Immunome Inc. - Quarter Report: 2023 September (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2023

OR

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

For the transition period from         to        

Commission File Number: 001-39580

Immunome, Inc.

(Exact name of registrant as specified in its charter)

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(610) 321-3700

(Registrant’s telephone number, including area code)

Not applicable.

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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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  ☒

There were 42,729,847 shares of the registrant’s common stock outstanding as of November 7, 2023.

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IMMUNOME, INC.

Quarterly Report on Form 10-Q for the Quarterly Period ended September 30, 2023

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

IMMUNOME, INC.

Condensed Balance Sheets

(In thousands, except share data)

(unaudited)

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

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IMMUNOME, INC.

Condensed Statements of Operations

(In thousands, except share and per share data)

(unaudited)

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

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IMMUNOME, INC.

Condensed Statements of Changes in Stockholders’ Equity

(In thousands, except share data)

(unaudited)

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

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IMMUNOME, INC.

Condensed Statements of Cash Flows

(In thousands)

(unaudited)

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

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IMMUNOME, INC.

Notes to Condensed Financial Statements

(Unaudited)

1. Nature of the business

Organization

Immunome, Inc., or the Company, is a biotechnology company dedicated to developing first-in-class and best-in-class targeted cancer therapies. The Company believes that pursuing underexplored targets with appropriate drug modalities leads to transformative therapies. The Company’s proprietary memory B cell hybridoma technology allows for the rapid screening and functional characterization of novel antibodies and targets. 

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The Company was incorporated as a Pennsylvania corporation on March 2, 2006, and was converted to a Delaware corporation on December 2, 2015. Since its inception, the Company has devoted substantially all its resources to research and development, raising capital, building its management team, extending its intellectual property portfolio, and executing strategic partnerships and transactions. The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry including, but not limited to, risks associated with research, development, and manufacturing activities, uncertain results of preclinical and clinical testing, development of new technological innovations and products by competitors, dependence on key personnel, partners and third-party vendors, protection of proprietary technology, compliance with government regulations, regulatory approval of products and the ability to secure additional capital to fund operations. 

On October 2, 2023, the Company completed its merger with Morphimmune Inc., or Morphimmune. Under the terms of the Agreement and Plan of Merger and Reorganization dated as of June 28, 2023, or the Merger Agreement, among the Company, Morphimmune and Ibiza Merger Sub, Inc., a wholly owned subsidiary of the Company, or Merger Sub, Morphimmune merged with and into Merger Sub, with Morphimmune surviving as a wholly-owned subsidiary of Immunome, or the Merger. 

Morphimmune is a preclinical biotechnology company focused on developing targeted oncology therapeutics. Morphimmune’s Targeted Effector platform uses small molecule ligands to selectively deliver drug payloads to diseased cells. Morphimmune believes this approach reduces toxicity and increases the efficacy of effector molecules, thereby improving outcomes for patients. 

Liquidity

The Company has incurred net losses since inception, including net losses of $14.2 million and $29.1 million for the nine months ended September 30, 2023 and 2022, respectively, and it expects to generate losses from operations for the foreseeable future primarily due to research and development costs for its programs and development candidates. As of September 30, 2023, the Company had an accumulated deficit of $130.2 million.

Through September 30, 2023, the Company raised an aggregate of $155.1 million in gross proceeds from sales of common stock, Series A convertible preferred stock and warrants, warrant and stock option exercises, the issuance of convertible promissory notes, the Paycheck Protection Program, or PPP, loan that was forgiven in May 2021, and strategic partnerships with AbbVie Global Enterprises Ltd, or AbbVie. In addition, the Company received $17.6 million in expense reimbursement from the Department of Defense, or DoD, under the Other Transaction Authority for Prototype Agreement, or the OTA Agreement, from inception through 2022. 

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In June 2023 in connection with the Merger Agreement, the Company entered into subscription agreements with certain investors pursuant to which the Company would sell shares of its common stock, immediately following the completion of the Merger, in exchange for gross proceeds of $125.0 million. On October 2, 2023, the Company issued and sold 21,690,871 shares of its common stock pursuant to the subscription agreements in a Private Investment in

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Public Equity, or PIPE, transaction. The Company received gross proceeds of $125.0 million, $61.0 million of which was received on or prior to September 30, 2023 and recorded as a deposit liability on the September 30, 2023 balance sheet. The remaining $64.0 million of proceeds were received in October 2023.   

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On January 4, 2023, the Company entered into the Collaboration Agreement with AbbVie, or the Collaboration Agreement, directed to the discovery of up to 10 novel target-antibody pairs leveraging the Company’s discovery engine.  The Company is potentially eligible to receive up to approximately $2.8 billion from AbbVie under the Collaboration Agreement from the sources described in Note 3. There are no assurances that the Company will receive additional payments from AbbVie beyond the $30.0 million upfront payment received in January 2023. 

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On October 1, 2021, the Company entered into an Open Market Sale Agreement, or the ATM Agreement, with Jefferies Group LLC, which provides that, upon the terms and subject to the conditions and limitations in the ATM Agreement, the Company may elect, from time to time, to offer and sell shares of common stock under the registration statement having an aggregate offering price of up to $75.0 million through Jefferies Group LLC acting as sales agent, or Jefferies. Through September 30, 2023, the Company the Company has sold 5,925 shares of common stock under the ATM Agreement resulting in net proceeds of approximately $34,000. During the three-month period ended September 30, 2023, we did not issue or sell any shares of our common stock under the ATM Agreement. On November 8, 2023, the Company provided notice of termination of the ATM Agreement to Jefferies. 

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The Company had cash and cash equivalents of $90.6 million at September 30, 2023, which included $61.0 million of deposits related to the PIPE transaction. The Company expects that its cash, including the remaining proceeds received in connection with the closing of the PIPE transaction on October 2, 2023, will enable it to fund its operating expenses and capital expenditure requirements for at least 12 months from the filing date of this Quarterly Report on Form 10-Q; however; more funding will be necessary to fund additional research and development and operations in order to pursue the Company’s growth strategy.  

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If the Company cannot obtain the necessary funding, it will need to delay, scale back or eliminate some or all of its research and development programs, enter into collaborations with third parties relative to potential programs, products or technologies that it might otherwise seek to progress independently (or enter into these collaborations sooner than it might otherwise have intended to), or reduce or cease operations. Further, as a part of its strategy, the Company may consider various other alternatives, including a merger or sale of the Company. If the Company engages in any of these types of transactions under these circumstances, it may receive lower consideration than if it had not entered into such arrangements or if it entered into such arrangements at later stages. Additionally, volatility in the capital markets generally and the biotechnology sector specifically, as well as general economic conditions in the United States may be a significant obstacle to raising the required funds on satisfactory terms, if at all. 

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Operations of the Company are subject to certain risks and uncertainties including various internal and external factors that will affect whether and when the Company’s programs and development candidates become approved drugs and how significant their market share will be, many of which are outside of the Company’s control. The length of time and cost of developing and commercializing these programs and development candidates and/or failure of them at any stage of the drug approval process will materially affect the Company’s financial condition and future operations.

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2. Summary of significant accounting policies

Basis of presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted, or GAAP, in the United States. Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification, or ASC, and Accounting Standards Updates, or ASU, promulgated by the Financial Accounting Standards Board, or FASB.

