GYRE THERAPEUTICS, INC. - Quarter Report: 2020 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

☐	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: 000-51173

Catalyst Biosciences, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware

56-2020050

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

611 Gateway Blvd., Suite 710

South San Francisco, California

94080

(Address of Principal Executive Offices)

(Zip Code)

(650) 871-0761

(Registrant’s Telephone Number, Including Area Code)

Securities registered or to be 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		CBIO		NASDAQ

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, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 29, 2020, the number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 22,097,820.

CATALYST BIOSCIENCES, INC.

TABLE OF CONTENTS

		Page No.

PART I. FINANCIAL INFORMATION			3

Item 1.	Financial Statements:		3

	Condensed Consolidated Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019		3

	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019 (unaudited)		4

	Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2020 and 2019 (unaudited)		5

	Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2020 and 2019 (unaudited)		6

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 (unaudited)		7

	Notes to the Unaudited Interim Condensed Consolidated Financial Statements		8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		26

Item 4.	Controls and Procedures		27

PART II. OTHER INFORMATION			28

Item 1.	Legal Proceedings		28

Item 1A.	Risk Factors		28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		29

Item 3.	Defaults Upon Senior Securities		29

Item 4.	Mine Safety Disclosures		29

Item 5.	Other Information		29

Item 6.	Exhibits		29

Exhibit Index			30

Signatures		31

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Catalyst Biosciences, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

	September 30, 2020			December 31, 2019
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	24,923		$	15,369
Short-term investments		77,959			61,496
Accounts receivable		1,555			15,000
Prepaid and other current assets		3,535			4,201
Total current assets		107,972			96,066
Long-term investments		1,171			—
Other assets, noncurrent		698			257
Right-of-use assets		1,524			1,927
Property and equipment, net		439			304
Total assets	$	111,804		$	98,554
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	4,244		$	4,279
Accrued compensation		2,543			2,106
Deferred revenue		764			15,000
Other accrued liabilities		8,750			7,031
Operating lease liability		519			483
Total current liabilities		16,820			28,899
Operating lease liability, noncurrent		925			1,319
Total liabilities		17,745			30,218
Stockholders’ equity:
Preferred stock, $0.001 par value, 5,000,000 shares authorized; zero shares issued and outstanding		—			—
Common stock, $0.001 par value, 100,000,000 shares authorized; 22,082,924 and 12,040,835 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively		22			12
Additional paid-in capital		389,883			326,810
Accumulated other comprehensive income		8			34
Accumulated deficit		(295,854	)		(258,520	)
Total stockholders’ equity		94,059			68,336
Total liabilities and stockholders’ equity	$	111,804		$	98,554

The accompanying notes are an integral part of these condensed consolidated financial statements.

Catalyst Biosciences, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except share and per share amounts)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
License	$	32		$	—		$	15,100		$	—
Collaboration		861			—			3,817			—
License and collaboration revenue		893			—			18,917			—

Operating expenses:
Cost of license		32			—			3,102			—
Cost of collaboration		879			—			4,030			—
Research and development		12,249			9,927			38,419			33,066
General and administrative		3,833			3,268			11,895			10,224
Total operating expenses		16,993			13,195			57,446			43,290
Loss from operations		(16,100	)		(13,195	)		(38,529	)		(43,290	)
Interest and other income, net		67			489			1,195			1,722
Net loss	$	(16,033	)	$	(12,706	)	$	(37,334	)	$	(41,568	)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.73	)	$	(1.06	)	$	(2.05	)	$	(3.47	)
Shares used to compute net loss per share attributable to common stockholders, basic and diluted		22,072,243			12,022,620			18,199,575			11,992,240

The accompanying notes are an integral part of these condensed consolidated financial statements.

Catalyst Biosciences, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Net loss	$	(16,033	)	$	(12,706	)	$	(37,334	)	$	(41,568	)
Other comprehensive (loss) income:
Unrealized (loss) gain on available-for-sale debt securities		(33	)		(26	)		(26	)		35
Total comprehensive loss	$	(16,066	)	$	(12,732	)	$	(37,360	)	$	(41,533	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Catalyst Biosciences, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share amounts)

(Unaudited)

	Convertible Preferred Stock				Common Stock				Additional Paid-In		Accumulated Other Comprehensive			Accumulated			Total Stockholders'
	Shares		Amount		Shares		Amount		Capital		Income (Loss)			Deficit			Equity
Balance at December 31, 2019		—	$	—		12,040,835	$	12	$	326,810	$	34		$	(258,520	)	$	68,336
Stock-based compensation expense		—		—		7,817		—		805		—			—			805
Issuance of common stock from stock grants and option exercises		—		—		62,969		—		339		—			—			339
Issuance of common stock for public offering, net of issuance costs of $2,514		—		—		5,307,692		5		31,981		—			—			31,986
Unrealized gain on available-for-sale debt securities		—		—		—		—		—		106						106
Net loss		—		—		—		—		—		—			(4,053	)		(4,053	)
Balance at March 31, 2020		—		—		17,419,313		17		359,935		140			(262,573	)		97,519
Stock-based compensation expense		—		—		16,048		—		834		—			—			834
Issuance of common stock for public offering, net of issuance costs of $2,045		—		—		4,615,384		5		27,950		—			—			27,955
Unrealized loss on available-for-sale debt securities		—		—		—		—		—		(99	)		—			(99	)
Net loss		—		—		—		—		—		—			(17,248	)		(17,248	)
Balance at June 30, 2020		—		—		22,050,745		22		388,719		41			(279,821	)		108,961
Stock-based compensation expense		—		—		12,295		—		1,068		—			—			1,068
Issuance of common stock from stock grants		—		—		19,884		—		96		—			—			96
Unrealized loss on available-for-sale debt securities		—		—		—		—		—		(33	)		—			(33	)
Net loss		—		—		—		—		—		—			(16,033	)		(16,033	)
Balance at September 30, 2020		—	$	—		22,082,924	$	22	$	389,883	$	8		$	(295,854	)	$	94,059

	Convertible Preferred Stock				Common Stock				Additional Paid-In		Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Capital		Income (Loss)			Deficit			Equity
Balance at December 31, 2018		—	$	—		11,954,528	$	12	$	323,279	$	(4	)	$	(203,342	)	$	119,945
Stock-based compensation expense		—		—		—		—		829		—			—			829
Issuance of common stock from stock grants and option exercises		—		—		19,576		—		106		—			—			106
Unrealized gain on available-for-sale debt securities		—		—		—		—		—		17			—			17
Net loss		—		—		—		—		—		—			(15,082	)		(15,082	)
Balance at March 31, 2019		—		—		11,974,104		12		324,214		13			(218,424	)		105,815
Stock-based compensation expense		—		—		5,999		—		903		—			—			903
Issuance of common stock from option exercises		—		—		28,425		—		129		—			—			129
Unrealized gain on available-for-sale debt securities		—		—		—		—		—		44			—			44
Net loss		—		—		—		—		—		—			(13,780	)		(13,780	)
Balance at June 30, 2019		—		—		12,008,528		12		325,246		57			(232,204	)		93,111
Stock-based compensation expense		—		—		7,393		—		801		—			—			801
Issuance of common stock from stock grants and option exercises		—		—		14,071		—		92		—			—			92
Unrealized loss on available-for-sale debt securities		—		—		—		—		—		(26	)		—			(26	)
Net loss		—		—		—		—		—		—			(12,706	)		(12,706	)
Balance at September 30, 2019		—	$	—		12,029,992	$	12	$	326,139	$	31		$	(244,910	)	$	81,272

The accompanying notes are an integral part of these condensed consolidated financial statements.

Catalyst Biosciences, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	2020			2019
Operating Activities
Net loss	$	(37,334	)	$	(41,568	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		2,707			2,533
Depreciation and amortization		93			112
Changes in operating assets and liabilities:
Accounts receivable		13,445			—
Prepaid and other assets		225			(477	)
Accounts payable		(35	)		875
Accrued compensation and other accrued liabilities		2,156			2,944
Operating lease liability and right-of-use asset		45			57
Deferred revenue		(14,236	)		—
Net cash flows used in operating activities		(32,934	)		(35,524	)

Investing Activities
Proceeds from maturities of short-term investments		74,082			133,967
Purchases of short-term and long-term investments		(91,742	)		(106,950	)
Purchases of property and equipment		(228	)		(65	)
Net cash flows (used in) provided by investing activities		(17,888	)		26,952

Financing Activities
Issuance of common stock for public offering, net of issuance costs		59,941			—
Issuance of common stock from stock grants and option exercises		435			327
Net cash flow provided by financing activities		60,376			327
Net increase (decrease) in cash, cash equivalents and restricted cash		9,554			(8,245	)
Cash, cash equivalents and restricted cash at beginning of the period		15,369			31,263
Cash, cash equivalents and restricted cash at end of the period^(a)	$	24,923		$	23,018

Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Right-of-use asset and operating lease liability recorded upon the adoption of ASC 842, net	$	—		$	2,052

The accompanying notes are an integral part of these condensed consolidated financial statements.

