     10,439       133,155  
Cash, cash equivalents and restricted cash at beginning of period
     43,075       4,205  
    
 
 
   
 
 
 
Cash, cash equivalents and restricted cash at end of period
     53,514     $ 137,360  
    
 
 
   
 
 
 
Supplemental disclosure of
non-cash
inv
e
sting and
financing activities:
                
Accretion of issuance costs to redeemable convertible preferred stock
   $ —       $ 461  
Exercise of Series B preferred stock tranche right
   $ —       $ 300  
Accrued dividends on redeemable convertible preferred stock
   $ —       $ 5,536  
Conversion of loan notes into series C preferred stock
   $ —       $ 10,083  
Issuance of common stock upon conversion of redeemable convertible preferred stock
   $ —       $ 195,847  
Initial public offering issuance costs included in accrued expenses
   $ —       $ 318  
Purchase of machinery and equipment included in accounts payable
   $ 318     $ —    
Deferred offering costs included in prepaid expenses and other current assets
 
$
317
 
 
$
 
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
8

Table of Contents
CHECKMATE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1 – N
ATURE
OF
B
USINESS
Nature of Business
Checkmate Pharmaceuticals, Inc. (“Checkmate” or the “Company”), headquartered in Cambridge, Massachusetts, is a clinical stage biotechnology company incorporated under the laws of the State of Delaware in July 2015 that is focused on developing and commercializing its proprietary technology to harness the power of the immune system to combat cancer. Since its inception, the Company has devoted substantially all of its efforts to the research and development activities, including recruiting management and technical staff, raising capital, producing materials for
non-clinical
and clinical studies and building infrastructure to support such activities, and has not yet generated any revenue. Expenses have primarily been for research and development and related administrative costs. The Company has financed its operations through the sale of common stock, convertible debt and redeemable convertible preferred stock.
Initial Public Offering
On August 11, 2020, the Company closed its initial public offering (“IPO”), at which time the Company issued and sold 5,000,000 shares of its common stock, at a price to the public of $15.00 per share. On September 3, 2020, the underwriters of the IPO exercised a portion of their overallotment option by purchasing an additional 109,861 shares from the Company at the IPO price. The Company received approximately $67.7 million in net proceeds, inclusive of the over-allotment exercise and after deducting underwriting discounts and commissions and other offering expenses payable by the Company
.
In connection with the closing of the IPO, all outstanding shares of the Company’s preferred stock were converted into 14,948,241 shares of the Company’s common stock.
On July 31, 2020, the Company effected a
one-for-7.4771
reverse stock split of its common stock. All shares, stock options, warrants, redeemable convertible preferred stock conversion prices, ratios and per share information presented in the condensed consolidated financial statements have been adjusted to reflect the reverse stock split on a retroactive basis for all periods presented. The par value per share and the authorized number of shares of common stock were not adjusted as a result of the reverse stock split.
Risks and Uncertainties
The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, the outcome of clinical trials, development by competitors of new therapeutics and technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, ability to secure additional capital to fund operations, and risks associated with the ongoing
COVID-19
global pandemic or future pandemics, including known and potential delays associated with its ongoing and anticipated trials and the Company’s ability to raise additional capital to finance its operations. There can be no assurance that the Company will be able to successfully complete the development of, or receive regulatory approval for, any products developed, and if approved, that any products will be commercially viable. Any products resulting from the Company’s current research and development efforts will require significant additional research and development, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts will require significant amounts of additional capital, adequate personnel, infrastructure and extensive compliance reporting capabilities. The Company has not generated any revenues from the sale of any products to date. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.
The Company may seek additional funding through private or public equity financings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing agreements. If the Company is unable to obtain additional funding, the Company may be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects, or the Company may be unable to continue operations. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.
 
9

Table of Contents
The Company expects that its cash, cash equivalents and
available-for-sale
investments of $80.8 million as of September 30, 2021 will be sufficient to fund its operating expenses and capital requirements for at least 12 months beyond the date of issuance of these condensed consolidated financial statements.
2 – S
UMMARY
OF
S
IGNIFICANT
A
CCOUNTING
P
OLICIES
The Company’s significant accounting policies are described in Note 2,
Summary of Significant Accounting Policies
, to the financial statements for the year ended December 31, 2020 in the Company’s 2020 Annual Report on Form
10-K.
There have been no material changes to the significant accounting policies during the nine month period ended September 30, 2021, except as noted below.
Basis of Presentation
The accompanying condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and include the accounts of the Company and its wholly owned subsidiary Checkmate Pharmaceuticals Security Corporation. Any reference in these notes to applicable guidance is meant to refer to the authoritative accounting principles generally accepted in the United States as found in the Accounting Standard Codification (ASC) and Accounting Standards Update (ASU) of the Financial Accounting Standards Board (FASB).
Unaudited interim financial information
The accompanying interim condensed consolidated financial statements and related disclosures are unaudited and have been prepared in accordance with GAAP for interim financial information and the instructions to Form
10-Q
and Article 10 of Regulation
S-X
of the Exchange Act. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s financial statements and related footnotes as of and for the year ended December 31, 2020, included in the Company’s 2020 Annual Report on Form
10-K.
The Company’s financial information as of September 30, 2021, and for the three and nine months ended September 30, 2021 and 2020 is unaudited, but in the opinion of management, includes all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of the financial position, results of operations and cash flows at the dates and for the periods presented. The balance sheet data as of December 31, 2020 was derived from audited financial statements. The results of the Company’s operations for any interim period are not necessarily indicative of the results that may be expected for any other interim period or for a full fiscal year.
Use of estimates
The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, the accrual of research and development expenses and the valuation of stock-based awards before the Company’s IPO. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results may differ from those estimates or assumptions.
Machinery and equipment
Machinery and equipment is recorded at cost less accumulated depreciation. Depreciation is recognized using the straight-line method over the estimated useful life of five years for each asset. Accumulated depreciation at September 30, 2021 was $28,486.
Deferred offering costs
The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated
with in-process equity
financings as deferred offering costs until such financings are consummated. After consummation of the equity financing, these costs are recorded in the condensed consolidated statements of stockholders’ equity as a reduction of
additional paid-in capital.
10