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Unaudited interim results

These unaudited condensed financial statements and accompanying notes should be read in conjunction with the Company’s annual financial statements and the notes thereto included in the Company’s Form 10-K filed with the Securities and Exchange Commission on March 16, 2023. The accompanying condensed financial statements as of September 30, 2023 and for the three and nine months ended September 30, 2023 and 2022 are unaudited but have been prepared on the same basis as the annual audited financial statements and include all adjustments that management believes to be necessary for a fair presentation of the periods presented. Interim results are not necessarily indicative of results for a full year. Condensed balance sheet amounts as of December 31, 2022 have been derived from the audited financial statements as of that date.

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and expenses. The Company bases its estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances. Significant estimates and assumptions reflected in these condensed financial statements include, but are not limited to, the expected volatility used to estimate fair value of stock options, accrued research and development expenses, and the estimated costs which drive the revenue recognition for the Collaboration Agreement with AbbVie. Estimates and assumptions are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from these estimates.

Segment and geographic information

Operating segments are defined as components of an entity about which separate discrete information is available for evaluation by the chief operating decision maker, or the CODM, or decision-making group, in deciding how to allocate resources and in assessing performance. The CODM is the Company’s Chief Executive Officer. The Company views its operations as, and manages its business in, one operating segment operating exclusively in the United States of America.

Fair value of financial instruments

ASC Topic 820, Fair Value Measurement, or ASC 820, establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the assets or liability and are developed based on the best information available in the circumstances. ASC 820 identifies fair value as the price that would be received to sell an asset or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tiered value hierarchy that distinguishes between the following:

Level 1 — Quoted market prices in active markets for identical assets or liabilities.

Level 2 — Inputs other than Level 1 inputs that are either directly or indirectly observable, such as quoted market prices, interest rates and yield curves.

Level 3 — Unobservable inputs for the asset or liability (i.e.; supported by little or no market activity). Level 3 inputs include management’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).

To the extent the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgement. Accordingly, the degree of judgement exercised by the Company

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in determining fair value is greatest for instruments categorized as Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Cash and cash equivalents and restricted cash are Level 1 assets as of September 30, 2023 and December 31, 2022.

Restricted cash

Restricted cash represents collateral provided for a letter of credit issued as a security deposit in connection with the Company’s lease of its corporate facilities. Cash will be released from restriction upon termination of the lease. Restricted cash was $0.1 million at both September 30, 2023 and 2022, respectively. The following table provides a reconciliation of the components of cash and cash equivalents and restricted cash presented in the condensed statements of cash flows:

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Concentration of credit risk

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents. The Company maintains deposits in a financial institution in excess of government insured limits. Management believes that the Company is not exposed to significant credit risk as the Company’s deposits are held at a financial institution that management believes to be of high credit quality, and the Company has not experienced any losses on these deposits.

Equity issuance costs

The Company capitalized costs that were directly associated with establishing the ATM Agreement and shelf registration statement in 2021. These costs will remain capitalized until such financings are consummated, at which time such costs will be recorded against the gross proceeds from the applicable financing. If a financing is abandoned, deferred offering costs are expensed. Ongoing costs that are directly associated with the ATM Agreement are expensed as incurred.  During the quarter ended September 30, 2023, the Company expensed the remaining $0.3 million of deferred offering costs related to the ATM when it decided to abandon any future use of the ATM. On November 8, 2023, the Company provided notice of termination of the ATM Agreement to Jefferies. 

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During the quarter ended September 30, 2023, the Company capitalized $0.1 million of costs that were directly associated with the PIPE transaction. These costs will be recorded against the gross proceeds from the PIPE transaction when it closed in October 2023. 

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Deferred offering costs were $0.1 million as of September 30, 2023 and $0.3 million as of December 31, 2022 on the condensed balance sheets.

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Government assistance programs

The Company accounts for amounts received under its DoD expense reimbursement contract as contra-research and development expenses in the condensed statements of operations.

Collaboration revenue

The Company evaluates its collaborative arrangements pursuant to ASC 808, Collaborative Arrangements, or ASC 808, and ASC 606, Revenue from Contracts with Customers, or ASC 606. The Company considers the nature and contractual terms of collaborative arrangements and assesses whether the arrangement involves a joint operating activity pursuant to which the Company is an active participant and is exposed to significant risks and rewards with respect to the arrangement. If the Company is an active participant and is exposed to significant risks and rewards with respect to

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the arrangement, the Company accounts for the arrangement as a collaboration under ASC 808. If it is not exposed to significant risks and rewards and the contract is with a customer, the Company accounts for the collaboration under ASC 606.

Payments pursuant to collaborative arrangements may include non-refundable upfront payments, research option and license option payments, milestone payments upon the achievement of significant regulatory and development events, commercial sales milestones, and royalties on product sales. The amount of variable consideration is constrained until it is probable that the revenue is not at a significant risk of reversal in a future period.

In determining the appropriate amount of revenue to be recognized as the Company fulfills its obligations under a collaboration arrangement, the Company applies the five-step model of ASC 606: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract, including whether they are capable of being distinct; (iii) determine the transaction price, including the constraint on variable consideration; (iv) allocate the transaction price to the performance obligations; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

The Company applies significant judgment when evaluating whether contractual obligations represent distinct performance obligations, allocating transaction price to performance obligations within a contract, determining when performance obligations have been met, and assessing the recognition of variable consideration. When consideration is received prior to the Company completing its performance obligation under the terms of a contract, a contract liability is recorded as deferred revenue. Deferred revenue expected to be recognized as revenue within the twelve months following the balance sheet date is classified as a current liability.

In January 2023, the Company entered into the Collaboration Agreement with AbbVie, which was determined to be within the scope of ASC 606. Please see Note 3 for further information related to the accounting for the Collaboration Agreement.

Research and development costs

Research and development costs are charged to expense as incurred. Research and development costs consist of costs incurred in performing research and development activities, including salaries and bonuses, share-based compensation, employee benefits, facilities costs, laboratory supplies, depreciation and amortization, preclinical and clinical development expenses, including manufacture and testing of clinical supplies, consulting and other contracted services. Additionally, under the terms of the license agreements described in Note 7, the Company is obligated to make future payments should certain development and regulatory milestones be achieved. Costs for certain research and development activities are recognized based on the terms of the individual arrangements, which may differ from the timing of receipt of invoices and payment of invoices and are reflected in the condensed financial statements as a prepaid or accrued expense.

Share-based compensation

The Company’s share-based compensation program allows for grants of stock options and restricted stock awards. Grants are awarded to employees and non-employees, including directors.

The Company accounts for its share-based compensation awards granted to employees and nonemployees based on the estimated fair value on the date of grant and recognized compensation expense of those awards over the requisite service period, which is the vesting period of the respective award. The Company accounts for forfeitures as they occur. For share-based awards with service-based vesting conditions, the Company recognized compensation expense on a straight-line basis over the service period. The Company classified share-based compensation expense in its statements of operations in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.