Catalyst Biosciences, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1.	Nature of Operations and Liquidity

Catalyst Biosciences, Inc. and its subsidiary (the “Company” or “Catalyst”) is a fully integrated research and clinical development biopharmaceutical company with expertise in protease engineering, discovery, translational research, clinical development, and manufacturing. The Company is focused on advancing its protease product candidates in the fields of hemostasis and complement regulation. The Company is located in South San Francisco, California and operates in one segment.

The Company had a net loss of $37.3 million for the nine months ended September 30, 2020 and an accumulated deficit of $295.9 million as of September 30, 2020. The Company expects to continue to incur losses for the next several years. As of September 30, 2020, the Company had $104.1 million of cash, cash equivalents and investments. Its primary uses of cash are to fund operating expenses, including research and development expenditures and general and administrative expenditures. Based on the current status of its research and development plans, the Company believes that its existing cash, cash equivalents and investments as of September 30, 2020 will be sufficient to fund its cash requirements for at least the next 12 months from the date of the filing of this quarterly report. If, at any time, the Company’s prospects for financing its research and development programs decline, the Company may decide to reduce research and development expenses by delaying, discontinuing or reducing its funding of one or more of its research or development programs. Alternatively, the Company might raise funds through strategic collaborations, public or private financings or other arrangements. Such funding, if needed, may not be available on favorable terms, or at all.

2.	Summary of Significant Accounting Policies

Basis of Presentation

The Company’s condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and following the requirements of the Securities and Exchange Commission (the “SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. These financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the Company’s financial information. These interim results and cash flows for any interim period are not necessarily indicative of the results to be expected for the full year.

The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the consolidated financial statements filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (“Annual Report”).

Accounting Pronouncements Recently Adopted

The Company’s significant accounting policies are included in “Part II - Item 8 - Financial Statements and Supplementary Data - Note 3 – Summary of Significant Accounting Policies” in the Company’s Annual Report. In November 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606 (“ASU 2018-18”). The amended guidance precludes presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. The new guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU 2018-18 as of January 1, 2020. The adoption of ASU 2018-18 did not have a material impact on the Company’s condensed consolidated financial statements.

New Accounting Pronouncements Recently Issued But Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The main objective of ASU 2016-13 is to provide financial statement users with more decision-useful information about an entity's expected credit losses on financial instruments and other commitments to extend credit at each reporting date. To achieve this objective, the amendments in this update replace the incurred loss impairment methodology currently used today with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to develop credit loss estimates. Subsequent to issuing ASU 2016-13, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, for the purpose of clarifying certain aspects of ASU 2016-

Catalyst Biosciences, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

13. In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief, to provide entities with more flexibility in applying the fair value option on adoption of the credit impairment standard. ASU 2018-19 and ASU 2019-05 have the same effective date and transition requirements as ASU 2016-13. ASU 2016-13 will be effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, using a modified retrospective approach. Early adoption is permitted. The Company plans to adopt ASU 2016-13 and related updates as of January 1, 2023. The Company will assess the impact of adoption of this standard on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in ASU 2019-12 are intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for the Company beginning January 1, 2021 with early adoption permitted. The Company is evaluating the impact of adopting this new accounting guidance on its consolidated financial statements.

Cost of License and Collaboration Revenue

Cost of license revenue includes sublicense fees paid or payable to Mosaic Biosciences, Inc. (“Mosaic”), incurred in the period, under the terms of the Mosaic collaboration agreement, and fees for patent development and protection paid or payable to other third-party vendors corresponding to the recognition of license revenue from the Biogen Agreement. See Notes 7 and 11. Cost of license revenue does not include any allocated overhead costs.

Cost of collaboration revenue includes fees for research and development services paid or payable to Mosaic and other third-party vendors and personnel cost, incurred in the period pertaining to the Biogen Agreement. See Notes 7 and 11. Cost of collaboration revenue does not include any allocated overhead costs.

3.	Fair Value Measurements

For a description of the fair value hierarchy and the Company’s fair value methodology, see “Part II - Item 8 - Financial Statements and Supplementary Data - Note 2 – Summary of Significant Accounting Policies” in the Company’s Annual Report. There were no significant changes in these methodologies during the nine months ended September 30, 2020.

There were no transfers in or out of Level 1 or 2 during the periods presented. The following tables present the fair value hierarchy for assets and liabilities measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019 (in thousands):

	September 30, 2020
	Level 1		Level 2		Level 3		Total
Financial assets:
Money market funds⁽¹⁾	$	24,923	$	—	$	—	$	24,923
U.S. government agency securities⁽²⁾		55,042		—		—		55,042
Federal agency securities⁽²⁾		—		24,088		—		24,088
Total financial assets	$	79,965	$	24,088	$	—	$	104,053

(1)	Included in cash and cash equivalents on the accompanying condensed consolidated balance sheets.

(2)

Included in short-term investments on the accompanying condensed consolidated balance sheets and classified as available-for-sale debt securities. $1.2 million of Federal agency securities are included in long-term investments on the accompanying condensed consolidated balance sheets due to the maturity being more than 12 months.

	December 31, 2019
	Level 1		Level 2		Level 3		Total
Financial assets:
Money market funds⁽¹⁾	$	15,369	$	—	$	—	$	15,369
U.S. government agency securities⁽²⁾		51,490		—		—		51,490
Federal agency securities⁽²⁾		—		10,006		—		10,006
Total financial assets	$	66,859	$	10,006	$	—	$	76,865

(1)	Included in cash and cash equivalents on the accompanying condensed consolidated balance sheets.

Catalyst Biosciences, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(2)	Included in short-term investments on the accompanying condensed consolidated balance sheets and classified as available-for-sale debt securities.

4.	Financial Instruments

Cash equivalents and investments (debt securities) which are classified as available-for-sale debt securities, consisted of the following (in thousands):

September 30, 2020	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Money market funds (cash equivalents)	$	24,923	$	—	$	—	$	24,923
U.S. government agency securities		55,038		4		—		55,042
Federal agency securities		24,084		4		—		24,088
Total financial assets	$	104,045	$	8	$	—	$	104,053
Classified as:
Cash and cash equivalents							$	24,923
Short-term investments								77,959
Long-term investments								1,171
							$	104,053

December 31, 2019	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Money market funds (cash equivalents)	$	15,369	$	—	$	—	$	15,369
U.S. government agency securities		51,467		23		—		51,490
Federal agency securities		9,995		11		—		10,006
Total financial assets	$	76,831	$	34	$	—	$	76,865
Classified as:
Cash and cash equivalents							$	15,369
Short-term investments								61,496
							$	76,865

There have been no material realized gains or losses on available-for-sale debt securities for the periods presented. As of September 30, 2020, the remaining contractual maturities of $78.0 million of available-for-sale debt securities was less than one year and $1.2 million of available-for-sale debt securities were less than two years.

The carrying amounts of cash, accounts receivable, accounts payable, and accrued liabilities approximate their fair values due to the short-term maturity of these instruments.

Lease

The Company leases office space for its corporate headquarters, located in South San Francisco, CA. The lease term is through April 30, 2023 and there are no stated renewal options. Operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. In calculating the present value of the lease payments, the Company has elected to utilize its incremental borrowing rate based on the original lease term and not the remaining lease term. The lease includes non-lease components (e.g., common area maintenance) that are paid separately from rent based on actual costs incurred and therefore were not included in the right-of-use asset and lease liability but are reflected as an expense in the period incurred.

On July 17, 2020, the Company entered into an amendment to the existing lease agreement to lease additional office space for an aggregated undiscounted future payment of $0.4 million. This amendment will be treated as a separate lease with a lease term of 2.6 years and is expected to commence during the fourth quarter of 2020.