Table of Contents
Recently issued accounting pronouncements
In June 2016, the FASB issued ASU
2016-13,
“Credit Losses (Topic 326).” ASU
2016-13
requires that financial assets measured at amortized cost, such as trade receivables and investments, be represented net of expected credit losses, which may be estimated based on relevant information such as historical experience, current conditions, and future expectation for each pool of similar financial asset. The new guidance requires enhanced disclosures related to trade receivables and associated credit losses. In May 2019, the FASB issued ASU
No. 2019-05,
“Financial Instruments—Credit Losses (Topic 326) Targeted Transition Relief,” which allows for a transition election on certain instruments. The guidance is effective for Smaller Reporting Companies for fiscal years beginning after December 15, 2022 and interim periods in those fiscal years. In November 2019, the FASB issued ASU
No. 2019-11
which amends certain aspects of ASU
No. 2016-13,
including transition relief for trouble debt restructuring, among other topics. The Company is currently evaluating the impact of this pronouncement on its consolidated financial statements
.
3 – I
NVESTMENTS
AND
F
AIR
V
ALUE
M
EASUREMENT
The following tables summarizes the amortized cost and estimated fair value of the Company’s investments, which are considered to be
available-for-sale
investments as of September 30, 2021 and December 31, 2020.
As of September 30, 2021
 
 
  
Amortized

Cost
 
  
Unrealized

Gains
 
  
Unrealized

Losses
 
 
Fair Value
 
  
Short-term
Investments
 
  
Investments,

non-current
 
 
  
 
 
  
 
 
  
(in thousands)
 
 
 
 
  
 
 
  
 
 
Commercial paper
   $ 2,000      $          $  —       $ 2,000      $ 2,000      $  —    
Corporate debt securities
     25,352        5        (7     25,350        25,350            
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
Total
   $  27,352      $ 5      $ (7   $  27,350      $  27,350      $     
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
As of December
 31, 202
0
 
 
  
Amortized

Cost
 
  
Unrealized

Gains
 
  
Unrealized

Losses
 
 
Fair Value
 
  
Short-term
Investments
 
  
Investments,

non-current
 
 
  
 
 
  
 
 
  
(in thousands)
 
 
 
 
  
 
 
  
 
 
Commercial paper
   $ 42,709      $ 8      $ (16   $  42,701      $  42,701      $ —    
Corporate debt securities
     41,169        —          (66     41,103        10,130        30,973  
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
Total
   $  83,878      $ 8      $ (82   $ 83,804      $ 52,831      $  30,973  
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
 
11

At September 30, 2021, all investments mature within one year or less.
At September 30, 2021, there
were no available-for-sale
securities in the Company’s total investment portfolio that were in a continuous unrealized loss position for more than 12 months. The Company concluded that the net declines in market value of
available-for-sale
securities were temporary in nature and did not consider any of investments to be other-than-temporarily impaired.
The following tables set forth the fair value of the Company’s financial assets and liabilities by level within the fair value hierarchy that are measured at fair value on a recurring basis:
 
    
September 30, 2021
 
    
Level 1
    
Level 2
    
Level 3
    
Total
 
                             
    
(in thousands)
 
Assets:
                                   
Money markets funds (included in cash equivalents)
   $  52,249      $ —        $  —        $  52,249  
Commercial paper
     —          2,000        —          2,000  
Corporate debt securities
     —          25,350        —          25,350  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total assets
   $ 52,249      $  27,350      $  —        $ 79,599  
    
 
 
    
 
 
    
 
 
    
 
 
 
 
    
December 31, 2020
 
    
Level 1
    
Level 2
    
Level 3
    
Total
 
                             
    
(in thousands)
 
Assets:
                                   
Money markets funds (included in cash equivalents)
   $ 7,839      $ —        $  —        $ 7,839  
Commercial paper
     —          42,701        —          42,701  
Corporate debt securities
     —          41,103        —          41,103  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total assets
   $ 7,839      $  83,804      $  —        $ 91,643  
    
 
 
    
 
 
    
 
 
    
 
 
 
Investments classified as Level 2 within the valuation hierarchy consist of commercial paper and corporate debt securities. The Company estimates the fair values of these marketable securities by taking into consideration valuations obtained from third-party pricing sources.
4 – A
CCRUED
E
XPENSES
Accrued expenses consist of the following:
 