The Company estimates the fair value of options granted using the Black-Scholes option pricing model for stock option grants to both employees and non-employees. The Black-Scholes option pricing model requires inputs based on certain subjective assumptions, including (i) the expected stock price volatility, (ii) the expected term of the award, (iii)

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the risk-free interest rate and (iv) expected dividends. Due to the lack of Company-specific historical and implied volatility data, the Company has based its computation of expected volatility on the historical volatility of a representative group of public companies with similar characteristics to the Company, including stage of product development and biopharmaceutical industry focus. The historical volatility is calculated based on a period of time commensurate with the expected term assumption. The Company uses the simplified method to calculate the expected term for options granted to employees and non-employees whereby, the expected term equals the arithmetic average of the vesting term and the original contractual term of the options due to its lack of sufficient historical data. The risk-free interest rate is based on U.S. Treasury securities with a maturity date commensurate with the expected term of the associated award. The expected dividend yield is assumed to be zero as the Company has never paid dividends and has no current plans to pay any dividends on its common stock. The exercise price is the fair value of the common stock as of the measurement date.

Net loss per share

Basic net loss per share of common stock is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net loss per share of common stock is computed by adjusting net loss attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net loss per share of common stock is computed by dividing the diluted net loss by the weighted average number of common shares outstanding for the period, including potential dilutive common shares assuming the dilutive effect of common stock equivalents.

The following potentially dilutive securities outstanding as of September 30, 2023 and 2022 have been excluded from the computation of diluted weighted-average shares of common stock outstanding, as they would be anti-dilutive:

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In periods in which the Company reports a net loss per share of common stock, diluted net loss per share of common stock is the same as basic net loss per share of common stock since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. The Company reported a net loss per share of common stock for the three and nine months ended September 30, 2023 and 2022.

Leases

The Company accounts for leases in accordance with ASC 842, Leases. At the inception of an arrangement, the Company determines whether an arrangement contains a lease based on facts and circumstances present in the arrangement. An arrangement is or contains a lease if the arrangement conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Typically, lessees are required to recognize leases with a term greater than one year on the condensed balance sheets as an operating or finance lease liability and right-of-use asset. Right-of-use assets represent the Company’s right to use an underlying asset during the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. The Company has elected the practical expedient to not recognize leases with a term of 12 months or less. The Company does not have any financing leases as of September 30, 2023.

Operating lease liabilities and their corresponding right-of-use assets are recorded based on their present value of lease payments over the remaining lease term. Options to extend the lease term are included in the Company’s assessment of the lease term only if there is a reasonable assessment that the Company will renew. Leases are discounted to its present value using either the interest rate implicit in the Company’s lease or its incremental borrowing rate, which

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reflects the fixed rate in which the Company could borrow on a collateralized basis the amount of lease payments in the same currency, for a similar term, in a similar economic environment.

Recently adopted accounting standard

On January 1, 2023, the Company adopted ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. This standard amended its guidance on the recognition of impairment losses of certain financial instruments. The ASU established the current expected credit loss model, which is based on expected losses rather than incurred losses. Adoption of this standard had no impact on the Company’s condensed financial statements.

3. Collaboration Agreement with AbbVie

In January 2023, the Company entered into the Collaboration Agreement with AbbVie, pursuant to which the Company will use its proprietary discovery engine to discover and validate targets derived from patients with three specified tumor types, and antibodies that bind to such targets, which may be the subject of further development and commercialization by AbbVie. Pursuant to the terms of the Collaboration Agreement, the Company granted to AbbVie an exclusive option to purchase all rights to each novel target-antibody pair, or a Validated Target Pair or VTP, that the Company generates that meets certain mutually agreed criteria, up to a maximum of 10 in total, for all human and non-human diagnostic, prophylactic and therapeutic uses throughout the world, including the development and commercialization of certain products, or Products, derived from the assigned VTP.

AbbVie paid the Company a nonrefundable upfront payment of $30.0 million in January 2023 and will pay certain additional platform access payments in the aggregate amount of up to $70.0 million based on the Company’s use of its discovery engine in connection with activities under each stage of the research plan, and delivery of VTPs to AbbVie. AbbVie will also pay an option exercise fee in the low single digit millions for each of up to 10 VTPs for which it exercises an option. If AbbVie progresses development and commercialization of a Product, AbbVie will pay the Company development and commercial sale milestones of up to $120.0 million per target, and sales milestones based on achievement of specified levels of net sales of Products of up to $150.0 million in the aggregate per Product, subject to specified deductions in certain circumstances. On a Product-by-Product basis, AbbVie will pay the Company tiered royalties on net sales of Products at a percentage in the low single digits, subject to specified reductions and offsets in certain circumstances. AbbVie’s royalty payment obligation will commence, on a Product-by-Product and country-by-country basis, on the first commercial sale of such Product in such country and will expire on the earlier of (a) the later of (i) the ten-year anniversary of the first commercial sale for such Product in such country, or (ii) solely with respect to a Product that incorporates an antibody comprising a VTP (or certain other antibodies derived from such delivered antibody), the expiration of all valid claims of patent rights covering the composition of matter of any such antibody and (b) the expiration of regulatory exclusivity for such Product in such country.

The Collaboration Agreement will expire upon the expiration of the last to expire royalty payment obligation with respect to all Products in all countries, subject to earlier expiration if all option exercise periods for all VTPs expire without AbbVie exercising any option, if AbbVie does not elect to make certain platform access payments at specified points during the research term, or upon the uncured material breach or any insolvency event of either party. AbbVie may also terminate the Collaboration Agreement for convenience upon a specified period prior written notice, or upon the Company’s breach of representations and warranties with respect to debarment or compliance with anti-bribery and anti-corruption laws.

The Company assessed the Collaboration Agreement under ASC 808 and ASC 606 and concluded that it represents a contract with a customer. The Company applied the relevant guidance of ASC 606 to evaluate the accounting under the Collaboration Agreement and identified one performance obligation under the arrangement: a promise to provide research and development services to AbbVie, or R&D Services. The Company evaluated the options to continue the R&D services and options to purchase licenses to each VTP and concluded that these options did not represent material rights.

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are all subject to constraint at contract inception. At each reporting period, the Company will reevaluate the variable consideration subject to constraint and, if necessary, will adjust its estimate of the overall transaction price. For the sales-based royalties, the Company will recognize revenue when the related sales occur.

Collaboration revenue from the single performance obligation will be recognized over the estimated performance of the R&D services using the cost-to-cost input method which the Company believes best depicts the transfer of control to the customer. Under the cost-to-cost input method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the performance obligation. The Company recognized $3.6 million and $10.2 million of collaboration revenue for the three and nine months ended September 30, 2023, respectively.

The following table summarizes the change in deferred revenue (in thousands):

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As of September 30, 2023, the Company expects to recognize the deferred revenue associated with the non-refundable upfront fee over the estimated research and development period of approximately 1.25 years.

4. Government assistance programs

DoD expense reimbursement contract

In July 2020, the Company entered into the OTA Agreement with the U.S. Department of Defense’s Joint Program Executive Office for Chemical, Biological, Radiological and Nuclear Defense, or JPEO-CBRND, in collaboration with the Defense Health Agency, to fund the Company’s efforts in developing an antibody cocktail therapeutic to treat COVID-19. The amount of funding originally made available to the Company under the OTA Agreement was $13.3 million. In May 2021, the Company and the DoD amended the OTA Agreement, pursuant to which the DoD award was increased from $13.3 million to $17.6 million. In January 2023, the Company and the DoD modified the OTA Agreement to extend the termination date of the OTA Agreement to July 2023, at no additional cost to the government. The Company’s obligations under the OTA agreement with the DoD were completed.