Catalyst Biosciences, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

For the three and nine months ended September 30, 2020, the Company’s operating lease expense was $0.2 million and $0.6 million, respectively. For the three and nine months ended September 30, 2019, the Company’s operating lease expense was $0.2 million and $0.5 million, respectively. The present value assumptions used in calculating the present value of the lease payments were as follows:

	September 30,			December 31,
	2020			2019
Weighted-average remaining lease term	2.58 years			3.33 years
Weighted-average discount rate		6.0	%		6.0	%

The maturity of the Company’s operating lease liabilities as of September 30, 2020 were as follows (in thousands):

Year	Undiscounted lease payments
Remaining in 2020	$	145
2021		596
2022		614
2023		209
Total undiscounted lease payments	$	1,564
Less imputed interest		(120	)
Total operating lease liability	$	1,444

Supplemental cash flow information related to operating leases was as follows (in thousands):

Nine Months Ended September 30,

2020

2019

Cash paid for leases that were

included in operating cash outflows

433

420

6.	Stock Based Compensation

2018 Omnibus Incentive Plan

In June 2018, stockholders of the Company approved the Company’s 2018 Omnibus Incentive Plan (the “2018 Plan”). The 2018 Plan had previously been approved by the Company’s Board of Directors (the “Board”) and the Compensation Committee of the Board, subject to stockholder approval. The 2018 Plan became effective on June 13, 2018. On June 11, 2020, the stockholders of the Company approved an amendment previously approved by the Board to increase the number of shares of common stock reserved for issuance under the 2018 Plan by 1,300,000 to a total of 2,800,000 shares. The amendment became effective immediately upon stockholder approval.

The following table summarizes stock option activity under the Company’s equity incentive plans and related information:

	Number of Shares Underlying Outstanding Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)
Outstanding — December 31, 2019		1,577,541		$	10.85		8.15
Options granted		971,250		$	6.25
Options exercised		(44,605	)	$	5.04
Options forfeited		(223,708	)	$	9.61
Options expired		(16,337	)	$	49.67
Outstanding — September 30, 2020		2,264,141		$	8.84		8.09
Exercisable — September 30, 2020		1,032,133		$	10.99

Catalyst Biosciences, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Valuation Assumptions

The Company estimated the fair value of stock options granted using the Black-Scholes option-pricing formula and a single option award approach. Due to its limited history as a public company and limited number of sales of its common stock, the Company estimated its volatility considering a number of factors including the use of the volatility of comparable public companies. The expected term of options granted under the Plan, all of which qualify as “plain vanilla” per SEC Staff Accounting Bulletin 107, is determined based on the simplified method due to the Company’s limited operating history. The risk-free rate is based on the yield of a U.S. Treasury security with a term consistent with the option. This fair value is being amortized ratably over the requisite service periods of the awards, which is generally the vesting period.

The fair value of employee stock options was estimated using the following weighted-average assumptions:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Employee Stock Options:
Risk-free interest rate	0.39%		1.65%		0.96%		2.39%
Expected term (in years)		6.06		5.90		5.78		5.98
Dividend yield	—		—		—		—
Volatility	115.62%		109.47%		112.87%		89.76%
Weighted-average fair value of stock options granted	$	4.61	$	5.60	$	5.17	$	5.93

Total stock-based compensation recognized was as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Research and development	$	493	$	284	$	1,151	$	805
General and administrative⁽¹⁾		575		517		1,556		1,728
Total stock-based compensation	$	1,068	$	801	$	2,707	$	2,533

(1)	Included in general and administrative stock-based compensation for the three and nine months ended September 30, 2020 is expense related to 12,295 shares and 36,160 shares of common stock, respectively, issued to certain board members in lieu of their cash compensation.

As of September 30, 2020, 1,373,834 shares of common stock were available for future grant and 2,264,141 options to purchase shares of common stock were outstanding. As of September 30, 2020, the Company had unrecognized employee stock-based compensation expense of $6.7 million, related to unvested stock awards, which is expected to be recognized over an estimated weighted-average period of 2.67 years.

Catalyst Biosciences, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

7.	Collaborations

Pfizer

Pursuant to the termination agreement entered into on December 8, 2016, in connection with the termination of a prior license and development agreement, Pfizer granted the Company an exclusive license to Pfizer’s proprietary rights for manufacturing materials and processes that apply to Factor VIIa variants, CB 813a and marzeptacog alfa (activated) - MarzAA. Pfizer also transferred to the Company the IND application and documentation related to the development, manufacturing and testing of the Factor VIIa products as well as the orphan drug designation. The Company agreed to make contingent cash payments to Pfizer in an aggregate amount up to $17.5 million, payable upon the achievement of certain clinical, regulatory and commercial milestones. Following commercialization of any covered product, Pfizer will also receive a single-digit royalty on net product sales on a country-by-country basis for a predefined royalty term. In February 2018, the Company paid Pfizer a $1.0 million milestone payment based on the dosing of the first patient in its Phase 2 study; the amount was recorded as a research and development expense. No payments were made to Pfizer in the nine months ended September 30, 2020.

ISU Abxis

In December 2018, the Company entered into an amended and restated license agreement with ISU Abxis (the “A&R ISU Abxis Agreement”), which amended and restated its previous license and collaboration agreement with ISU Abxis previously entered into in September 2013, as subsequently amended in October 2014 and December 2016 (the “Original ISU Abxis Agreement”). Under the A&R ISU Abxis Agreement, ISU Abxis will receive commercialization rights in South Korea to the Company’s engineered Factor IX dalcinonacog alfa - DalcA and the Company will receive clinical development and commercialization rights in the rest of world (excluding South Korea) and manufacturing development and manufacturing rights worldwide (including South Korea). The A&R ISU Abxis Agreement eliminates the profit-sharing arrangement in the Original ISU Abxis Agreement and provides for a low single-digit royalty payment to ISU Abxis, on a country-by-country basis, for net product sales of DalcA by the Company or its affiliates in each country other than South Korea. Pursuant to the A&R ISU Abxis Agreement, the Company will also pay up to an aggregate of $19.5 million in milestone payments to ISU Abxis, including $2.5 million in regulatory and development milestone payments and up to $17.0 million in commercial milestone payments, if the applicable milestones are met. As of September 30, 2020, no milestones have been met.

Biogen

On December 18, 2019, the Company and Biogen International GmbH (“Biogen”) entered into a License and Collaboration Agreement (the “Biogen Agreement”), under which the Company granted Biogen a worldwide, royalty-bearing, exclusive, with the right to sublicense, license (“Exclusive License”) to develop and commercialize CB 2782-PEG and other anti-C3 proteases for potential treatment of dry age-related macular degeneration (“AMD”) and other disorders. Pursuant to the Biogen Agreement, the Company will perform certain pre-clinical and manufacturing activities (“Research Services”), and Biogen will be solely responsible for funding the pre-clinical and manufacturing activities and performing IND-enabling activities, worldwide clinical development, and commercialization. The Company will provide the Research Services over a term of thirty months with Biogen having the option to extend the term for two additional twelve-month periods.

Under the terms of the Biogen Agreement, the Company received an up-front payment for the transfer of the Exclusive License (inclusive of certain know-how) of $15.0 million in January 2020. The Company is eligible to receive development milestones and sales milestones of up to $340.0 million. In addition, the Company is eligible to receive royalties in the range of single-digit to low double-digit percentage rates of annual net sales on a product-by-product and country-by-country basis. The Company will also receive reimbursements for costs associated with the performance of the Research Services.

The Company determined that the performance obligations under the Biogen Agreement were the Exclusive License and the Research Services. For the Exclusive License, the Company used the residual approach in determining the standalone selling price, or SSP, which includes the upfront payments, milestones and royalties. For the Research Services, the Company used the historical pricing approach for determining the SSP, which includes the reimbursement of personnel and out-of-pocket costs.

The Biogen Agreement will continue on a product-by-product and country-by-country basis until the tenth anniversary of the first commercial sale of the first product in a country, unless terminated earlier by either party as specified under the agreement.

For the nine months ended September 30, 2020, the Company recognized the $15.0 million in license revenue upon the transfer of the Exclusive License and the related know-how, and $0.1 million in license revenue for reimbursable out-of-pocket costs incurred.

For the three and nine months ended September 30, 2020, the Company recognized $0.9 million and $3.8 million, respectively, in collaboration revenue for reimbursable out-of-pocket and personnel costs incurred related to research services.

Catalyst Biosciences, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

8.	Net Loss per Share Attributable to Common Stockholders

The following table sets forth the computation of the basic and diluted net loss per common share as follows (in thousands, except share and per share data):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Net loss attributable to common stockholders	$	(16,033	)	$	(12,706	)	$	(37,334	)	$	(41,568	)
Weighted-average number of shares used in computing net loss per share, basic and diluted		22,072,243			12,022,620			18,199,575			11,992,240
Net loss available for common stockholders per share, basic and diluted	$	(0.73	)	$	(1.06	)	$	(2.05	)	$	(3.47	)

Since the Company was in a loss position for all periods presented, diluted net loss per share is the same as basic net loss per share for all periods as the inclusion of all potential common shares outstanding would have been anti-dilutive. Potentially dilutive securities on an as-if converted basis that were not included in the diluted per share calculations because they would be anti-dilutive were as follows:

	September 30,
	2020		2019
Options to purchase common stock		2,264,141		1,569,838
Common stock warrants		722		7,857
Total		2,264,863		1,577,695

9.	Stockholders’ Equity

In February 2020, the Company completed an underwritten public offering of 5,307,692 shares of its common stock (including 692,307 shares sold pursuant to the exercise of the underwriters’ overallotment option) at a price of $6.50 per share. The net proceeds to the Company, after deducting $2.5 million in underwriting discounts and commissions and offering expenses payable by the Company, were approximately $32.0 million.

