10-Q

Large Accelerated Filer

Accelerated Filer

Non-
Accelerated Filer

Smaller Reporting Company

Emerging Growth Company

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

Commission File Number:

001-33038

ZIOPHARM Oncology, Inc.

(Exact name of registrant as specified in its charter)


Delaware		84-1475642
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One First Avenue, Parris Building 34, Navy Yard Plaza

Boston, Massachusetts 02129

(617)

259-1970

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	ZIOP	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes:

☒

No: ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes:

☒

No: ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company, or an emerging growth company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ ‘‘smaller reporting company,’’ and ‘‘emerging growth company’’ in Rule 12b–2 of the Exchange Act.

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act). Yes: ☐ No: ☒

As of October 29, 2020, the number of outstanding shares of the registrant’s common stock, $0.001 par value, was 214,291,057

shares.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form

10-Q

contains forward-looking statements that are based on our current beliefs and expectations. These forward-looking statements may be accompanied by such words as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “project,” “target,” “will” and other words and terms of similar meaning, although not all forward-looking statements contain these identifying words. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report, we caution you that these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about which we cannot be certain.

The forward-looking statements in this Quarterly Report include, but are not limited to, statements about:

•

our ability to raise substantial additional capital to fund our planned operations in the near term;

•

estimates regarding our expenses, use of cash, timing of future cash needs and anticipated capital requirements;

•

the development of our product candidates, including statements regarding the initiation, timing, progress and results of our preclinical clinical studies, clinical trials and research and development programs;

•

our ability to advance our product candidates through various stages of development, especially through pivotal safety and efficacy trials;

•

the risk that final trial data may not support interim analysis of the viability of our product candidates;

•

our expectation regarding the safety and efficacy of our product candidates;

•

the timing, scope or likelihood of regulatory filings and approvals from the U.S. Food and Drug Administration or equivalent foreign regulatory agencies for our product candidates and for which indications;

•

our ability to license additional intellectual property relating to our product candidates from third parties and to comply with our existing license agreements;

•

our ability to enter into partnerships or strategic collaboration agreements, our ability to achieve the results contemplated and the potential benefits to be derived from relationships with collaborators;

•

our ability to maintain and establish collaborations and licenses; developments and projections relating to competition from other pharmaceutical and biotechnology companies or our industry;

•

our estimates regarding the potential market opportunity for our product candidates;

•

the anticipated rate and degree of commercial scope and potential, as well as market acceptance of our product candidates for any indication, if approved;

•

the anticipated amount, timing and accounting of contract liability (formerly deferred revenue), milestones and other payments under licensing, collaboration or acquisition agreements, research and development costs and other expenses;

•

our intellectual property position, including the strength and enforceability of our intellectual property rights;

•

our ability to attract and retain qualified employees and key personnel;

•

the impact of government laws and regulations in the United States and foreign countries;

•

our expectations regarding the impact of the ongoing coronavirus disease 2019, or

COVID-19,

pandemic, included the expected duration of disruption and immediate and long-term impact and effect on our business and operations;

•

the diversion of healthcare resources away from the conduct of clinical trials as a result of the ongoing

COVID-19

pandemic, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;

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•

the interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel, quarantines or social distancing protocols imposed or recommended by federal or state governments, employers and others in connection with the ongoing

COVID-19

pandemic; and

•

other risks and uncertainties, including those listed under Part II, Item 1A, “Risk Factors”.

Any forward-looking statements in this Quarterly Report on Form

10-Q

reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A. “Risk Factors” and elsewhere in this Quarterly Report on Form

10-Q.

Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

NOTE REGARDING COMPANY REFERENCES

Throughout this Quarterly Report on Form

10-Q,

“Ziopharm,” the “Company,” “we,” “us” and “our” refer to ZIOPHARM Oncology, Inc. and its subsidiaries.

NOTE REGARDING TRADEMARKS

All trademarks, trade names and service marks appearing in this Quarterly Report on Form

10-Q

are the property of their respective owners.

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ZIOPHARM Oncology, Inc.