Under the OTA Agreement, the DoD is required to pay the Company, upon submission of invoices for approved budgeted supplies delivered and services rendered in carrying out the prototype project, within 30 calendar days of receipt of request for payment. The Company received the maximum $17.6 million in expense reimbursement from the DoD under the OTA Agreement from inception through 2022.

The Company recorded contra-research and development expense related to the OTA Agreement of $0.0 million and $0.6 million for the three and nine months ended September 30, 2022 in the condensed statements of operations. No contra-research and development expense related to the OTA Agreement was recorded during the three and nine months ended September 30, 2023.

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5. Prepaid expenses and other assets

Prepaid expenses and other assets consisted of the following:

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6. Accrued expenses and other liabilities

Accrued expenses and other liabilities consisted of the following:

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7. Commitments and contingencies

Employment agreements

The Company entered into employment agreements, or the Employment Agreements, with certain key personnel providing for compensation and severance in certain circumstances, as defined in the respective Employment Agreements. The Employment Agreements may be terminated by either the Company or the employees in accordance with the respective Employment Agreements (subject to the payment of severance upon certain terminations) and provide for annual pay adjustments and bonuses at the discretion of the Board of Directors.

Employee benefit plan

The Company maintains a defined-contribution plan under Section 401(k) of the Internal Revenue Code, or the 401(k) Plan. The 401(k) Plan covers all employees who meet defined minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. The Company assumes all administrative costs of the 401(k) Plan and makes matching contributions as defined in the 401(k) Plan document. The Company made matching contributions of $0.1 million and $0.2 million to the 401(k) Plan for the three and nine months ended September 30, 2023. The Company made matching contributions of $0.1 million and $0.2 million to the 401(k) Plan for the three and nine months ended September 30, 2022.

Legal proceedings

The Company is not a party to any material litigation and does not have material contingency reserves established for any litigation liabilities. At each reporting date, the Company evaluates whether a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. 

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License agreements

The Company entered into various license agreements to further discover, develop and commercialize certain technologies and treatments. The Company may need to pay developmental and regulatory milestone payments of up to approximately $2.6 million. In addition, the Company may need to pay royalty rates on net product sales, a portion of certain sublicense and collaboration payments, and certain commercial milestone payments of up to approximately $1.5 million, if any.

The Company recorded $0.1 million of development, regulatory, or commercial milestone payments during each of the three and nine months ended September 30, 2022, respectively, in research and development expenses in the condensed statements of operations. No such costs were recorded during the three and nine months ended September 30, 2023, respectively.

Whitehead Letter Agreement

On November 17, 2022, the Company entered into a Letter Agreement, or the Letter Agreement, with the Whitehead Institute of Biomedical Research, or Whitehead, which became effective on January 4, 2023 upon the satisfaction of the conditions described therein. The Letter Agreement supplements the Exclusive Patent License Agreement entered into between the Company and Whitehead on June 25, 2009 (as amended on December 17, 2009, March 21, 2013, August 21, 2017 and July 21, 2020, the License Agreement). Pursuant to the Letter Agreement, Whitehead and the Company agreed that certain payments received by the Company from the Collaborator (as defined in the Letter Agreement) (i.e., a corporate partner, as defined in the License Agreement) would be excluded from the Company’s payment obligations to Whitehead. The Company and Whitehead further agreed, among other things, that the Company will make certain payments to Whitehead (i) as Net Sales (as defined in the License Agreement) as long as the Company receives those payments from the Collaborator on a specified number of products purchased by the Collaborator and (ii) upon the achievement of certain milestones whether by the Company or the Collaborator.

8. Leases

The Company leases office and laboratory space for approximately 11,000 square feet of space in Exton, Pennsylvania. The lease includes certain options to extend. In August 2023, the Company extended the existing lease term until March 2025.

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Supplemental condensed balance sheet information related to leases comprised of the following (in thousands):

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Operating lease liability and operating lease liability, net of current portion is included in accrued expenses and other current liabilities and other long-term liabilities, respectively, in the accompanying condensed balance sheets.

Operating lease expense recorded as research and development and general and administrative expenses in the condensed statements of operations was as follows (in thousands):

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Other operating lease information as of September 30, 2023 was as follows:

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

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As of September 30, 2023, minimum rental commitments under the operating lease were as follows (in thousands):

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9. Common stock

Common stock

The holders of common stock are entitled to one vote for each share of common stock. Subject to the approval of the holders of a majority in interest of the Company’s stockholders entitled to vote thereon, the holders of common stock are entitled to receive dividends out of legally available funds. In the event of any voluntary or involuntary liquidation, dissolution, or winding up of the Company, the holders of common stock are entitled to share ratably in the remaining assets of the Company available for distribution.

In January 2023, the Company sold 5,925 shares of common stock under the ATM Agreement resulting in net proceeds of approximately $34,000.

On January 15, 2023, the Company issued 55,250 shares of common stock in the aggregate to certain non-employee board of directors pursuant to the 2020 Equity Incentive Plan in lieu of the non-employee director board and committee cash retainers owed for service on the board of directors in 2022.

Warrants to acquire shares of common stock

At September 30, 2023, common stock warrants outstanding were as follows:

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On June 2, 2023, 803,112 Series A warrants with an exercise price of $9.00 expired.

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No warrants were exercised during the three and nine months ended September 30, 2023 and 2022, respectively.

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10. Share-based compensation

On September 18, 2020, the Company adopted the 2020 Equity Incentive Plan, or the 2020 Plan, which supersedes all prior equity incentive plans. Under the 2020 Plan, the number of shares of common stock reserved for issuance under the 2020 Plan will automatically increase on January 1 of each year, beginning on January 1, 2021 and continuing through and including January 1, 2030, by 4% of the total number of shares of the Company’s capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by the Company’s Board of Directors. On January 1, 2023, the number of shares available for future issuance under the 2020 Plan increased by 485,153 shares. On September 29, 2023, the number of shares available for future issuance under the 2020 Plan increased by 2,955,280 shares. As of September 30, 2023, there were 4,205,361 shares available for future issuance under the 2020 Plan.

The Company also adopted the 2020 Employee Stock Purchase Plan, or the ESPP, on September 18, 2020 which provides for the grant of purchase rights to purchase shares of the Company’s common stock to eligible employees, as defined by the ESPP. The maximum number of shares of common stock that may be issued under the ESPP will not exceed 125,000 shares of common stock, plus the number of shares of common stock that are automatically added on January 1 of each calendar year for a period of up to ten years, commencing on the first January 1 following the year in which an IPO occurs and ending on, and including, January 1, 2030, in an amount equal to the lesser of (i) 1% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year, and (ii) 1,000,000 shares of common stock. On January 1, 2023, the number of shares available for future issuance under the ESPP increased by 121,288 shares. As of September 30, 2023, there were 473,733 shares available under the ESPP. No shares of common stock have been issued under the ESPP as of September 30, 2023.

The 2020 Plan and the ESPP are administered by the Board of Directors subject to the Board’s right to delegate to a committee. The exercise prices, vesting and other restrictions are determined at the discretion of the Board of Directors. Stock options awarded under the 2020 Plan generally expire 10 years after the grant date unless the Board of Directors sets a shorter term. Vesting periods for awards under the 2020 Plan are determined at the discretion of the Board of Directors. Stock options granted to employees, officers, members of the Board of Directors and consultants of the Company typically vest over one to four years. Certain options provide for accelerated vesting if there is a change in control, as defined in the 2020 Plan.