In June 2020, the Company completed an underwritten public offering of 4,615,384 shares of its common stock at a price of $6.50 per share. The net proceeds to the Company, after deducting $2.0 million in underwriting discounts and commissions and offering expenses payable by the Company, were approximately $28.0 million.

10.	Commitments and Contingencies

Manufacturing Agreements

On May 20, 2016, the Company signed a development and manufacturing services agreement with AGC Biologics, Inc. (“AGC”), formerly known as CMC ICOS Biologics, Inc., pursuant to which AGC will conduct manufacturing development of agreed upon product candidates. The Company currently has firm work orders with AGC to manufacture MarzAA and DalcA to support its clinical trials totaling $21.6 million and the payment obligations remaining as of September 30, 2020 were $13.4 million.

On October 9, 2019, the Company and Catalent Indiana, LLC (“Catalent”) signed a clinical supply services agreement, effective October 4, 2019, pursuant to which Catalent will conduct drug product development of agreed upon product candidates. The Company had firm work orders with Catalent to manufacture DalcA to support its clinical trial totaling $0.5 million and all outstanding amounts were paid during the nine months ended September 30, 2020.

The COVID-19 pandemic may disrupt the operations of the Company’s manufacturers or disrupt supply logistics, which could impact the timing of deliveries and potentially increase expenses under our agreements. All required MarzAA supplies for the MAA-304 and MAA-202 studies have been manufactured.

Catalyst Biosciences, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

11.	Related Parties

On October 24, 2017, the Company announced a strategic research collaboration with Mosaic to develop intravitreal anti-complement factor C3 products for the treatment of dry AMD and other retinal diseases. Dr. Usman, the Company’s Chief Executive Officer and a member of the Company’s board of directors, and Mr. Lawlor, a member of the Company’s board of directors, were also members of the board of directors of Mosaic. On December 21, 2018, the Company amended its collaboration agreement with Mosaic to, among other things, include certain additional products. Pursuant to the Mosaic collaboration agreement, as amended, the Company and Mosaic co-funded certain research. Expenses related to the collaboration were $1.5 million and $0.8 million for the nine months ended September 30, 2020 and 2019, respectively. Expenses related to the collaboration were $0.2 million and $0.3 million for the three months ended September 30, 2020 and 2019, respectively. The amount incurred in 2020 is fully reimbursable under the Biogen Agreement, see Note 7.

On December 18, 2019, the Company entered into the second amendment to the Mosaic collaboration agreement following completion of the co-funded research. Pursuant to the second amendment, any future services provided by Mosaic will be performed on a fee-for-service basis. In connection with the Biogen Agreement, the Company received a $15.0 million upfront license fee on January 10, 2020, see Note 7. The Company paid Mosaic a $3.0 million sublicense fee and recorded such payment as cost of license revenue for the nine months ended September 30, 2020.

On May 8, 2020, the Company entered into a subsequent amendment to the Mosaic collaboration agreement. As part of this amendment, the Company paid a one-time $0.8 million cash payment, and Mosaic is eligible to receive up to $4.0 million in potential future milestone payments related to regulatory and clinical development events for CB 2782-PEG and an additional anti-complement product candidate in lieu of the Company’s obligations to pay Mosaic a double-digit percentage of funds the Company receives from Biogen or any other amounts the Company receives related to sublicense fees, research and development payments, or any other research, regulatory, clinical or commercial milestones and royalties on any other development candidates. The Company now owns one hundred percent of all future payment streams related to these product candidates.

The one-time $0.8 million cash payment was recorded to research and development expenses for the nine months ended September 30, 2020.

12.	Interest and Other Income, Net

The following table shows the detail of interest and other income, net as follows (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2020			2019		2020			2019
Interest income	$	74		$	489	$	536		$	1,763
Miscellaneous income		—			—		679			—
Other		(7	)		—		(20	)		(41	)
Total interest and other income, net	$	67		$	489	$	1,195		$	1,722

ITEM 2.

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

Unless otherwise indicated, in this Quarterly Report on Form 10-Q, references to “Catalyst,” “we,” “us,” “our” or the “Company” mean Catalyst Biosciences, Inc. and our subsidiary. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements and related notes that appear in this Quarterly Report on Form 10-Q (this “Report”) and with the audited consolidated financial statements and related notes that are included as part of our Annual Report on Form 10-K for the year ended December 31, 2019 (“Annual Report”).

In addition to historical information, this Report contains forward-looking statements within the meaning 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”). Forward-looking statements are identified by words such as “believe,” “will,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “could,” “potentially” or the negative of these terms or similar expressions. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other “forward-looking” information. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. For example, forward-looking statements include any statements regarding the strategies, prospects, plans, expectations or objectives of management for future operations, the progress, scope or duration of the development of product candidates or programs, clinical trial plans, timelines and potential results, the benefits that may be derived from product candidates or the commercial or market opportunity in any target indication, our ability to protect intellectual property rights, our anticipated operations, financial position, revenues, costs or expenses, statements regarding future economic conditions or performance, statements of belief and any statement of assumptions underlying any of the foregoing. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this report in Part II, Item 1A — “Risk Factors,” elsewhere in this Report and in Part I - Item 1A – “Risk Factors” in the Annual Report. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. These statements, like all statements in this Report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments. We caution investors that our business and financial performance are subject to substantial risks and uncertainties.

Overview

We are a research and clinical development biopharmaceutical company focused on addressing unmet medical needs in rare hematologic and complement-mediated disorders. Our protease engineering platform has generated two late-stage clinical programs in hemophilia; a research program on engineering of subcutaneous (“SQ”) complement inhibitors; a discovery stage Factor IX gene therapy construct - CB 2679d-GT - for Hemophilia B; and a partnered preclinical development program with Biogen for dry age-related macular degeneration (“AMD”). The product candidates generated by our protease engineering platform have improved functionality and potency that allow for: SQ administration of recombinant coagulation factors and complement inhibitors; low-dose, high activity gene therapy constructs; and less frequently dosed intravitreal therapeutics.

Our most advanced product candidate is marzeptacog alfa (activated) (“MarzAA”), a next-generation SQ FVIIa expected to enter a Phase 3 registration study (MAA-304) by the end of the year. Our next most advanced product candidate is dalcinonacog alfa (“DalcA”), a next-generation SQ FIX, which has shown preliminary efficacy and safety in a Phase 2b clinical trial in individuals with Hemophilia B. We have a discovery stage Factor IX gene therapy construct - CB 2679d-GT - for Hemophilia B, that has demonstrated superiority compared with the Padua variant in preclinical models. Finally, we have a global license and collaboration agreement with Biogen for the development and commercialization of anti-complement Factor 3 (“C3”) pegylated CB 2782.

The following table summarizes our current development programs.

We are experiencing operational and other challenges as a result of the COVID-19 global pandemic, which could delay or halt our development programs. See Recent Other Developments and Item 1A - Risk Factors for further discussion of the current and expected impact on our business and development programs.

Recent Development Program Updates

MarzAA

Our most advanced product candidate is MarzAA, a potent, SQ administered, next-generation recombinant Factor VIIa variant. We have initiated preparations for a Phase 3 clinical trial (MAA-304) to evaluate the safety and efficacy of MarzAA for on-demand treatment and control of episodic bleeding in subjects with Hemophilia A or Hemophilia B with inhibitors. We expect to enroll the first patient by the end of the year. The Phase 3 study is an open-label cross-over trial, evaluating the safety and efficacy of SQ MarzAA in the treatment of bleeding episodes compared with standard of care in 60 patients (randomized 1:1). The study will assess the safety and effectiveness of SQ MarzAA, using up to three doses to treat a bleeding episode. The primary endpoint will be hemostatic efficacy at 24 hours using a standard 4-point assessment scale.

We also plan to initiate a Phase 1/2 trial of MarzAA for SQ treatment of bleeding in Factor VII Deficiency, Glanzmann Thrombasthenia, and in individuals with Hemophilia A with inhibitors treated with Hemlibra by the end of the year (MAA-202).