    
September 30,
    
December 31,
 
    
2021
    
2020
 
               
    
(in thousands)
 
Payroll and employee related expenses
   $   1,601      $  1,555  
External research and development
     3,153        3,633  
Other accrued expenses
     537        390  
    
 
 
    
 
 
 
Total accrued expenses
   $ 5,291      $ 5,578  
    
 
 
    
 
 
 
12

5 – R
EDEEMABLE
C
ONVERTIBLE
P
REFERRED
S
TOCK
On August 11, 2020, in connection with the closing of the IPO, all outstanding shares of the Company’s preferred stock were converted into 14,948,241 shares of common stock. As a result of the conversion, the Company reclassified the carrying value of its preferred stock, which included all cumulative but unpaid dividends, to common stock and additional
paid-in-capital
and therefore there was no outstanding redeemable convertible preferred stock as of September 30, 2021 and December 31, 2020.
6 – E
QUITY
The holders of the common stock are entitled to one vote for each share of common stock held at all meetings of stockholders. Common stockholders are entitled to receive dividends declared out of funds legally available, subject to the payment in full of all preferential dividends to which the holders of preferred stock are entitled.
On August 11, 2020, the Company filed a restated certificate of incorporation in the State of Delaware, which, among other things, restated the number of shares of all classes of stock that the Company has authority to issue up to 310,000,000 shares, consisting of (i) 300,000,000 shares of common stock, $0.0001 par value per share, and (ii) 10,000,000 shares of preferred stock, $0.0001 par value per share. The shares of preferred stock are currently undesignated and no shares are outstanding.
Also on August 11, 2020, the Company completed its IPO, pursuant to which it issued and sold 5,109,861 shares of common stock, inclusive of 109,861 shares sold by the Company pursuant to the full exercise of the underwriters’ option to purchase additional shares. The aggregate net proceeds received by the Company from the IPO were $67.7 million, after deducting underwriting discounts and commissions and other offering costs.
On September 7, 2021, the Company filed a shelf registration statement on Form
S-3
(File
No. 333-259353)
with the U.S. Securities and Exchange Commission (“SEC”), which was declared effective by the SEC on September 15, 2021 (the “Shelf Registration Statement”). Under the Shelf Registration Statement, the Company may offer and sell, from time to time, various securities in an aggregate amount of up to
 
$
150
 
million. In connection with filing the Shelf Registration Statement, the Company entered into an Open Market Sale Agreement
SM
(the “2021 Sales Agreement”), with Jefferies LLC (“Jefferies”), pursuant to which the Company may offer and sell, from time to time, shares of its common stock having an aggregate offering of up to
$
50.0
 
million through Jefferies as its sales agent. The Company will pay the sales agent a commission of
3
%
of the gross proceeds of any sales made pursuant to the 2021 Sales Agreement. As of September 30, 2021, no shares of common stock have been sold and no net proceeds have been received by the Company pursuant to the 2021 Sales Agreement
.
7 – S
TOCK
-B
ASED
C
OMPENSATION
Total stock-based compensation expense was classified in the accompanying condensed consolidated statements of operations and comprehensive loss as follows:
 
    
Three Months Ended September 30,
    
Nine Months Ended September 30,
 
    
2021
    
2020
    
2021
    
2020
 
                             
    
(in thousands)
    
(in thousands)
 
Research and development
   $  617      $  509      $  1,710      $ 588  
General and administrative
     863        343        2,473        465  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total stock-based compensation expense
   $ 1,480      $ 852      $ 4,183      $  1,053  
    
 
 
    
 
 
    
 
 
    
 
 
 
During the nine months ended September 30, 2021, the Company granted options with service-based vesting conditions for the purchase of 1,210,701 shares of common stock with a weighted average exercise price of $10.51 per share and a weighted average grant-date fair value of $7.33
per share
.
 