Share-based compensation expense recorded for stock options and restricted stock awards as research and development and general and administrative expenses in the condensed statements of operations is as follows (in thousands):

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Unrecognized compensation cost related to unvested options and restricted stock awards was $7.4 million as of September 30, 2023 and will be recognized over an estimated weighted average period of 1.2 years.

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Stock options

The weighted average assumptions used in the Black-Scholes option-pricing model for stock options granted were:

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A summary of option activity under the 2020 Plan and prior Plans during the nine months ended September 30, 2023 was as follows:

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The weighted-average grant date fair value per share of stock options granted during the nine months ended September 30, 2023 and 2022 was $3.67 and $2.65, respectively. The aggregate intrinsic value for options exercisable at September 30, 2023 was $6.7 million. The aggregate intrinsic value of stock options outstanding at September 30, 2023 was $11.2 million. The aggregate intrinsic value of stock options exercised during the nine months ended September 30, 2023 was $0.1 million.

Restricted stock awards

During February 2023, the Company granted 25,000 shares of restricted stock awards to a consultant in exchange for services that vest evenly over twelve months with a vesting start date in January 2023. The weighted average grant fair value was $5.62 per share.

In July 2023, the consulting agreement was terminated which ceased the continuation of vesting of the restricted stock awards.

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11. Subsequent events

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The Merger with Morphimmune 

On October 2, 2023 the Company closed the Merger transaction contemplated by the Merger Agreement. As a result of the Merger, the Company acquired 100% of the outstanding equity interests of Morphimmune through the issuance of 8,835,710 shares of the Company’s common stock to Morphimmune stockholders, based upon an exchange ratio of 0.3042 shares of the Company’s common stock for each outstanding share of Morphimmune capital stock. 

Upon completion of the Merger, 8,128,096 options to purchase shares of Morphimmune capital stock were converted into 2,472,567 options to purchase shares of the Company’s common stock with a weighted average exercise price of

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$1.29 per share.  All other terms and conditions associated with these options, including vesting and exercisability are governed by the original terms and conditions of Morphimmune’s legacy equity plan. 

The Company will account for the acquisition of Morphimmune as an asset acquisition as substantially all of the fair value of the gross assets acquired of Morphimmune is concentrated within two programs that are considered a group of similar assets. These programs are deemed to be similar IPR&D assets being acquired based on the similarity of: (i) their current preclinical stage of development, (ii) solid tumor therapeutic indications, (iii) risks for development, (iv) regulatory pathway, and (v) economics of commercialization. 

Under the asset acquisition method of accounting, the assets acquired and liabilities assumed are recognized and measured at fair value and no goodwill is recorded or recognized. Acquired IPR&D that has no future alternative use is expensed at the time of acquisition. 

Sale of Common Stock 

On June 28, 2023, in connection with the Merger Agreement, the Company entered into subscription agreements with certain investors pursuant to which the Company would sell shares of its common stock, immediately following the completion of the Merger, in exchange for gross proceeds of $125.0 million. Immediately following the completion of the Merger, the Company sold 21,690,871 shares of its common stock pursuant to the subscription agreements. The Company recognized net proceeds of $125.0 million from this PIPE transaction, $61.0 million of which was received on or prior to September 30, 2023 and recorded as a deposit liability in the accompanying condensed balance sheets as of September 30, 2023. The deposit liability was subsequently reclassified to stockholders’ equity upon completion of the sale of common stock in October 2023.    

Termination of Chief Executive Officer  

In accordance with the terms of the Merger Agreement, the Company’s CEO resigned as a board member, officer and employee of the Company. Upon termination, 162,083 options immediately vested and the related unamortized stock-based compensation expense was immediately recognized. In addition, the CEO was eligible to receive approximately $1.0 million in termination benefits comprised of salary, bonus and related benefits and were recognized at the time of termination. 

Stock Options Granted for New Chief Executive Officer 

On June 28, 2023 and contingent upon completion of the Merger, the Company entered into an employment agreement with Dr. Clay Siegall, the President and CEO of Morphimmune, whereby Dr. Siegall was granted 2,137,080 options to purchase shares of the Company’s common stock at an initial exercise price of $5.91 per share. The options vest over time during Dr. Siegall’s continued employment, which commenced on October 2, 2023, in connection with the closing of the Merger, to which 25% of the options granted will vest after one year of employment  with Immunome and the remaining 75% of the options granted will vest monthly over the remaining 36 months following the one year anniversary, subject to acceleration in certain circumstances. The estimated grant date fair value of Dr. Siegall’s award was $9.6 million or $4.49 per share. 

New Lease Agreement  

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       In October 2023, the Company entered into a lease in Bothell, Washington. The lease has a five-year term.  

Board of Directors Stock Options Exercise Period Extension 

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       In October 2023, the stock options held by directors who resigned in connection with the Merger were amended so that: (a) the post-termination exercise period was extended to one year and (b) the vesting of all unvested shares was accelerated.  

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Open Market Sale Agreement, or the ATM Agreement 

On November 8, 2023, the Company provided notice of termination of the ATM Agreement to Jefferies.

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

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements and notes thereto and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2022. Unless otherwise indicated, all references in this Quarterly Report on Form 10-Q to “Immunome,” the “company,” “we,” “our,” “us” or similar terms refer to Immunome, Inc. and its subsidiary.  

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Forward-Looking Statements 

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In addition to historical financial information, this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled “Risk Factors” under Part II, Item 1A below. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” “predict,” “should,” “will” or the negative of these terms or other similar expressions. 

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In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements. 

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Overview

Immunome is a biotechnology company dedicated to developing first-in-class and best-in-class targeted cancer therapies. Our portfolio pursues each target with a modality appropriate to its biology, including immunotherapies, targeted effectors, radioligand therapies and ADCs. We believe that pursuing underexplored targets with appropriate drug modalities leads to transformative therapies. Our proprietary memory B cell hybridoma technology allows for the rapid screening and functional characterization of novel antibodies and targets. 

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Immunome is currently advancing its lead oncology program: an antibody (IMM-ONC-01) against interleukin 38 (IL-38) a novel immune modulator for the treatment of various solid tumors, which is in preclinical development stage. Immunome is also studying the expression of IL-38 in various tumor types in order to select the most appropriate patient population for potential evaluation of IMM-ONC-01 clinical utility.  

On October 2, 2023, the Company completed its merger with Morphimmune Inc., or Morphimmune. Under the terms of the Agreement and Plan of Merger and Reorganization dated as of June 28, 2023, or the Merger Agreement, among the Company, Morphimmune and Ibiza Merger Sub, Inc., a wholly owned subsidiary of the Company, or Merger Sub, Morphimmune merged with and into Merger Sub, with Morphimmune surviving as a wholly-owned subsidiary of Immunome, or the Merger. In connection with the Merger, on October 2, 2023, the Company issued and sold 21,690,871 shares of its common stock pursuant to the subscription agreements in a Private Investment in Public Equity, or PIPE, transaction which provided the Company with gross proceeds of $125.0 million. 

Morphimmune is a preclinical biotechnology company focused on developing targeted oncology therapeutics. Morphimmune’s Targeted Effector platform uses small molecule ligands to selectively deliver drug payloads to diseased

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cells. We believe this approach reduces toxicity and increases the efficacy of effector molecules, thereby improving outcomes for patients. 