In 2019, we successfully completed a Phase 2 open-label SQ prophylaxis trial (MAA-201) that met all primary and secondary end points. The Phase 2 trial was designed to evaluate the efficacy of MarzAA in preventing bleeding episodes. The primary endpoint was to assess the effect of MarzAA on the annualized bleed rate (“ABR”) at a subject’s final dose level, with each patient’s prior 6-month ABR serving as his own control. The secondary endpoints included safety, tolerability and lack of anti-drug-antibody or neutralizing antibody formation. Daily SQ administration for 50 days at an individual’s final dose of MarzAA significantly reduced the mean 6-month pre-study ABR from 19.8 to 1.6 during treatment (p<0.01). Additionally, the Proportion of Days with Bleeding (PDB), was significantly reduced from a 6-month pre-treatment mean of 12.3% to 0.8% during treatment (p<0.01). The median ABR and PDB were both reduced to zero during treatment, with seven of nine subjects experiencing no bleeds, either traumatic or spontaneous, at their final dose level. Subcutaneous treatment with MarzAA was safe and well-tolerated. No anti-drug antibodies or inhibitors to MarzAA were detected after administration of a total of 517 SQ doses. Subcutaneous administration prolonged the half-life of MarzAA to 16.6 hours so that trough levels of MarzAA before the next SQ dose were sufficient to provide bleed prevention.

We completed a Phase 1/2 PK/PD study (MAA-102), in Q2 2020, to evaluate the pharmacokinetics and pharmacodynamics of ascending single dose levels of MarzAA and twice and thrice dosing of 60 µg/kg at 3-hourly intervals in individuals with Hemophilia A or B with or without inhibitors. The purpose of the trial was to determine if the timing and peak levels achieved were sufficient to treat episodic or breakthrough bleeding with SQ dosing and determine if increasing dose levels resulted in dose proportional pharmacokinetics. This trial, together with population pharmacokinetic simulations, confirms that we have optimized dosing for the MarzAA Phase 3 study. We reported final data from the trial at the International Society on Thrombosis and Haemostasis on July 12, 2020, which demonstrated that MarzAA reaches target levels we believe are required to effectively treat episodic and breakthrough bleeds. In addition to prophylaxis, multiple preclinical studies suggest that MarzAA has the potential to be used for treatment of episodic bleeding and supports further clinical testing in individuals with hemophilia with inhibitors or for other conditions.

Intravenous NovoSeven is the primary therapy used to stop breakthrough bleeding in Hemophilia A inhibitor patients being treated with Hemlibra. Our preclinical data indicates that MarzAA can potentially have a safety profile comparable to that of NovoSeven when used in combination with Hemlibra. Specifically, in vitro testing using a thrombin-generation assay with Hemophilia A plasma, both MarzAA and NovoSeven were equally effective at triggering blood coagulation when combined with Hemlibra at their respective clinically relevant concentrations without generation of excessive thrombin levels. The concurrent administration of FEIBA with Hemlibra has been associated with thrombotic events (when a blood clot forms inside a blood vessel), requiring a boxed warning in the package insert. While NovoSeven is safe in patients on Hemlibra prophylaxis, it must be administered through an IV infusion to treat a bleed. Ideally, an add-on therapy for patients on SQ Hemlibra would also be given subcutaneously. We believe MarzAA provides a potential solution as a SQ rescue therapy for Hemophilia A patients with inhibitors who experience breakthrough bleeds while being treated prophylactically with Hemlibra.

DalcA

We recently completed a Phase 2b study (DLZ-201) for our next most advanced product candidate, DalcA, a next-generation SQ Factor IX (“FIX”) drug for the prophylactic treatment of individuals with Hemophilia B. The trial was designed to evaluate daily SQ dosing and the ability to maintain protective steady state FIX levels above 12% in six individuals with severe Hemophilia B. Each subject received a single intravenous dose, followed by daily SQ doses of DalcA for 28 days during which FIX activity levels, clotting parameters, half-life, safety, tolerability and anti-drug antibody formation were monitored.

At the World Federation of Hemophilia Virtual Summit on June 15, 2020, we reported that 28 days of daily SQ dosing of DalcA at 100 IU/kg achieved protective target FIX levels of >12% in all participants, with FIX levels of up to 27% and a half-life of 2.5 to 5.1 days. No bleeds were reported during the 28 days of dosing and the 5-day wash-out, demonstrating effective prophylaxis and the potential for lower or less frequent dosing. Injection volumes were less than 1 mL. One subject withdrew on day 7 after reporting injection site reactions (“ISR”) from the first 3 SQ doses. No neutralizing anti-drug antibodies were detected, and no serious adverse events were reported. A single non-neutralizing anti-drug antibody to DalcA was observed at the end of study time point and had no clinical effect. Some subjects reported mild ISR of pain and/or redness, primarily with the initial injections. No thrombotic events occurred, and blood coagulation markers did not show any prothrombotic signals.

Factor IX Gene Therapy

Our Factor IX gene therapy construct CB 2679d-GT has demonstrated 2-fold to 3-fold higher activity compared with the Padua variant of Factor IX resulting in significantly improved clotting time and reduced blood loss in a preclinical Hemophilia B mouse model. Fidanacogene elaparvovec (“Pfizer/Spark”), AMT-061 (“uniQure/CSL”) and FLT180A (“Freeline”) use the Padua variant as the transgene in their AAV-based gene therapy clinical programs. Fidanacogene elaparvovec, AMT-061 and FLT180A have demonstrated encouraging Factor IX levels in their respective Phase 1/2 and Phase 2/3 studies with median Factor IX activity levels of approximately 30-45%. We have licensed AAV technology from The Board of Trustees of The Leland Stanford Junior University (“Stanford”) and are currently optimizing the vector under a sponsored research agreement with Stanford. The Company presented preclinical data at the 13^th Annual Congress of the European Association of Haemophilia and Allied Disorders in February 2020 demonstrating that a proprietary chimeric AAV capsid licensed from Stanford expressing our CB 2679d-GT FIX variant may significantly reduce the vector dose required of a gene therapy treatment while maintaining high factor activity levels.

We reported at the World Federation of Hemophilia Virtual Summit on June 19, 2020 that studies of CB 2679d-GT in Hemophilia B mice have demonstrated a 4-fold reduction in blood loss and an 8-fold reduction in bleeding time when compared with the same dose of the Padua variant of FIX. Furthermore, when packaged in a proprietary chimeric AAV capsid, CB 2679d-GT demonstrated a clear dose response of high stable FIX levels across the three dose levels in Hemophilia B mice.

A pilot non-human primate study compared the expression and tolerability of CB 2679d-GT in the novel chimeric capsid KP1 with the LK03 chimeric capsid. We reported at the World Federation of Hemophilia Virtual Summit on June 19, 2020 that the study demonstrated that CB 2679d-GT was well tolerated with high FIX expression that stabilized to approximately 25% to 50% FIX above baseline levels at the 6-week interim data cutoff. The novel chimeric capsid had differentiated and superior response to anti-capsid neutralizing antibodies compared to that observed for the LK03 comparator during the screening of non-human primates for the study.

SQ Systemic Complement Inhibitors

We have initiated discovery research to identify novel complement pathway regulating proteases and expect to nominate our first development candidate in Q4 2020.

Recent Collaborations

On December 18, 2019, we entered into a license and collaboration agreement with Biogen to develop and commercialize CB 2782-PEG and our other anti-C3 proteases for the potential treatment of dry AMD and other disorders. Under the collaboration agreement, we will perform pre-clinical and manufacturing activities, and Biogen is solely responsible for funding the pre-clinical and manufacturing activities and performing IND-enabling activities, worldwide clinical development, and commercialization. We received a $15.0 million upfront payment from Biogen in January 2020 for the grant of an exclusive license and the related know-how, and we are eligible to receive up to $340.0 million in milestone payments, along with tiered royalties for worldwide net sales of this product candidate up to low double-digits. For the three and nine months ended September 30, 2020, we recorded $0.9 million and $3.8 million in collaboration revenue. Unless earlier terminated, the agreement will remain in effect until the expiry of all royalty obligations. Biogen has the right to terminate the agreement at will, on a product-by-product basis or in its entirety at any time upon 60 days prior written notice. In addition, either party has the right to terminate the agreement following a material breach that remains uncured for 90 days, or in connection with an insolvency event involving the other party.

We also collaborated with Mosaic Biosciences (“Mosaic”) in the development of our Complement product candidates including CB 2782-PEG. Under the collaboration agreement, as amended in December 2019, Mosaic will perform all future services for a fee, and pursuant to a subsequent amendment in May 2020, Mosaic received a one-time cash payment of $0.8 million and is eligible to receive up to $4.0 million in potential future milestone payments related to regulatory and clinical development events for CB 2782-PEG and an additional anti-complement product candidate in cash, or in common stock if the Company elects, in lieu of our obligations to pay Mosaic a double-digit percentage of funds we receive from Biogen or any other amounts we receive related to sublicense fees, research and development payments, or any other research, regulatory, clinical or commercial milestones and royalties on any other development candidates. We now own one hundred percent of all future payment streams related to these product candidates.