13

8 – N
ET
L
OSS
P
ER
S
HARE
Net Loss Per Share Attributable To Common Stockholders
Because the Company reports a net loss attributable to common stockholders, basic and diluted net loss per share attributable to common stockholders are the same for both years presented. All preferred stock and stock options have been excluded from the computation of diluted weighted-average shares outstanding because such securities would have an antidilutive impact. At September 30, 2021 and 2020, options to purchase common stock of 3,550,129 and 2,491,336, respectively, have been excluded from the calculation of diluted net loss per share because their inclusion would have been antidilutive.
9 – C
OMMITMENTS
AND
C
ONTINGENCIES
Operating Lease
The Company has a
month-to-month
lease agreement for its corporate space in Cambridge, Massachusetts. Rent expense is recognized as incurred. Rent expense for the three months ended September 30, 2021 and 2020 was $0.2 million and $0.1 million, respectively. Rent expense for each of the nine months ended September 30, 2021 and 2020 was $0.5 million and $0.4 million, respect
i
vely.
Clinical Trial Collaboration and Supply Agreements
On May 10, 2021, the Company entered into a Supply and
Non-Exclusive
License Agreement (“SNLA”) with Regeneron Pharmaceuticals, Inc. (“Regeneron”). The SNLA dictates the general terms that govern specific collaborative studies between the Company and Regeneron, including a Phase 2 proof of concept trial, with patient cohorts in
anti-PD-1
naïve and
anti-PD-1
refractory cutaneous squamous cell carcinoma
and anti-PD-1
refractory Merkel cell carcinoma. Pursuant to the SNLA, Regeneron agreed to provide cemiplimab, a drug to be used concurrently or in combination with vidutolimod in the aforementioned studies, at its own expense. As part of the SNLA, the parties granted each other
non-exclusive
licenses to use background intellectual property and regulatory documentation to seek regulatory approval of the other party’s compound solely for use as a combination therapy. The Company does not expect any future consideration to be payable to Regeneron pursuant to the SNLA.
On December 7, 2020, the Company entered into the Master Clinical Trial Collaboration Agreement (“MCTCA”) with Bristol-Myers Squibb Company (“BMS”). The MCTCA dictates the general terms that govern specific collaborative studies between the companies, including the Company’s Phase 2 refractory melanoma study and Phase 2 front-line melanoma study (collectively, the “collaborative studies”). Pursuant to the MCTCA, BMS agreed to provide nivolumab, a drug to be used in combination with vidutolimod in the collaborative studies, at its own expense. As part of the MCTCA, the parties granted each other
non-exclusive
licenses to use background intellectual property and regulatory documentation to seek regulatory approval of the other party’s compound solely for use as a combination therapy. The Company does not expect any further consideration to be payable to BMS pursuant to the MCTCA.
On August 22, 2018, the Company entered into the Clinical Trial Collaboration and Supply Agreement (“CTCSA”) with an affiliate of Merck KGaA (“Merck”) and Pfizer Inc. (“Pfizer”) (Merck and Pfizer together are referred to herein as the “Alliance”). Pursuant to the CTCSA, the Company, and the Alliance will each provide compound drug product that will be dosed concurrently or in combination in a clinical trial sponsored by Pfizer. This agreement was amended on March 4, 2019. In addition to providing a compound drug product to be used in the clinical trial, the Company will reimburse Pfizer for each patient dosed in the study using the Company’s compound at a specified rate outlined in the CTCSA. In no event will the amount of costs due by the Company to Pfizer exceed $4.0 million over the term of the CTCSA. The costs of services performed, and material used in connection with the research and development activities of the CTCSA, including reimbursements due to Pfizer, are included in research and development costs and expensed as incurred. The Company incurred $1.0 million and $0.5 million of expense during the years ended December 31, 2020 and 2019, respectively. By mutual agreement of the Company and the Alliance, the clinical trial was discontinued in 2020, and the Company does not expect to incur any further costs in connection with the
 
CTCSA.
 
14

License Agreement
In June 2015,
 the Company entered into an exclusive license agreement with Cytos Biotechnology LTD (now Kuros Biosciences AG, or “Kuros”) as amended in August 2017 and as further amended in January 2018 (the “Kuros License Agreement”). Pursuant to the Kuros License Agreement, in return for payments made, the Company was granted an exclusive, royalty-bearing, sublicensable, worldwide license, under all of Kuro’s intellectual property rights, including any intellectual property rights arising during the term of the agreement, to commercially develop, manufacture, use, distribute, and sell certain therapeutic products, including vidutolimod, (the “Licensed Products”) for the diagnosis, treatment and prevention of all indications in humans and animals. Under the terms of the Kuros License Agreement, the Company is required to use commercially reasonable efforts to develop at least one Licensed Product. Under the Kuros License Agreement, the Company agreed to make payments to Kuros for each product that achieves certain development and regulatory milestones, including payments of up to $
56.0
 million for the Company’s current oncology programs. As of September 30, 2021, the Company has incurred license fees and milestone payments totaling $
8.3
 million pursuant to the Kuros License Agreement. These payments are comprised of: (i) a license fee of $
1.0
 million which was recognized in research and development expense in 2015, (ii) a $
1.0
 million milestone payment in connection with the dosing of the first patient in our first Phase 1 clinical trial, which was recognized in research and development expense in 2016, (iii) a $
0.3
 million license amendment fee in connection with the signing of the second amendment to the Kuros License Agreement, which was recognized in research and development expense in 2018, (iv) a $
2.0
 million milestone payment in connection with the dosing of the first patient in the Phase 2/3 first-line melanoma trial for vidutolimod, which was recognized in the statement of operations for the three months ended March 31, 2021 and (v) a $
4.0
 
million milestone payment in connection with the dosing in a Phase 2 trial intended to assess the efficacy and safety of vidutolimod in combination with nivolumab for the treatment of patients with
anti-PD-1
refractory melanoma and to potentially support a Biologics License Application (“BLA”) and marketing approval of vidutolimod, which was recognized in the consolidated statements of operations for the three months ended June 30, 2021. Future milestone payments will be due upon filing for regulatory approval in each of the United States, Europe and the Far East and for ultimate approval in each of those regions.
The Company is also required to pay tiered royalties of high single-digit to low teens percentages on annual net sales of Licensed Products that are covered by a licensed patent, as well as royalties at
 