Morphimmune’s 177Lu-FAP program is focused on developing a radiotherapy that targets FAP, or fibroblast activation protein, a protein overexpressed in cancer associated fibroblasts found in 75 percent of solid tumors. We believe that a FAP radiotherapy with pharmacokinetics optimized by the Targeted Effector platform will demonstrate increased antitumor activity driven by increased tumor uptake and retention. 

Since our inception in 2006, we have devoted substantially all our resources to research and development, raising capital, building our management team, building our intellectual property portfolio and entering and executing on collaborations and strategic transactions. To date, we have financed our operations primarily through sales of our common stock, Series A convertible preferred stock and warrants, warrant exercises, the issuance of convertible promissory notes, the Paycheck Protection Program loan, or the PPP loan, that was forgiven in May 2021, strategic partnerships with AbbVie Global Enterprises Ltd., or AbbVie, and the Department of Defense, or the DoD, and the Merger.  

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To date, we have not generated any revenue from commercial sales and do not expect to generate revenue from commercial sale of products for the foreseeable future. Since inception we have incurred significant operating losses. Our net losses for the three months ended September 30, 2023 and 2022 were $4.3 million and $8.5 million, respectively, and $14.2 million and $29.1 million for the nine months ended September 2023 and 2022, respectively.  

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As of September 30, 2023, we had cash and cash equivalents of $90.6 million, which included $61.0 million of deposits related to the PIPE transaction. We received the remaining $64.0 million of gross proceeds from the PIPE transaction on October 2, 2023. We expect to continue to incur significant expenses and operating losses for the foreseeable future as we continue advancement of our programs and develop product candidates. We also plan to perform research activities as we seek to discover and develop additional product candidates; carry out maintenance, expansion, enforcement, defense, and protection of our intellectual property portfolio; and hire research and development, clinical and administrative personnel. If we cannot obtain the necessary funding to support these activities on favorable terms, if at all, we will need to delay, scale back or eliminate some or all our research and development efforts. We may also need to consider various strategic alternatives, including a merger or sale of the Company; or reduce or cease operations. If we engage in collaborations, we may receive lower consideration upon commercialization of such products or technologies than if we had not entered into such arrangements or if we entered into such arrangements at later stages in the research and development process. Other than the current and potential future sources of funding under the Collaboration Agreement with AbbVie, we currently have no other sources of revenue, and our ability to continue to fund our future business plans is dependent on our ability to raise capital to fund our present and future business plans. Additionally, volatility in the capital markets, the competitive landscape and general economic conditions in the United States may be a significant obstacle to raising the required funds. 

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We expect to continue to incur significant expenses in connection with ongoing activities, particularly if and as we:

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As a result of these anticipated expenditures and potential unanticipated expenditures, we will need substantial additional financing to support our continuing operations and pursue our growth strategy. Until such time as we generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of any stockholder will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts, or grant rights to develop and market programs and development candidates that we would otherwise prefer to develop and market ourselves. We may be unable to raise additional funds or enter into such other agreements when needed on favorable terms or at all. The inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy.  

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       We expect that our cash as of September 30, 2023, in addition to the remaining proceeds received in connection with the closing of the Merger and concurrent PIPE transaction in October 2023, will be sufficient to fund our operations for at least 12 months from the filing date of this Quarterly Report on Form 10-Q. We have based these estimates on assumptions that may prove to be imprecise, and we may exhaust our available capital resources sooner than we currently expect. See “Liquidity and capital resources.” Due to the numerous risks and uncertainties associated with the research and development of our programs, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the research and development of our programs and development candidates.

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Our current programs and strategic collaboration

Oncology (IMM-ONC-01)

Our lead oncology program targets IL-38, which we believe is a novel, negative regulator of inflammation capable of promoting tumor evasion of the immune system. IL-38 was identified as the target of an antibody isolated from a hybridoma library generated from the memory B cells of a patient with squamous head and neck cancer. Query of public and proprietary (Tempus) databases of cancer gene expression revealed over-expression of IL-38 in multiple solid tumors. Further, a correlation with low levels of tumor-infiltrating immune effector cells, a hallmark of immune suppression in some of these patients’ tumors, and high IL-38 expression was also observed, suggesting a role for IL-38 as an immune modulator. Data obtained from preclinical testing indicated that blocking IL-38 function using inhibitory antibodies increased the immune response to the tumor and resulted in anti-tumor activity in select animal models, suggesting that anti-IL-38 antibodies could have therapeutic utility as single agents or in combination with other therapeutic modalities. Our recent analysis further confirms IL-38 expression is frequently elevated in samples of select patient tumor subtypes, in cancers such as head and neck, lung and gastroesophageal. We believe that this information could potentially guide patient selection for early clinical testing and may improve the overall probability of demonstrating clinical utility, thereby improving the probability of clinical success. We expect to provide guidance in Q1 2024 regarding our timeline to prepare and submit to the FDA an IND for IMM-ONC-01.

LU FAP 

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As a result of the Merger, we are now developing a FAP-targeted Lu-177 radiotherapy product candidate for the treatment of solid tumors. FAP, or fibroblast activation protein, serves as a tumor-specific marker due to its broad expression on cancer associated fibroblasts. We believe that our FAP-targeted radiotherapy has the potential to deliver higher antitumor activity than FAP-targeted radiotherapies from competitor companies. Our FAP-targeted radiotherapy has four functional domains:

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We are evaluating a series of potential drug candidates that explore options for each of the four domains in order to select the combination that is most likely to deliver therapeutic benefits in cancer patients. We expect to nominate a potential development candidate in Q4 2023 with an anticipated IND submission with the FDA in Q1 2025.

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 SARS-CoV-2 (IMM-BCP-01)

We developed an antibody cocktail derived from the B cells of COVID-19 patients who exhibited high neutralizing titers. IMM-BCP-01 targets non-overlapping regions of the Spike protein of SARS-CoV-2 which include highly conserved, subdominant epitopes. The cocktail promotes both ACE2 and non-ACE2 dependent neutralization and induces natural viral clearance mechanisms such as antibody dependent cellular cytotoxicity, complement activation and phagocytosis in pre-clinical testing. We are conducting this program in collaboration with the DoD. The IMM-BCP-01 program is broadly focused on the emerging variants of SARS-CoV-2. We submitted an IND application for the IMM-BCP-01 program to the U.S. FDA in November 2021 and initiated the Phase 1b study of IMM-BCP-01 in patients infected with SARS-CoV-2 in June 2022. On January 6, 2023, we announced that it successfully completed dosing of the first cohort of patients in a Phase 1b study with no significant treatment-related adverse events. We have decided to seek a partner in order to continue the trial and for any further development activities.

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Other Programs and Platforms

In addition to the already described current programs, we will continue to invest in our proprietary discovery engine and Morphimmune’s Targeted Effector platform to expand our pipeline. The high output of antibody-target pairs resulting from our discovery engine may provide us with additional insights into the immune response against cancer and other diseases. In addition, Morphimmune’s Targeted Effector platforms use of small molecule ligands to selectively deliver drug payloads could potentially lead to a superior therapeutic index and better patient outcomes. We intend to continue to invest in these platforms, with the goal of developing first-in-class and best-in-class targeted cancer therapies, including immunotherapies, targeted effectors, radioligand therapies and Antibody-Drug Conjugates, or ADCs. 