Dr. Usman, our Chief Executive Officer and a member of our board of directors, and Mr. Lawlor, a member of our board of directors, were members of the board of directors of Mosaic. Transactions with related parties, including the transaction referred above, are reviewed and approved by independent members of our Board of Directors in accordance with our Code of Business Conduct and Ethics.

Recent Manufacturing Updates

We have a long-term development and manufacturing services agreement with AGC Biologics, Inc. (“AGC”). AGC has global manufacturing sites and we use their facilities in the U.S. and Europe for drug substance manufacturing of MarzAA and DalcA. We also have long-term clinical supply services agreements with Symbiosis Pharmaceutical Services (“Symbiosis”) and Catalent Indiana,

LLC (“Catalent”). Symbiosis has facilities in Europe and conducts drug product manufacturing for MarzAA. Catalent has facilities in the U.S. and Europe and conducts drug product development, manufacturing, packaging and labeling for MarzAA and DalcA.

MarzAA

We have successfully manufactured MarzAA to support our global Phase 3 clinical trial to evaluate the safety and efficacy of MarzAA for on-demand treatment and control of bleeding episodes in subjects with Hemophilia A or Hemophilia B with inhibitors. At the end of 2019, we successfully completed development work for a variety of vial sizes which will support flexible dosing. As of September 30, 2020, we have successfully completed two large-scale GMP batches of MarzAA that will be sufficient to support the Phase 3 clinical trial through its completion. Additionally, as of September 30, 2020, we have entered into a firm purchase commitment, with AGC, to validate the MarzAA manufacturing process including production of three Process Performance Qualification batches over the course of 2021 and 2022.

In January 2020, we completed a successful CMC Scientific Advice meeting with the Paul Ehrlich Institute in the EU which endorsed our current CMC strategy and manufacturing activities required for registration filing.

DalcA

We have completed the technology transfer for manufacture of the drug substance for DalcA from ISU Abxis, with whom we had collaborated on the Phase 1 development of DalcA, to AGC, including the associated process and analytical development activities. The first large-scale GMP batch of DalcA was successfully manufactured at AGC in 2019 to support the initiation of further clinical trials. At the end of 2019, we successfully completed development work for a variety of vial sizes at Catalent which will support flexible dosing in future clinical trials. As of September 30, 2020, we completed the technology transfer for drug product manufacture at Catalent and successfully manufactured a large-scale drug product engineering batch of DalcA at AGC.

Recent Other Developments

COVID-19 business impact

The current COVID-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees, potential trial participants and business operations. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets.

To date, we have instructed our employees to stay at home except as needed to ensure continuity of our operations. As we continue to actively advance our clinical programs, we are in close contact with our principal investigators, clinical sites and contractors, including manufacturers, and are assessing the impact of COVID-19 on planned trials, expected timelines and costs on an ongoing basis. We are continuing study start-up activities where possible to allow rapid site activation and enrollment of our Phase 3 and Phase 2 MarzAA trials, although we may experience delays.

Given the focus of healthcare providers and hospitals on treating patients with the virus, and the reluctance of potential trial participants to visit hospitals or other clinical trial sites, we may experience delays in the enrollment of patients in our upcoming clinical trials as well as delays in the analysis of data from our trials that have completed. We will continue to evaluate the impact of the COVID-19 pandemic on our business and will reevaluate the timing of our anticipated clinical milestones as we learn more and the impact of COVID-19 on our industry becomes clearer.

Financing

In June 2020, we completed an underwritten public offering of 4,615,384 shares of our common stock at a price of $6.50 per share. The net proceeds to us, after deducting $2.0 million in underwriting discounts and commissions and offering expenses payable by us, were approximately $28.0 million.

In February 2020, we completed an underwritten public offering of 5,307,692 shares of our common stock (including 692,307 shares sold pursuant to the exercise of the underwriters’ overallotment option) at a price of $6.50 per share. The net proceeds to us, after deducting $2.5 million in underwriting discounts and commissions and offering expenses payable by us, were $32.0 million.

We have no products approved for commercial sale and have not generated any revenue from product sales. From inception to September 30, 2020, we have raised net proceeds of approximately $451.4 million, primarily from private placements of convertible

preferred stock, proceeds from our merger with Targacept, issuances of shares of common stock and warrants, including $74.9 million in total revenue received from our license and collaboration agreements.

We have never been profitable and have incurred significant operating losses in each year since inception. Our net losses were $16.0 million and $12.7 million for the three months ended September 30, 2020 and 2019, respectively, and $37.3 million and $41.6 million for the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, we had an accumulated deficit of $295.9 million. As of September 30, 2020, our cash, cash equivalents and investments balance were $104.1 million. Substantially all our operating losses were incurred in our research and development programs and in our general and administrative operations.

We expect to incur significant expenses and increasing operating losses for at least the next several years as we continue the preclinical, manufacturing and clinical development, and seek regulatory approval for our drug candidates. Our operating losses may fluctuate significantly from quarter to quarter and year to year due to timing of preclinical, manufacturing, clinical development programs and regulatory guidance spending.

Financial Operations Overview

License and Collaboration Revenue

License and collaboration revenue consist of revenue earned for performance obligations satisfied pursuant to our Biogen Agreement. In December 2019, we entered into a license and collaboration agreement with Biogen. In consideration for the grant of an Exclusive License and related know-how, we received an up-front payment of $15.0 million in January 2020, which was recorded in license revenue during the nine months ended September 30, 2020. We also incurred reimbursable out-of-pocket and personnel costs pertaining to the Biogen Agreement of $0.9 million and $3.8 million during the three and nine months ended September 30, 2020, respectively. There can be no assurance when any future milestone or royalty payments under the Biogen agreement may occur, if at all.

We have not generated any revenue from the sale of any drugs, and we do not expect to generate any revenue until we obtain regulatory approval of and commercialize our product candidates.

Cost of License and Collaboration

Cost of license and collaboration revenue consists of sublicense fees and fees for research and development services payable to Mosaic, fees for research and development services payable to third-party vendors, and personnel costs, corresponding to the recognition of license and collaboration revenue from Biogen. Cost of license and collaboration revenue does not include any allocated overhead costs. In connection with the license revenue recognized from Biogen as discussed above, we paid Mosaic a $3.0 million sublicense fee and recorded such payment as cost of license revenue. We also incurred reimbursable out-of-pocket and personnel costs pertaining to the Biogen Agreement of $0.9 million and $4.0 million and recorded such costs as cost of collaboration revenue during the three and nine months ended September 30, 2020, respectively.

Research and Development Expenses

Research and development expenses represent costs incurred to conduct research, such as the discovery and development of our product candidates. We recognize all research and development costs as they are incurred.

Research and development expenses consist primarily of the following:

•

employee-related expenses, which include salaries, benefits and stock-based compensation;

•

laboratory and vendor expenses, including payments to consultants, related to the execution of preclinical, non-clinical, and clinical studies;

•

the cost of acquiring and manufacturing preclinical and clinical materials and developing manufacturing processes;

•

clinical trial expenses, including costs of third-party clinical research organizations;

•

performing toxicity studies; and

•

facilities and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation and amortization expense and other supplies.

The following table summarizes our research and development expenses for the periods presented (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Personnel costs	$	3,227	$	2,161	$	7,868	$	5,997
Preclinical research⁽¹⁾		3,070		2,329		9,908		5,566
Clinical and manufacturing⁽¹⁾		5,508		5,183		19,681		20,807
Facility and overhead⁽¹⁾		444		254		962		696
Total research and development expenses	$	12,249	$	9,927	$	38,419	$	33,066

(1)	Prior year numbers have been reclassified to conform with the current year presentation.

The largest component of our total operating expenses has historically been our investment in research and development activities, including the clinical and manufacturing development of our product candidates. We are currently focusing substantially all our resources and development efforts on MarzAA, DalcA and our anti-complement program. Our internal resources, employees and infrastructure are not directly tied to individual product candidates or development programs. As such, we do not maintain information regarding these costs incurred for these research and development programs on a project-specific basis.

We expect our aggregate research and development expenses will increase during the next year as we advance the clinical and manufacturing development of our programs. The global coronavirus pandemic may also delay and increase costs of our current development plans.