50
%
of the foregoing amounts with respect to sales of Licensed Products that are not covered by a licensed patent, but are covered by
licensed know-how.
The Kuros License Agreement expires upon the expiration of
the last-to-expire royalty
term for the Licensed Products in the territory. Either party has the right to terminate the agreement in full for an uncured material breach of the agreement upon written
60
days’ notice to the other party. The Company has the right to terminate the agreement for any reason upon
90
days’ written notice to Kuros.
Other Contingencies
During the ordinary course of its operations, the Company may become a party to contractual disputes, litigation, and potential claims. The Company does not believe that the resolution of any of these matters, if any, will have a material adverse effect on its financial position or results of operations.
10
 – S
UBSEQUENT
E
VENT
On October 27, 2021, the Company announced that Alan Fuhrman, a member of the board of directors, was appointed interim President and Chief Executive Officer. Mr. Fuhrman succeeds Barry Labinger, who has transitioned from his roles as President, Chief Executive Officer and member of the Company’s board of directors.
 
15

Table of Contents
Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form
10-Q
and our audited financial statements and related notes thereto for the year ended December 31, 2020 included in our 2020 Annual Report on Form
10-K.
This discussion and analysis and other parts of this Quarterly Report on Form
10-Q
contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties and assumptions, such as statements regarding our plans, objectives, expectations, intentions and projections. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth in the “Risk Factors” section of this Quarterly Report on Form
10-Q
and in other filings with the SEC. Please also see the section entitled “Note Regarding Forward-Looking Statements” contained in the Quarterly Report on Form
10-Q.
Overview
We are a clinical-stage biotechnology company focused on developing and commercializing our proprietary technology to harness the power of the immune system to combat cancer. Our product candidate, vidutolimod (formerly
CMP-001),
is a differentiated Toll-like receptor 9 (“TLR9”), agonist delivered as a biologic virus-like particle (“VLP”), utilizing a
CpG-A
oligonucleotide as a key component. When injected into a tumor, vidutolimod is designed to trigger the body’s innate immune system, thereby altering the tumor microenvironment and directing activated anti-tumor T cells to attack both the injected tumor and also tumors throughout the body. In a clinical trial of vidutolimod in combination with a systemic checkpoint inhibitor (“CPI”), in patients whose tumors were unresponsive or no longer responsive to a CPI, we have observed a best objective response rate (“ORR”), of 28% (27/98), including post-progression responders. We are evaluating vidutolimod across multiple tumor types in combination with other immunotherapy agents. Our founder, Art Krieg, first reported the discovery of immunostimulatory cytosine-phosphate-guanine (“CpG”), DNA in 1995, which, combined with the discovery of TLR9, led to the recognition that synthetic
CpG-A
oligonucleotides have the potential to stimulate the TLR9 receptor for therapeutic purposes. Our goal is to establish vidutolimod as a foundational immuno-oncology therapy that engages the innate immune system to fight cancer and improve outcomes for patients with a broad range of solid tumors.
Since our inception, we have devoted substantially all of our efforts and financial resources to the research and development activities related to our technology and our vidutolimod program, and the administrative support for such activities including raising capital, business planning, undertaking
pre-clinical
studies and clinical trials and other support activities. We do not have any products approved for sale and have not generated any revenue from product sales or any other sources and do not expect to generate any revenue for the next several years. We have not yet successfully completed any registrational clinical trials, obtained any regulatory approvals, manufactured a commercial-scale drug, or conducted sales and marketing activities.
We have funded our operations to date primarily with proceeds from the sale of preferred stock, convertible debt and common stock. Since inception and through September 30, 2021, we have received net cash proceeds of $241.7 million from sales of our preferred stock, convertible debt and common stock.
We have incurred recurring losses and had negative operating cash flows since inception and our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of vidutolimod or any other products we acquire or develop. Our net losses were $28.3 million and $36.9 million for the years ended December 31, 2019 and 2020, respectively, and for the nine months ended September 30, 2021, our net loss was $48.1 million. As of September 30, 2021, we had an accumulated deficit of $188.1 million. We expect to continue to incur significant expenses and to increase operating losses for at least the next several years.
We expect our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly as we:
 
   
prepare for, initiate and conduct additional clinical trials and preclinical studies of vidutolimod, including, among others, our current Phase 2 trial in
anti-PD-1
refractory melanoma, our current randomized Phase 2/3 trial in first-line melanoma, our current Phase 2 proof of concept study in head and neck squamous cell carcinoma, and our currently anticipated Phase 2 proof of concept trial with patient cohorts in
anti-PD-1
naïve and
anti-PD-1
refractory cutaneous squamous cell carcinoma and Merkel cell carcinoma;
 