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		Page
Part I - Financial Information

Item 1.	Financial Statements

	Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019		4

	Statements of Operations for the three and nine months ended September 30, 2020 and 2019 (unaudited)		5

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

	Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 (unaudited)		8

	Notes to Financial Statements (unaudited)		9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		35

Item 4.	Controls and Procedures		36

Part II - Other Information

Item 1.	Legal Proceedings		38

Item 1A.	Risk Factors		38

Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds		75

Item 3.	Defaults upon Senior Securities		75

Item 4.	Mine Safety Disclosures		75

Item 5.	Other Information		75

Item 6.	Exhibits		76

ZIOPHARM Oncology, Inc.

NOTES TO FINANCIAL STATEMENTS

(unaudited)

1. Business

Overview

ZIOPHARM Oncology, Inc., which is referred to herein as “ZIOPHARM,” or the “Company,” is a biopharmaceutical company seeking to develop, acquire, and commercialize, on its own or with partners, a diverse portfolio of immuno-oncology therapies.

The Company’s operations to date have consisted primarily of conducting research and development and raising capital to fund those efforts. The Company’s fiscal year ends on December 31.

The Company has operated at a loss since its inception in 2003 and has no recurring revenues from operations. The Company anticipates that losses will continue for the foreseeable future. As of September 30, 2020, the Company had approximately $135.5 million of cash and cash equivalents and the Company’s accumulated deficit was approximately $741.3 million. Given its current development plans, the Company anticipates cash resources will be sufficient to fund operations into

mid-2022. The

Company’s ability to continue operations after its current cash resources are exhausted depends on its ability to obtain additional financing or to achieve profitable operations, as to which no assurances can be given. Cash requirements may vary materially from those now planned because of changes in the Company’s focus and direction of its research and development programs, competitive and technical advances, patent developments, regulatory changes or other developments. If adequate additional funds are not available when required, or if the Company is unsuccessful in entering into partnership agreements for further development of its product candidates, management may need to curtail its development efforts and planned operations to conserve cash.

Basis of Presentation

The accompanying unaudited interim financial statements have been prepared in accordance with the instructions to Form

10-Q

pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC. Certain information and note disclosures required by generally accepted accounting principles in the United States have been condensed or omitted pursuant to such rules and regulations.

It is management’s opinion that the accompanying unaudited interim financial statements reflect all adjustments (which are normal and recurring) that are necessary for a fair statement of the results for the interim periods. The unaudited interim financial statements should be read in conjunction with the audited financial statements and the notes thereto for the year ended December 31, 2019, included in the Company’s Annual Report on Form

10-K

for the fiscal year ended December 31, 2019 filed with the SEC on March 2, 2020, or the Annual Report.

The

year-end

balance sheet data was derived from the audited financial statements but does not include all disclosures required by generally accepted accounting principles in the United States.

The results disclosed in the statements of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the full fiscal year

2020

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ZIOPHARM Oncology, Inc.

NOTES TO FINANCIAL STATEMENTS (unaudited)

1. Business (Continued)

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although the Company regularly assesses these estimates, actual results could differ from those estimates. Changes in estimates are recorded in the period in which they become known.

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

•

Clinical trial expenses;

•

Collaboration agreements;

•

Fair value measurements of stock-based compensation; and

•

Income taxes

Impact of

COVID-19 Pandemic

With the global spread of the ongoing

COVID-19

pandemic

the Company has implemented business continuity plans designed to address and mitigate the impact of the

COVID-19

pandemic on its

business and operations

. The extent to which the

COVID-19

pandemic impacts the Company’s business, clinical development and regulatory efforts and the value of its common stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements, and the effectiveness of actions taken globally to contain and treat the disease. The

global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the COVID-19 pandemic could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.

In addition, the Company is subject to other challenges and risks specific to its business and its ability to execute on its business plan and strategy, as well as risks and uncertainties common to companies in the biopharmaceutical industry with development and commercial operations, including, without limitation, risks and uncertainties associated with: obtaining regulatory approval of its product candidates; delays or problems in obtaining clinical supply, loss of single source suppliers or failure to comply with manufacturing regulations; identifying, acquiring or

in-licensing

additional products or product candidates; biopharmaceutical product development and the inherent uncertainty of clinical success; and the challenges of complying with applicable regulatory requirements. In addition, to the extent the ongoing

COVID-19

pandemic adversely affects its business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties discussed above.