On May 20, 2016, we signed a development and manufacturing services agreement with AGC, formerly known as CMC ICOS Biologics, Inc., pursuant to which AGC will conduct manufacturing development of agreed upon product candidates. We will own all intellectual property developed in such manufacturing development activities that are specifically related to our product candidates and will have a royalty-free and perpetual license to use AGC’s intellectual property to the extent reasonably necessary to make these product candidates, including commercial manufacturing. In 2016 we commenced manufacturing activities for MarzAA and as of September 30, 2020, six GMP batches have been manufactured at AGC in addition to an engineering batch to support the planned clinical trials.

The initial term of the agreement is ten years or, if later, until all stages under outstanding statements of work have been completed. Either party may terminate the agreement in its entirety upon written notice of a material uncured breach or upon the other party’s bankruptcy, and we may terminate the agreement upon prior notice for any reason. In addition, each party may terminate the agreement in the event that the manufacturing development activities cannot be completed for technical or scientific reasons. We have firm work orders with AGC to manufacture MarzAA and DalcA to support clinical trials totaling $21.6 million. The payment obligations remaining as of September 30, 2020 were $13.4 million.

On October 9, 2019, we signed a clinical supply services agreement with Catalent, effective Oct 4, 2019, pursuant to which Catalent will conduct drug product development of agreed upon product candidates. We will own, and Catalent assigns to us, the intellectual property that is specifically related to our products including the products’ composition and use, and Catalent will own, and we assign to Catalent, the intellectual property that result from Catalent’s performance of its services under the clinical supply agreement.

The initial term of the clinical supply agreement is three years, although the term may be extended for successive twelve-month periods, unless either party gives the other party written notice of its intent not to extend the term at least ninety (90) days prior to the expiration of the initial term or the then-current extension. Either party may terminate the clinical supply agreement in its entirety upon written notice of a material uncured breach or upon the other party’s bankruptcy, and we may terminate the clinical supply agreement for its convenience upon thirty (30) days prior written notice. In addition, each party may terminate the clinical supply agreement in the event that the other party fails to perform its obligations under the agreement for reasons beyond the reasonable control of such party, such as technical or scientific reasons. If we cancel or reschedule a project plan or purchase order outside the parameters set in the clinical supply agreement, we would be obligated to pay for a portion of Catalent’s costs less certain fees that Catalent is able to mitigate. We have committed to a total of $0.5 million in payments to Catalent pursuant to the statements of work for DalcA and zero of those payments are outstanding as of September 30, 2020.

The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. We may never succeed in achieving marketing approval for our product candidates. The probability of success of each product candidate may be affected by numerous factors, including clinical data, competition, manufacturing capability and commercial viability. As a result, we are unable to determine the duration of and costs to complete our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates.

Successful development of current and future product candidates is highly uncertain. Completion dates and costs for our research programs can vary significantly for each current and future product candidate and are difficult to predict. Thus, we cannot estimate with any degree of certainty the costs we will incur in the development of our product candidates. We anticipate we will make determinations as to which programs and product candidates to pursue and how much funding to direct to each program and product candidate on an ongoing basis in response to the scientific success of early research programs, results of ongoing and future clinical trials, our ability to enter into collaborative agreements with respect to programs or potential product candidates, as well as ongoing assessments as to each current or future product candidate’s commercial potential.

General and Administrative Expenses

General and administrative expenses consist of personnel costs, allocated expenses and other expenses for outside professional services, including legal, human resources, audit and accounting services. Personnel costs consist of salaries, bonus, benefits and stock-based compensation. We incur expenses associated with operating as a public company, including expenses related to compliance with the rules and regulations of the SEC and Nasdaq Stock Market LLC (“Nasdaq”), insurance expenses, audit expenses, investor relations activities, Sarbanes-Oxley compliance expenses and other administrative expenses and professional services. We expect such expenses to increase as we advance our programs.

Interest and Other Income, Net

Interest and other income consist primarily of interest income on our investment portfolio and a payment received in the first quarter of 2020 under an agreement associated with neuronal nicotinic receptor assets sold in 2016.

Results of Operations

The following table set forth our results of operations data for the periods presented (in thousands):

	Three Months Ended September 30,
	2020			2019			Change ($)			Change (%)
License	$	32		$	—		$	32			100	%
Collaboration		861			—			861			100	%
License and collaboration revenue		893			—			893			100	%
Operating expenses:
Cost of license		32			—			32			100	%
Cost of collaboration		879			—			879			100	%
Research and development		12,249			9,927			2,322			23	%
General and administrative		3,833			3,268			565			17	%
Total operating expenses		16,993			13,195			3,798			29	%
Loss from operations		(16,100	)		(13,195	)		(2,905	)		22	%
Interest and other income, net		67			489			(422	)		(86	)%
Net loss	$	(16,033	)	$	(12,706	)	$	(3,327	)		26	%

	Nine Months Ended September 30,
	2020			2019			Change ($)			Change (%)
License	$	15,100		$	—		$	15,100			100	%
Collaboration		3,817			—			3,817			100	%
License and collaboration revenue		18,917			—			18,917			100	%
Operating expenses:
Cost of license		3,102			—			3,102			100	%
Cost of collaboration		4,030			—			4,030			100	%
Research and development		38,419			33,066			5,353			16	%
General and administrative		11,895			10,224			1,671			16	%
Total operating expenses		57,446			43,290			14,156			33	%
Loss from operations		(38,529	)		(43,290	)		4,761			(11	)%
Interest and other income, net		1,195			1,722			(527	)		(31	)%
Net loss	$	(37,334	)	$	(41,568	)	$	4,234			(10	)%

License and Collaboration Revenue

License and collaboration revenue of $0.9 million and $18.9 million generated in the three and nine months ended September 30, 2020, respectively, was from our Biogen Agreement, which was entered into on December 18, 2019.

Cost of License and Collaboration

Cost of license and collaboration costs were $0.9 million and $7.1 million during the three and nine months ended September 30, 2020, respectively. Cost of license in the nine months ended September 30, 2020 was primarily the $3.0 million sublicense fee we paid to Mosaic in connection with the recognition of the license revenue from Biogen. Cost of collaboration in the three and nine months ended September 30, 2020 was reimbursable third-party vendor and personnel costs we incurred pertaining to the Biogen Agreement.

Research and Development Expenses

Research and development expenses were $12.2 million and $9.9 million during the three months ended September 30, 2020 and 2019, respectively, an increase of $2.3 million, or 23%. The increase was due primarily to an increase of $1.1 million in personnel-related costs, an increase of $0.7 million in preclinical research and an increase of $0.3 million in clinical manufacturing costs.

Research and development expenses were $38.4 million and $33.1 million during the nine months ended September 30, 2020 and 2019, respectively, an increase of $5.4 million, or 16%. The increase was due primarily to an increase of $4.3 million in preclinical research and an increase of $1.9 million in personnel-related costs, partially offset by a decrease of $1.1 million in clinical manufacturing costs.

General and Administrative Expenses

General and administrative expenses were $3.8 million and $3.3 million during the three months ended September 30, 2020 and 2019, respectively, an increase of $0.5 million, or 17%. The increase was due primarily to an increase of $0.4 million in professional services and an increase of $0.4 million in personnel-related costs, partially offset by a decrease of $0.2 million in indirect employee and facilities costs.

General and administrative expenses were $11.9 million and $10.2 million during the nine months ended September 30, 2020 and 2019, respectively, an increase of $1.7 million, or 16%. The increase was due primarily to an increase of $1.8 million in professional services and an increase of $0.2 million in personnel-related costs, partially offset by a $0.2 million decrease in indirect employee costs.

Interest and Other Income, Net

Interest and other income, net was $0.1 million and $0.5 million during the three months ended September 30, 2020 and 2019, respectively, a decrease of $0.4 million. The decrease was primarily due to a decrease in interest income on investments.

Interest and other income, net was $1.2 million and $1.7 million during the nine months ended September 30, 2020 and 2019, respectively, a decrease of $0.5 million. The decrease was primarily due to a decrease in interest income of $1.2 million, partially offset by a $0.7 million final contingent payment from a prior asset sale.

Recent Accounting Pronouncements

Refer to “Recently Adopted Accounting Pronouncements” included in Note 2, Summary of Significant Accounting Policies, in the “Notes to the Condensed Consolidated Financial Statements” in this Form 10-Q.

Liquidity and Capital Resources

As of September 30, 2020, we had $104.1 million of cash, cash equivalents and investments. For the nine months ended September 30, 2020, we had a $37.3 million net loss and $32.9 million cash used in operating activities. We have an accumulated deficit of $295.9 million as of September 30, 2020. Our primary uses of cash are to fund operating expenses, including research and development expenditures and general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.