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Additionally, we plan to expand our intellectual property estate and infrastructure needed to discover and advance our platform and programs. We may in-license or acquire complementary intellectual property as needed or required, and we may continue to build our know-how and trade secrets. As an example, we may pursue both therapeutic and diagnostic applications of our antibodies through composition of matter and/or method of use patents. While the focus area of our current programs is oncology, we may invest in intellectual property in other therapeutic areas as well. We believe that our technology has broad utility and could enable the formation of attractive strategic partnerships, as exemplified by our OTA Agreement with the DoD and the Collaboration Agreement with AbbVie. Therefore, to maximize the value of our platform we may, from time to time, contemplate and enter into various forms of collaborative agreements related to our platform, our programs and/or development candidates with third parties, including other companies, government agencies, academic institutions and non-profit groups.  

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Collaboration Agreement with AbbVie

On January 4, 2023, we entered into a collaboration and option agreement, or the Collaboration Agreement with AbbVie. As part of the agreement, we will use our proprietary discovery engine to discover and validate targets derived from patients with three specified tumor types, and antibodies that bind to such targets, which may be the subject of further development and commercialization by AbbVie. The research term is at least 66 months, subject to extension in certain circumstances by specified extension periods. Pursuant to the terms of the Collaboration Agreement, with respect to each novel target-antibody pair we generate that meets certain mutually agreed criteria (each, a Validated Target Pair or VTP), we granted to AbbVie an exclusive option (up to a maximum of 10 in total) to purchase all rights in and to such Validated Target Pair, for all human and non-human diagnostic, prophylactic and therapeutic uses throughout the world, including without limitation the development and commercialization of certain products derived from the assigned Validated Target Pair and directed to the target comprising such VTP (Products). No rights are granted by us to AbbVie under any of our platform technology covering our discovery engine. Until the expiration of the research term, we are not permitted to conduct any activities in connection with targets or antibodies derived from patients with the specified tumor types, whether independently or with other third parties, except in limited circumstances with respect to certain target-antibody pairs that are no longer subject to the collaboration with AbbVie. In addition, during the term of the Collaboration Agreement, we are not permitted to develop products directed to targets that are included in VTPs purchased by AbbVie, or to which AbbVie still has rights under the Collaboration Agreement, whether independently or with other third parties.  

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Under the Collaboration Agreement, AbbVie paid us an upfront payment of $30.0 million in January 2023 and may pay us certain additional platform access payments in the aggregate amount of up to $70.0 million based on our use of our discovery engine in connection with activities under each stage of the research plan, and delivery of VTPs to AbbVie. AbbVie will also pay an option exercise fee in the low single digit millions for each of the up to 10 VTPs for which it exercises an option. If AbbVie progresses development and commercialization of a Product, AbbVie will pay us development and first commercial sale milestones of up to $120.0 million per target, and sales milestones based on achievement of specified levels of net sales of Products of up to $150.0 million in the aggregate per target, in each case, subject to specified deductions in certain circumstances. On a Product-by-Product basis, AbbVie will pay us tiered royalties on net sales of Products at a percentage in the low single digits, subject to specified reductions and offsets in certain circumstances. AbbVie’s royalty payment obligation will commence, on a Product-by-Product and country-by-country basis, on the first commercial sale of such Product in such country and will expire on the earlier of (a) (i) the ten (10)-year anniversary of such first commercial sale for such Product in such country, or (ii) solely with respect to a

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Product that incorporates an antibody comprising a VTP (or certain other antibodies derived from such delivered antibody), the expiration of all valid claims of patent rights covering the composition of matter of any such antibody (whichever out of (i) or (ii) is later), and (b) the expiration of regulatory exclusivity for such Product in such country. We are potentially eligible to receive up to approximately $2.8 billion from AbbVie under the Collaboration Agreement from the sources described above. 

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The Collaboration Agreement will expire upon the expiration of the last to expire royalty payment obligation with respect to all Products in all countries, subject to earlier expiration if all option exercise periods for all Validated Target Pairs expire without AbbVie exercising any option. In addition, the research term will terminate if AbbVie does not elect to make certain platform access payments at specified points during the research term, in order for us to continue the target discovery activities under the collaboration. The Collaboration Agreement may be terminated by (a) either party upon the other party’s uncured material breach, or upon any insolvency event of the other party, (b) AbbVie for convenience upon a specified period prior written notice, or (c) AbbVie for our breach of representations and warranties with respect to debarment or compliance with anti-bribery and anti-corruption laws. If AbbVie has the right to terminate the Collaboration Agreement for our uncured material breach or a breach of representations and warranties with respect to debarment or compliance with anti-bribery and anti-corruption laws, AbbVie may elect to continue the Collaboration Agreement, subject to certain specified reductions applicable to certain of AbbVie’s payment obligations (with a specified floor on such reductions). 

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Components of our results of operations

Collaboration revenue

We have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products for the foreseeable future. To date, we have generated our revenue through the Collaboration Agreement with AbbVie. Our Collaboration revenue to date consists of payments from Abbvie that we recognize over the expected performance period under this agreement. We expect that revenues for the foreseeable future will be derived primarily from this agreement and any additional collaborations that we may enter into. We have not received any royalties under the Collaboration Agreement with AbbVie to date. 

Research and development expenses

Research and development expenses consist of costs incurred in performing research and development activities, which include:

We expense research and development costs as incurred. Advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the benefits are consumed.

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In July 2020, we entered into the OTA Agreement with the DoD to fund the development of IMM-BCP-01 to treat COVID-19. The OTA Agreement was modified in May 2021 to increase such funding. In connection with the OTA Agreement, we record expense reimbursements received from the DoD as contra-research and development expenses in the same period the underlying expenses are incurred.

General and administrative expenses

General and administrative expenses consist primarily of salaries and other related costs, including share-based compensation for personnel in our executive, business development, and administrative functions. General and administrative expenses also include legal fees relating to intellectual property and corporate matters, professional fees for accounting, auditing, tax and consulting services, insurance costs, travel, direct and allocated facility related expenses and other operating costs.

Interest income

Interest income consists of interest earned on our cash balances held with a financial institution.

Results of operations

Comparison of the three and nine months ended September 30, 2023 and 2022

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Three months ended September 30, 2023 and 2022

Collaboration revenue

In January 2023, we entered into the Collaboration Agreement with AbbVie and recognized collaboration revenue of $3.6 million for the three months ended September 30, 2023. No collaboration revenue was recognized for the three months ended September 30, 2022.

Research and development expenses 

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Research and development expenses were $3.8 million and $5.2 million for the three months ended September 30, 2023 and 2022. 

Research and development expenses decreased by $1.4 million for the three months ended September 30, 2023. BCP-01 external program related expenses decreased by $1.7 million as a result of our decision to seek a partner in order to continue the BCP-01 trial and further development activities. ONC-01 external program related expenses and general research decreased by $1.6 million as a result of a decrease in research and product development activities. These decreases were offset by an increase of $1.0 million in outsourced research and materials relating to the AbbVie collaboration. In addition, personnel related costs increased by $0.9 million for the three months ended September 30, 2023 primarily as a result of an increase in headcount and wage increases for employees.

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General and administrative expenses

General and administrative expenses were $4.4 million and $3.3 million for the three months ended September 30, 2023 and 2022, respectively.