Subsequent Events

The Company evaluated all events and transactions that occurred after the balance sheet date through the date of this filing. During this period, the Company did not have any material subsequent events that impacted its financial statements or disclosures.

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ZIOPHARM Oncology, Inc.

NOTES TO FINANCIAL STATEMENTS (unaudited)

2. Financings

February 2020 Public Offering

On February 5, 2020, the Company entered into an underwriting agreement with Jefferies, as representative of the several underwriters named therein, relating to the issuance and sale of 27,826,086 shares of its common stock. The price to the public in the offering was $3.25 per share, and the underwriters agreed to purchase the shares from the Company pursuant to the underwriting agreement at a purchase price of $3.055 per share. Under the terms of the underwriting agreement, the Company also granted the underwriters an option, exercisable for 30 days, to purchase up to an additional 4,173,912 shares of common stock at a purchase price of $3.055 per share.

The offering was made pursuant to the Company’s effective registration statement on Form

S-3ASR

(File

No. 333-232283)

previously filed with the SEC, and a prospectus supplement thereunder. The underwriters purchased the 27,826,086 shares on February 5, 2020. The net proceeds from the offering were approximately $84.8 million after deducting underwriting discounts and offering expenses paid by the Company.

On March 10, 2020, the underwriters exercised their option to purchase an additional 1,284,025 shares. The net proceeds were approximately $3.9 million after deducting underwriting discounts and offering expenses paid by the Company.

At-the-market

Offering

In June 2019, the

Company entered into an Open Market Sale Agreement, or sales agreement, with Jefferies LLC, as agent, or (“Jefferies”), pursuant to which the Company may offer and sell, from time to time through Jefferies, shares of its common stock having an aggregate offering price of up

to $

100.0

million. Shares will be sold pursuant to the Company’s effective registration statement on Form

S-3ASR

(File

333-232283),

as previously filed with the SEC.

During the nine months ended September 30, 2019, the Company sold an aggregate of 639,442 shares of its common stock. The offering was made pursuant to the Company’s effective registration statement on Form

S-3ASR

(Registration Statement

No. 333-232283)

previously filed with the SEC, and a prospectus supplement thereunder. The net proceeds from the offering were approximately $3.0 million after deducting underwriting discounts and estimated offering expenses payable by the Company.

During the three months ended September 30, 2020, there were no at-the-market sales. During the nine months ended September 30, 2020, the Company issued and sold an

aggregate of 2,814,673

shares of its common stock

under the sales agreement for aggregate net proceeds of

$13.0

illion after deducting commissions and offering expenses.

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ZIOPHARM Oncology, Inc.

NOTES TO FINANCIAL STATEMENTS (unaudited)

2. Financings (

ontinued)

November 2018 Private Placement and 2019 Inducement Warrants

On November 11, 2018, the Company entered into a securities purchase agreement with certain institutional and accredited investors pursuant to which it sold an aggregate of 18,939,394 immediately separable units at a price per unit of $2.64 to such investors, for net proceeds of approximately $47.1 million. Each unit was comprised of (i) one share of our common stock, par value $0.001 per share and (ii) a warrant to purchase one share of common stock. The securities issued by the Company pursuant to the securities purchase agreement and to be issued upon exercise of the warrants were not registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. When issuing the units, the Company relied on the private placement exemption from registration provided by Section 4(a)(2) of the Securities Act and by Rule 506 of Registration D, promulgated thereunder and on similar exemptions under applicable state laws and filed a Form D with the SEC on November 19, 2018. On February 7, 2019, the Company filed a registration statement on Form

S-3

registering the resale of shares issued pursuant to the securities purchase agreement and the resale of shares that may be issued upon exercise of the warrants.