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Table of Contents
   
conduct the necessary
scale-up
activities to support the potential commercialization of vidutolimod, if approved;
 
   
hire additional clinical and scientific personnel to support our ongoing preclinical activities and clinical trials of vidutolimod and any other product candidates we choose to develop;
 
   
develop any future product candidates;
 
   
seek marketing approval for vidutolimod and any other product candidates that successfully complete clinical development;
 
   
acquire or
in-license
additional product candidates;
 
   
maintain compliance with applicable regulatory requirements;
 
   
maintain, expand, protect and enforce our intellectual property portfolio;
 
   
develop and expand our sales, marketing and distribution capabilities for vidutolimod and any other product candidates for which we obtain marketing approval;
 
   
take precautionary measures to help minimize the risk of the coronavirus or any other future pandemic to our employees and encounter continued delays or interruptions related to current development activities, our supply chain, or the third-parties on whom we rely due to the ongoing
COVID-19
pandemic;
 
   
expand our infrastructure and facilities to accommodate the planned growth of our employee base; and
 
   
expand our operational, financial and management systems and increase administrative personnel, including to support our clinical development and commercialization efforts and our operations as a public company.
As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing and distribution or licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization of vidutolimod or any of our future product candidates.
On August 11, 2020, we completed our initial public offering (“IPO”), pursuant to which we issued and sold 5,000,000 shares of our common stock, at a price to the public of $15.00 per share. On September 3, 2020, the underwriters of the IPO exercised a portion of their over-allotment option by purchasing an additional 109,861 shares from us at the IPO price. We received approximately $67.7 million in net proceeds, inclusive of the partial over-allotment exercise and after deducting underwriting discounts and commissions and other offering expenses payable by us. In connection with the IPO, on August 11, 2020, all redeemable convertible preferred stock was converted into shares of common stock.
Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder.
COVID-19
In March 2020 the World Health Organization declared the global novel coronavirus disease 2019
(“COVID-19”)
a pandemic. Although we have experienced some impact of the ongoing
COVID-19
pandemic on our business and operations, including delays in initiation of study sites and enrolling patients, we cannot currently predict the scope and severity of any potential business shutdowns or disruptions or the resulting impact on future clinical trials. Certain of our ongoing clinical trials, which began before 2020, are nearing completion and have not been materially affected by the
COVID-19
pandemic, and the schedules for the near-term manufacture of vidutolimod at our contract manufacturers have also been largely unaffected to date. Our clinical trials that commenced in 2020 have been adversely affected by the
COVID-19
pandemic, resulting in patient enrollment delays through September 30, 2021. We are continuing to monitor the latest developments regarding the
COVID-19
pandemic, including the pace of vaccinations and the emergence of new and more contagious strains of the virus, and any resulting impact on our business, financial condition, results of operations and prospects. Any resulting financial impact cannot be reasonably estimated at this time and may have a material adverse impact on our business, financial condition and results of operations.
 
17

Table of Contents
Components of Our Results of Operations
Revenue
To date, we have not generated any revenue from any sources and do not expect to generate any revenue from the sale of products for the next several years. If our development efforts for vidutolimod or any future product candidates are successful and result in regulatory approval, we may generate revenue in the future from product sales. However, we cannot predict whether, when, or to what extent we will generate revenue from the commercialization and sale of vidutolimod or any future product candidates as we may never succeed in obtaining regulatory approval for any of our product candidates. If we enter into license or collaboration agreements for any of our product candidates or intellectual property, we may generate revenue in the future from payments as a result of such license or collaboration agreements, however there can be no assurance that we will be able to enter into any license or collaboration agreements.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities and the development of our VLP technology and our vidutolimod program and include:
 
   
expenses incurred in connection with the preclinical and clinical development of our technology and vidutolimod, including clinical trials under agreements with contract research organizations (“CROs”), clinical investigators and consultants;
 
   
employee-related expenses, including salaries, benefits and travel and stock-based compensation expense, for employees engaged in research and development functions;
 
   
the cost of contract manufacturing organizations (“CMOs”), that manufacture drug product for use in our preclinical studies and clinical trials and perform analytical testing,
scale-up
and other services in connection with our development activities;
 
   
costs related to compliance with regulatory requirements;
 
   
payments made under third-party licensing agreements, such as the exclusive license agreement we entered into with Cytos Biotechnology LTD (now Kuros Biosciences AG, or “Kuros”) (the “Kuros License Agreement”);
 
   
facilities and other expenses, which include direct and allocated expenses for facilities, insurance and supplies; and
 
   
costs related to compliance with regulatory requirements.
We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers. This process involves reviewing open contracts, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. Any nonrefundable advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are expensed as the related goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered.
Upfront payments under license agreements are expensed upon receipt of the license, and any annual maintenance fees under license agreements are expensed in the period in which they are incurred. Milestone payments under license agreements are accrued and a corresponding expense is recognized in the period in which the milestone is determined to be probable of achievement and the related amount is reasonably estimable.
We do not track our research and development expenses by indication. Our direct external research and development expenses consist primarily of external costs, such as fees paid to CROs, CMOs, research/testing laboratories and outside consultants in connection with our preclinical development, process development, manufacturing and clinical development activities. Our direct research and development expenses also include fees incurred under licensing agreements. We do not allocate these costs to specific indications because they are deployed across the entire the vidutolimod development program and, as such, are not separately classified. We use internal resources primarily to manage our preclinical development, outsourced clinical trials, process development, manufacturing and clinical development activities. These employees work across the entire the vidutolimod development program and, therefore, we do not track their costs by indication.
 