We believe that our existing capital resources, including cash, cash equivalents and investments will be sufficient to meet our projected operating requirements for at least the next 12 months from the date of this filing. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. We plan to continue to fund losses from operations and capital funding needs through future equity and/or debt financings, as well as potential additional asset sales, licensing transactions, collaborations or strategic partnerships with other companies. We have effective registration statements on Form S-3 that enable us to sell up to $170.0 million in securities. The sale of additional equity or convertible debt could result in additional dilution to our stockholders. The incurrence of indebtedness would result in debt service obligations and could result in operating and financing covenants that would restrict our operations. Licensing transactions, collaborations or strategic partnerships may result in us relinquishing valuable rights. We can provide no assurance that financing will be available in the amounts we need or on terms acceptable to us, if at all. If we are not able to secure adequate additional funding we may be forced to delay, make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. Any of these actions could materially harm our business.

The following table summarizes our cash flows for the periods presented (in thousands):

	Nine Months Ended September 30,
	2020			2019
Cash used in operating activities	$	(32,934	)	$	(35,524	)
Cash (used in) provided by investing activities		(17,888	)		26,952
Cash provided by financing activities		60,376			327
Net increase (decrease) in cash, cash equivalents and restricted cash	$	9,554		$	(8,245	)

Cash Flows from Operating Activities

Cash used in operating activities for the nine months ended September 30, 2020 was $32.9 million, due primarily to a net loss of $37.3 million, and the change in our net operating assets and liabilities of $1.6 million, due primarily to a $13.4 million decrease in accounts receivable, a $2.2 million increase in accrued compensation and other accrued liabilities and a $0.2 million decrease in prepaid and other assets, partially offset by a $14.2 million decrease in deferred revenue related to the Biogen Agreement.

Cash used in operating activities for the nine months ended September 30, 2019 was $35.5 million, due primarily to a net loss of $41.6 million, and the change in our net operating assets and liabilities of $3.4 million, due primarily to a $0.9 million increase in accounts payable and a $2.9 million increase in accrued compensation and vendor payments, offset by an increase in prepaid and other assets. Non-cash charges of $2.5 million were recorded for stock-based compensation.

Cash Flows from Investing Activities

Cash used in investing activities for the nine months ended September 30, 2020 was $17.9 million, due primarily to $91.7 million in purchases of investments, partially offset by $74.1 million in proceeds from maturities of investments.

Cash provided by investing activities for the nine months ended September 30, 2019 was $27.0 million, due primarily to $134.0 million in proceeds from maturities of investments, partially offset by $107.0 million in purchases of investments.

Cash Flows from Financing Activities

Cash provided by financing activities for the nine months ended September 30, 2020 was $60.4 million, due to $32.0 million in net proceeds from the issuance of common stock related to our public offering in February 2020, $28.0 million in net proceeds from the issuance of common stock related to our public offering in June 2020, and $0.4 million in stock grants and option exercises.

Cash provided by financing activities for the nine months ended September 30, 2019 was $0.3 million, due primarily to proceeds from issuance of common stock related to the Company’s Employee Stock Purchase Plan and stock option exercises under the Company’s 2018 Omnibus Incentive Plan.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Available information

Our corporate website address is www.catalystbiosciences.com. We use the investor relations page of our website for purposes of compliance with Regulation FD and as a routine channel for distribution of important information, including news releases, analyst presentations, financial information and corporate governance practices. Our filings with the SEC are posted on our website and available free of charge as soon as reasonably practical after they are electronically filed with, or furnished to, the SEC. The SEC's website, www.sec.gov, contains reports, proxy statements and other information regarding issuers that file electronically with the SEC. The content on any website referred to in this Quarterly Report on Form 10-Q is not incorporated by reference in this Form 10-Q unless expressly noted. Further, the Company’s references to website URLs are intended to be inactive textual references only.

Critical Accounting Polices and Estimates

There have been no significant changes to our critical accounting policies since December 31, 2019. For a description of critical accounting policies that affect our significant judgments and estimates used in the preparation of our unaudited condensed consolidated financial statements, refer to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K.

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and interest rates. We are exposed to market risks in the ordinary course of our business. Our primary exposure to market risk is interest income sensitivity in our investment portfolio. Fixed rate securities and borrowings may have their fair market value adversely impacted due to fluctuations in interest rates, while floating rate securities may produce less income than expected if interest rates fall and floating rate borrowings may lead to additional interest expense if interest rates increase. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if forced to sell securities which have declined in market value due to changes in interest rates.

However, because of the short-term nature of the instruments in our portfolio, a sudden change in market interest rates would not be expected to have a material impact on the fair market value of our investment portfolio. As of September 30, 2020, we had cash and cash equivalents and investments of $104.1 million, which included bank deposits and money market funds, and investments of $79.2 million. Accordingly, we do not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates on our investment portfolio.

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2020. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2020, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

As of September 30, 2020, we have not experienced any significant impact to our internal controls over financial reporting despite the fact that most of our employees who are involved in our financial reporting processes and controls are working remotely due to the COVID-19 pandemic. The design of our processes and controls allow for remote execution with accessibility to secure data. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) identified during the quarter ended September 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

We are not a party to any material legal proceedings.

ITEM 1A.

RISK FACTORS

Our business is subject to risks and events that, if they occur, could adversely affect our financial condition and results of operations and the trading price of our securities. The disclosure below modifies the risk factors previously disclosed in “Part I - Item 1A - Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the Securities and Exchange Commission on February 20, 2020.

You should carefully consider the risks and uncertainties disclosed as “Risk Factors” in our Annual Report, together with all of the other information in this Report, including the section titled “Part I - Financial Information - Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the condensed consolidated financial statements and related notes.

The risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2019 have expanded to include the following additional risk factor:

The outbreak of the novel coronavirus disease, COVID-19, could adversely impact our business, including our preclinical studies and clinical trials.

The global coronavirus pandemic has resulted in widespread requirements for individuals to stay in their homes and strained medical facilities worldwide. It is too early to assess the full impact of the coronavirus outbreak on our business, including our trials for MarzAA and DalcA and our development activities in our anti-complement program but coronavirus may affect our ability to complete recruitment and data analysis for our clinical trials and our ability to conduct research and development of our complement programs in our planned timeframe. The extent to which the coronavirus impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration and severity of the outbreak, and the actions that may be required to contain the coronavirus or treat its impact. In particular, as a result of the COVID-19 pandemic, we may experience disruptions that could severely impact our business, preclinical studies, drug manufacturing and clinical trials including:

•

delays or difficulties in enrolling potential trial participants in our clinical trials;

•

delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;

•

diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;

•

interruption of key clinical trial activities, such as clinical trial site data monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others or interruption of clinical trial subject visits and study procedures, which may impact the integrity of subject data and clinical study endpoints;

•

interruption or delays in the operations of the Food and Drug Administration, European Medicines Agency or other regulatory authorities, which may impact review and approval timelines;

•

interruption of, or delays in receiving, supplies of our product candidates from our contract manufacturing organizations due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems;

•

interruptions in preclinical studies due to restricted or limited operations at laboratory facilities;

•

suspension or termination of our clinical trials for various reasons, such as a finding that the participants are being exposed to infectious diseases like COVID-19 or the participants involved in our clinical trials have become infected with COVID-19;

•

limitations on employee resources that would otherwise be focused on the conduct of our preclinical studies and clinical trials, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people; and

•

material delays and complications with respect to our research and development programs.

In addition, the trading prices for our common stock and other biopharmaceutical companies have been highly volatile as a result of the COVID-19 pandemic. Furthermore, a recession or market correction resulting from the spread of COVID-19 could materially affect our operations and the value of our common stock.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS

See Index to Exhibits at the end of this Report, which is incorporated by reference here. The Exhibits listed in the accompanying Index to Exhibits are filed as part of this Report.

EXHIBIT INDEX

Exhibit Number		Description

10.1		Second Amendment to Office Lease, dated July 17, 2020, by and between 611 Gateway Center, L.P. and Catalyst Biosciences, Inc.

10.2		Offer Letter by and between Clinton Musil and Catalyst Biosciences, Inc. dated June 9, 2020.

31.1		Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Chief Executive Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of the Chief Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019; (ii) the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019 (unaudited); (iii) the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2020 and 2019 (unaudited); (iv) the Condensed Consolidated Statement of Stockholders’ Equity as of September 30, 2020 and September 30, 2019 (unaudited); (v) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 (unaudited); and (vi) the Notes to Unaudited Interim Condensed Consolidated Financial Statements.

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		CATALYST BIOSCIENCES, INC.

Date: November 5, 2020		/s/ Nassim Usman, Ph.D.
		Nassim Usman, Ph.D.
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: November 5, 2020		/s/ Clinton Musil
		Clinton Musil
		Chief Financial Officer
		(Principal Financial Officer)