On July 26, 2019 and September 12, 2019, the Company entered into agreements for the exercise of the warrants issued in November 2018 to purchase common stock in a private placement. Pursuant to the terms of the agreements, investors exercised warrants for an aggregate of 17,803,031 shares of common stock, at an exercise price of $3.01 per share. The Company issued new warrants to purchase up to 17,803,031 additional shares of common stock as an inducement for warrant holders to exercise their 2018 warrants early. The new warrants will become exercisable six months following the date of issuance, will expire on the fifth anniversary of the initial exercise date, and have an exercise price of $7.00 (Note 9). Proceeds from the exercise of the warrants, before deducting placement agent fees and other related expenses of $1.1 million were approximately $52.5 million.

3. Summary of Significant Accounting Policies

The Company’s significant accounting policies were identified in the Company’s Annual Report. There have been no material changes in those policies since the filing of its Annual Report except as noted below.

New Accounting Pronouncements

In December 2019, the FASB issued ASU

2019-12,

Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes

, which is intended to simplify various aspects related to accounting for income taxes. ASU

2019-12

removes certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for public entities for fiscal years beginning after December 15, 2020, and for interim periods within those fiscal years. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements.

In August 2018, the FASB issued ASU

No. 2018-13,

Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement

, or ASU

2018-03.

The guidance in this ASU modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. Under the new guidance, transfers between asset classes and the valuation related to Level 3 assets is modified. The new standard is effective for annual reporting periods beginning after December 15, 2019, including interim reporting periods within each annual reporting period. The adoption did not have a material impact on the Company’s financial statements.

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ZIOPHARM Oncology, Inc.

NOTES TO FINANCIAL STATEMENTS (unaudited)

4. Fair Value Measurements

The Company accounts for its financial assets and liabilities using fair value measurements. The authoritative accounting guidance defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value as follows:

•

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

•

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets and liabilities measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019 were as follows:


($ in thousands)			Fair Value Measurements at Reporting Date Using
Description	Balance as of September 30, 2020		Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	75,300	$	75,300	$	—	$	—


($ in thousands)			Fair Value Measurements at Reporting Date Using
Description	Balance as of December 31, 2019		Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	68,031	$	68,031	$	—	$	—

ZIOPHARM Oncology, Inc.

NOTES TO FINANCIAL STATEMENTS (unaudited)

4. Fair Value Measurements (Continued)

The cash equivalents represent deposits in short-term United States treasury money market mutual funds quoted in an active market and classified as a Level 1 asset.

5. Net Loss per Share

Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the period. The Company’s potentially dilutive shares, which include outstanding common stock options, unvested restricted stock and preferred stock, have not been included in the computation of diluted net loss per share for any of the periods presented as the result would be anti-dilutive. Such potentially dilutive shares of common stock at September 30, 2020 and 2019 consisted of the following:


	September 30,
	2020		2019
Stock options		6,572,191		4,995,549
Inducement stock options		863,333		965,000
Unvested restricted stock		1,289,389		1,569,579
Warrants		22,272,727		18,939,394

		30,997,640		26,469,522

6. Commitments and Contingencies

License Agreements

Exclusive License Agreement with PGEN Therapeutics

On October 5, 2018, the Company entered into the License Agreement, with PGEN Therapeutics, Inc. or PGEN, a wholly owned subsidiary of Precigen Inc., or Precigen, which was formerly known as Intrexon Corporation. As between the Company and PGEN, the terms of the License Agreement replace and supersede the terms of: (a) that certain Exclusive Channel Partner Agreement by and between the Company and Precigen, dated January 6, 2011, as amended by the First Amendment to Exclusive Channel Partner Agreement effective September 13, 2011, the Second Amendment to the Exclusive Channel Partner Agreement effective March 27, 2015, and the Third Amendment to Exclusive Channel Partner Agreement effective June 29, 2016, which was subsequently assigned by Precigen to PGEN; (b) certain rights and obligations pursuant to that certain License and Collaboration Agreement effective March 27, 2015 between ZIOPHARM, Precigen and ARES TRADING S.A., or Ares Trading, a subsidiary of Merck KGaA, or Merck, as assigned by Precigen to PGEN, or the Ares Trading Agreement; (c) that certain License Agreement between the Company, Precigen, and MD Anderson, with an effective date of January 13, 2015, or the MD Anderson License, which was subsequently assigned by Precigen and assumed by PGEN effective as of January 1, 2018; and (d) that certain Research and Development Agreement between the Company, Precigen and MD Anderson with an effective date of August 17, 2015, or the Research and Development Agreement, and any amendments or statements of work thereto.