 
18

Table of Contents
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect that our research and development expenses will continue to increase substantially over the next several years as we advance vidutolimod into later stages of clinical development toward potential regulatory approval, advance vidutolimod for additional indications, as well as conduct translational research efforts and other preclinical and clinical development, including submitting regulatory filings for any other product candidates we may acquire or develop. In addition to the expected increase in third-party costs, we expect our personnel costs, including costs associated with stock-based compensation, will also increase substantially in the future. In addition, as we advance vidutolimod into potentially registrational clinical trials and, subject to positive data and regulatory approvals, potentially commercialize vidutolimod, we expect to incur additional expenses from milestone and royalty payments related to the Kuros License Agreement.
We do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization of vidutolimod or any other product candidates we may acquire or develop. This is due to numerous factors, some of which are beyond our control, that are associated with the successful development and commercialization of vidutolimod and any other product candidates we may acquire or develop, including the following:
 
   
the scope, progress, outcome and costs of our preclinical studies and clinical trials for vidutolimod or any other product candidates we may acquire or develop;
 
   
making arrangements with third-party manufacturers for both clinical and commercial supplies of vidutolimod or any other product candidates;
 
   
successful patient enrollment in, and the initiation and completion of clinical trials;
 
   
raising additional funds necessary to complete clinical development and the potential commercialization, of vidutolimod or any other product candidates;
 
   
receipt, timing and related terms of marketing approvals from applicable regulatory authorities;
 
   
the extent of any required post-marketing approval commitments to applicable regulatory authorities;
 
   
developing and implementing marketing and reimbursement strategies;
 
   
establishing sales, marketing and distribution capabilities and launching commercial sales of vidutolimod or any other products, if approved, whether alone or in collaboration with others;
 
   
acceptance of vidutolimod or any other products, if approved, by patients, the medical community and third-party payors;
 
   
effectively competing with other therapies and/or changes in standard of care;
 
   
obtaining and maintaining third-party coverage and adequate reimbursement;
 
   
obtaining and maintaining patent, trade secret and other intellectual property protection and regulatory exclusivity for our product candidates;
 
   
protecting and enforcing our rights in our intellectual property portfolio;
 
   
significant and changing government regulations; and
 
   
maintaining an acceptable tolerability profile of the products following approval, if any.
A change in the outcome of any of these variables with respect to the development of vidutolimod or any future product candidates would significantly change the costs and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any product candidate.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and benefits, stock-based compensation and travel expense for personnel in executive, business development, finance, human resources, legal and support functions. General and administrative expenses also include direct and allocated facility-related costs as well as insurance costs and professional fees for legal, patent, consulting, accounting and audit services, investor and public relations services and outsourced information technology services.
 
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We anticipate that our general and administrative expenses will continue to increase in the future as we increase our headcount to support the continued advancement of vidutolimod toward potential commercialization and the future development of any other product candidates that we may pursue. We also anticipate that we will continue to experience an increase in accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company. Additionally, if we believe a regulatory approval of vidutolimod or any other product candidate appears likely, we anticipate an increase in payroll and other employee-related expenses as a result of our preparation for commercial operations to market and sell that product candidate.
Interest Income
Interest income consists of interest earned on our cash, cash equivalent and
available-for-sale
investments balances. We expect that our interest income will fluctuate based on prevailing interest rates, our ability to raise additional funds as well as the amount of expenditures for our clinical development of vidutolimod and ongoing business operations.
Income Taxes
There were no provisions for income taxes for the three and nine months ended September 30, 2021 and 2020 because we have historically incurred operating losses and we maintain a full valuation allowance against our net deferred tax assets.
Results of operations
Comparison of the three months (“Q3”) and nine months (“Q3 YTD”) ended September 30, 2021 and 2020
The following table summarizes our results of operations for the three and nine months ended September 30, 2021 and 2020:
 
    
Three months ended
          
Nine months ended
       
    
September 30,
   
Increase
    
September 30,
   
Increase
 
    
2021
   
2020
   
(Decrease)
    
2021
   
2020
   
(Decrease)
 
                
(unaudited,
 in
 thousands)
             
Operating expenses:
             
Research and development
   $ 11,375     $ 6,673     $ 4,702      $ 36,618     $ 19,462     $ 17,156  
General and administrative
     3,605       3,160       445        11,498       6,465       5,033  
  
 
 
   
 
 
   
 
 
    
 
 
   
 
 
   
 
 
 
Total operating expenses
     14,980       9,833       5,147        48,116       25,927       22,189  
  
 
 
   
 
 
   
 
 
    
 
 
   
 
 
   
 
 
 
Loss from operations
     (14,980     (9,833     5,147        (48,116     (25,927     22,189  
Total other income (expense), net
     14       4       10        52       (51     103  
  
 
 
   
 
 
   
 
 
    
 
 
   
 
 
   
 
 
 
Net loss
  
$
(14,966
 
$
(9,829
 
$
5,137
 
  
$
(48,064
 
$
(25,978
 
$
22,086
 
  
 
 
   
 
 
   
 
 
    
 
 
   
 
 
   
 
 
 
Research and Development Expenses
Research and development expenses were $11.4 million in Q3 2021 compared to $6.7 million in the same quarter of 2020. The increase of approximately $4.7 million was primarily related to higher clinical costs of $3.4 million associated ongoing trials, higher contract manufacturing of $0.8 million related to producing vidutolimod, higher personnel and consulting costs of $0.3 million as well as stock-based compensation expense of $0.1 million associated with increased staffing.
Research and development expenses were $36.6 million in Q3 YTD 2021 compared to $19.5 million for the same period of 2020, an increase of $17.2 million. The increase was due to combined milestones payments of $6.0 million to Kuros which became payable upon the Company initiating dosing of patients in trials which triggered Phase 2 and Phase 3 milestone payments. Also contributing to the increase was increased clinical trials costs of $5.9 million and outsourced contract manufacturing costs of $3.2 million related to greater activity in our ongoing clinical trials, as well as additional personnel and consulting costs of $1.0 million and stock-based compensation costs of $1.1 million associated with increased staffing.
 