General and administrative expenses increased by $1.1 million for the three months ended September 30, 2023. The increase was primarily a result of a $1.6 million increase in professional fees including consulting and legal related costs associated with the Merger offset by a $0.4 million decrease in general expenses including D&O insurance, and a $0.1 million decrease in personnel-related costs. Personnel-related costs decreased as a result of a $0.1 million decrease in share-based compensation expense and headcount.

Interest income

Interest income was $0.3 million and $0.0 million for the three months ended September 30, 2023 and 2022, respectively.

Interest income increased by $0.3 million for the three months ended September 30, 2023 as a result of increased interest rates on our cash balances held with a financial institution.

Nine months ended September 30, 2023 and 2022

Collaboration revenue

In January 2023, we entered into the Collaboration Agreement with AbbVie and recognized collaboration revenue of $10.2 million for the nine months ended September 30, 2023. No collaboration revenue was recognized for the nine months ended September 30, 2022.

Research and development expenses

Research and development expenses were $13.5 million and $19.0 million for the nine months ended September 30, 2023 and 2022, respectively. 

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Research and development expenses decreased by $5.5 million for the nine months ended September 30, 2023. Of the $5.5 million decrease in research and development expenses, BCP-01 external program related expenses decreased by $4.9 million, net of contra expense, as a result of our decision to seek a partner in order to continue the BCP-01 trial and further development activities. ONC-01 external program related expenses and general research decreased by $5.0 million as a result of a decrease in research and product development activities related to outsourced CMC related activities in preparation for IND filing. These decreases were offset by an increase of $2.7 million in outsourced research and materials relating to the AbbVie collaboration and $0.2 million increase in general expenses. In addition, personnel related costs increased by $1.5 million for the nine months ended September 30, 2023 primarily related to increase in headcount and wage increases for employees.

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General and administrative expenses

General and administrative expenses were $11.6 million and $10.1 million for the nine months ended September 30, 2023 and 2022, respectively.

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General and administrative expenses increased by $1.5 million for the nine months ended September 30, 2023. The increase was primarily a result of a $2.8 million increase in professional fees, including consulting and legal related costs associated with the Merger, offset by a $1.1 million decrease in general expenses including D&O insurance. In addition, personnel related costs decreased by $0.2 million primarily as a result of a decrease in share-based compensation expense and headcount vacancies during the nine months ended September 30, 2022.

 Interest income

Interest income was $0.7 million and $0.0 million for the nine months ended September 30, 2023 and 2022, respectively.

Interest income increased by $0.7 million for the nine months ended September 30, 2023 as a result of increased interest rates on our cash balances held with a financial institution.

Liquidity and capital resources

Since our inception, we have incurred significant operating losses. We expect to incur significant expenses and operating losses for the foreseeable future as we continue advancement of our programs and development candidates. Through September 30, 2023, we raised an aggregate of $155.1 million in gross proceeds from sales of our common stock, Series A convertible preferred stock and warrants, warrant and stock option exercises, the issuance of convertible promissory notes, the PPP loan that was forgiven in May 2021, and strategic partnerships with AbbVie. In addition, we received $17.6 million in expense reimbursement from the DoD under the OTA Agreement, from inception through 2022. As of September 2023, the Company’s obligation  under the OTA agreement with the DoD were completed. 

In June 2023, the Company entered into subscription agreements with certain investors pursuant to which the Company would sell shares of its common stock, immediately following the completion of the Merger, in exchange for gross proceeds of $125.0 million. Immediately following the completion of the Merger, the Company sold 21,690,871 shares of its common stock pursuant to the subscription agreements in a PIPE transaction. The Company recognized gross proceeds of $125.0 million of which $61.0 million was received on or prior to September 30, 2023 and is recorded as a deposit liability on the September 30, 2023 balance sheet. 

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On January 4, 2023, we entered into the Collaboration Agreement with AbbVie directed to the discovery of up to 10 novel target-antibody pairs leveraging our discovery engine and we received a $30.0 million upfront payment from AbbVie. Additionally, we are potentially eligible to receive up to approximately $2.8 billion from AbbVie under the Collaboration Agreement from the sources described in the section “Our current programs and strategic collaboration”. There are no assurances that we will receive additional payments from AbbVie beyond the $30.0 million upfront payment. 

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       On October 1, 2021, we entered into an Open Market Sale Agreement, or the ATM Agreement, with Jefferies Group LLC, which provides that, upon the terms and subject to the conditions and limitations in the ATM Agreement, we may elect, from time to time, to offer and sell shares of common stock under the registration statement having an aggregate offering price of up to $75.0 million through Jefferies Group LLC acting as sales agent. Through September 30, 2023, we sold 5,925 shares of common stock under the ATM Agreement resulting in net proceeds of approximately $34,000.  On November 8, 2023, the Company provided notice of termination of the ATM Agreement to Jefferies. 

We will need to raise additional capital before we exhaust our current cash to continue to fund our research and development, including our plans to continue advancement of our programs and development candidates and new product development, as well as to fund operations. As and if necessary, we will seek to raise additional funds through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. We can give no assurances that we will be able to secure such additional sources of funds to support our operations, or, if such funds are available to us, that such additional financing will be sufficient to meet our needs. 

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Cash flows

The following table summarizes our sources and uses of cash for the nine months ended September 30, 2023 and 2022:

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Operating activities

Net cash provided by operating activities for the nine months ended September 30, 2023 was $9.9 million, consisting primarily of increases in deferred revenue of $19.8 million, noncash charges of $4.1 million for share-based compensation expense, depreciation and amortization of right-of-use asset, and expensing of the deferred offering costs, and decreases in prepaid expenses and other assets of $1.6 million, offset by our net loss of $14.2 million and decreases in accrued expenses and other current liabilities and other long-term liabilities of $1.5 million.

Net cash used in operating activities for the nine months ended September 30, 2022 was $22.0 million, consisting primarily of our net loss of $29.1 million and net decreases of accrued expenses and other liabilities and accounts payable of $2.4 million, offset by net noncash charges of $4.3 million for stock compensation expense, depreciation and amortization of right-of-use asset and decreases in prepaid expenses and other assets of $5.2 million.

Investing activities

During the nine months ended September 30, 2023 and 2022, we used $0.5 million and $0.2 million, respectively, for the purchase of property and equipment.

Financing activities

During the nine months ended September 30, 2023, financing activities provided $61.0 million in gross proceeds from prepayments received in relation to the PIPE transaction associated with the closing of the Merger in October 2023. The Company received these funds prior to the closing of the Merger and recorded this transaction as a deposit liability in the accompanying condensed balance sheets as of September 30, 2023. Financing activities also provided $34,000 in net proceeds from the sales of common stock under the ATM Agreement offset by $0.1 million in payments of deferred offering costs associated with the PIPE transaction. 

During the nine months ended September 30, 2022, financing activities provided $32,000 from exercise of stock options.

Funding requirements

Our operating expenses are expected to increase substantially as we continue to advance our discovery engine and programs.

Specifically, our expenses will increase if and as we:

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We expect that our existing cash at September 30, 2023, in addition to the remaining proceeds received in connection with the closing of the merger and concurrent PIPE transaction in October 2023, will enable us to fund our current and planned operating expenses and capital expenditures for at least 12 months from the filing date of this Quarterly Report on Form 10-Q. We will need additional financing to support its continuing operations and pursue its research and development strategy. We have based these estimates on assumptions that may prove to be imprecise, and we may exhaust our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development of our programs, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the research and development of our programs and development candidates.

Our future funding requirements will depend on many factors including:

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