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General and Administrative Expenses
General and administrative expenses were $3.6 million in Q3 2021 compared to $3.2 million in the same quarter of 2020. The increase of $0.4 million was primarily comprised of an increase in directors and officers insurance of $0.3 million associated with being a public company for all of Q3 2021 compared to only a portion of Q3 2020 and an increase in stock-based compensation expenses of $0.5 million related primarily to stock options granted after our IPO. These increases were partially offset by
one-time
consulting costs of $0.4 million incurred in Q3 2020 associated with the IPO and a reduction in personnel recruiting costs of $0.1 million for hires in 2020.
General and administrative expenses were $11.5 million in Q3 YTD 2021 compared $6.5 million in the same period of 2020, an increase of $5.0 million. The increase is primarily due to expanding our infrastructure to support being a publicly traded company and included increases in directors and officers insurance of $2.0 million, stock-based compensation of $2.0 million, personnel and consulting expense of $0.2 million and professional fees for legal and accounting of $0.3 million.
Other income (expense), net
Other income (expense), net in the three and nine month periods of 2021 included interest income, which for Q3 YTD 2021 was partially offset by losses on the sale of
available-for-sale
investments.
Other income (expense), net in the three and nine month periods of 2020 included interest income, which for Q3 YTD 2020 was more than offset by the change in the fair value change of the convertible loan notes we issued to certain investors in April 2020 (the “Convertible Loan Notes”) by $0.1 million, primarily related to the accrued interest earned on the Convertible Loan Notes prior to conversion upon the sale of Series C preferred stock in June 2020, slightly offset by interest income.
Liquidity and capital resources
Overview
We have funded our operations to date primarily with proceeds from the sale of preferred stock, convertible debt and common stock. Since inception and through September 30, 2021, we have received net cash proceeds of $241.7 million from sales of our preferred stock, convertible debt and common stock. In April 2020, we received $10.0 million from the issuance of Convertible Loan Notes and in June 2020, we received $74.6 million in additional net proceeds from the sale of Series C preferred stock. The Convertible Loan Notes were converted into shares of Series C preferred stock in June 2020.
As noted above, in August 2020, we completed an IPO in which we received net proceeds of approximately $67.7 million, inclusive of the partial exercise of the over-allotment exercise and after deducting underwriting discounts and commissions and other offering expenses payable by us. In connection with the IPO, all outstanding shares of our redeemable preferred stock were converted to common stock.
We have not yet commercialized any of our product candidates and we do not expect to generate revenue from sales of any product candidates for several years, if at all. As of September 30, 2021, we had cash, cash equivalents and
available-for-sale
investments of $80.8 million.
We believe that the net proceeds from the IPO, together with our existing cash, cash equivalents and
available-for-sale
investments as of September 30, 2021, will enable us to fund our operating expenses and capital expenditure requirements through the end of 2022. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. Our future viability beyond that point is dependent on our ability to raise additional capital to finance our operations.
On September 7, 2021, we filed a shelf registration statement on Form
S-3
(File
No. 333-259353)
with the SEC, which was declared effective by the SEC on September 15, 2021 (the “Shelf Registration Statement”). Under the Shelf Registration Statement, we may offer and sell, from time to time, various securities in an aggregate amount of up to $150 million. In connection with filing the Registration Statement, we entered into an Open Market Sale Agreement
SM
(the “2021 Sales Agreement”), with Jefferies LLC (“Jefferies”), pursuant to which we may offer and sell, from time to time, shares of our common stock having an aggregate offering of up to $50.0 million through Jefferies as our sales agent. We will pay the sales agent a commission of 3% of the gross proceeds of any sales made pursuant to the 2021 Sales Agreement. As of September 30, 2021, no shares of common stock have been sold and no net proceeds have been received by the Company pursuant to the 2021 Sales Agreement.
 
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Cash Flows
The following table summarizes our sources and uses of cash for each of the periods presented:
 
    
Nine months ended September 30,
    
Increase
 
    
2021
    
2020
    
(Decrease)
 
        
    
( in thousands)
 
Net cash used in operating activities
   $ (43,718    $ (27,418    $ 16,300  
Net cash provided by investing activities
     54,337        —          54,337  
Net cash provided by (used in) financing activities
     (180      160,573        (160,753
  
 
 
    
 
 
    
 
 
 
Net increase in cash, cash equivalents and restricted cash
     10,439      $ 133,155      $ (122,716
  
 
 
    
 
 
    
 
 
 
Operating Activities
During Q3 YTD 2021, net cash use