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ZIOPHARM Oncology, Inc.

NOTES TO FINANCIAL STATEMENTS (unaudited)

6. Commitments and Contingencies (Continued)

Pursuant to the terms of the License Agreement, PGEN has granted the Company exclusive, worldwide rights to research, develop and commercialize (i) products utilizing PGEN’s RheoSwitch

gene switch, or RTS

, for the treatment of cancer, referred to as

IL-12

Products, (ii) CAR products directed to (A) CD19 for the treatment of cancer, referred to as CD19 Products, and (B) a second target for the treatment of cancer, subject to the rights of Ares Trading to pursue such target under the Ares Trading Agreement, and

(iii) T-cell

receptor, or TCR, products designed for neoantigens for the treatment of cancer. PGEN has also granted the Company an exclusive, worldwide, royalty-bearing,

sub-licensable

license for certain patents relating to the

Sleeping Beauty

technology to research, develop and commercialize TCR products for both neoantigens and shared antigens for the treatment of cancer, referred to as TCR Products.

The Company is solely responsible for all aspects of the research, development and commercialization of the exclusively licensed products for the treatment of cancer. The Company is required to use commercially reasonable efforts to develop and commercialize

IL-12

Products

CD19 Products and TCR Products.

In consideration of the licenses and other rights granted by PGEN, the Company pay

PGEN an annual license fee of

$0.1 million.

As of September 30, 2020, the Company had

$0.1 million

in prepaid expenses and other current assets. The Company did

not

have any annual license expenses for the three and nine months ended September

30,

2020 and

2019.

The Company will also make milestone payments totaling up to an additional $52.5 million for each exclusively licensed program upon the initiation of later stage clinical trials and upon the approval of exclusively licensed products in various jurisdictions. In addition, the Company will pay PGEN tiered royalties ranging from

low-single

digit to high-single digit on the net sales derived from the sales of any approved

IL-12

Products and CAR Products. The Company will also pay PGEN royalties ranging from

low-single

digit to

mid-single

digit on the net sales derived from the sales of any approved TCR Products, up to a maximum royalty amount of $100.0 million in the aggregate. The Company will also pay PGEN 20% of any sublicensing income received by the Company relating to the licensed products.

The Company is responsible for all development costs associated with each of the licensed products, other than Gorilla

IL-12

Products.

PGEN will pay the Company royalties ranging from

low-single

digits to

mid-single

digits on the net sales derived from the sale of PGEN’s CAR products, up to $50.0 million.

During the three and nine months ended September

30, 2020,

there were no expenses for services performed by PGEN. As of September

30,

2020

and December 31, 2019, the Company had

$0 and

$0.1 million

, respectively, in accrued expenses for amounts due to PGEN. During the three and nine months ended

September 30, 2019,

the Company recorded an expense of $0.3 million and

$1.7

million, respectively, for services performed by PGEN

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ZIOPHARM Oncology, Inc.

NOTES TO FINANCIAL STATEMENTS (unaudited)

6. Commitments and Contingencies (Continued)

License Agreement—The University of Texas MD Anderson Cancer Center

On January 13, 2015, the Company, together with Precigen, entered into the MD Anderson License with MD Anderson (which Precigen subsequently assigned to PGEN). Pursuant to the MD Anderson License, the Company, together with Precigen, holds an exclusive, worldwide license to certain technologies owned and licensed by MD Anderson including technologies relating to novel CAR

T-cell

therapies,

non-viral

gene transfer systems, genetic modification and/or propagation of immune cells and other cellular therapy approaches, Natural Killer, or NK Cells, and TCRs, arising from the laboratory of Laurence Cooper, M.D., Ph.D., who became the Company’s Chief Executive Officer in May 2015 and was formerly a tenured professor of pediatrics at MD Anderson and is now currently a visiting scientist under that institution’s policies.

The term of the MD Anderson License expires on the later of (a) the expiration of all patents licensed thereunder, or (b) the twentieth anniversary of the date of the MD Anderson License; provided, however, that following the expiration of the term of the MD Anderson License, the Company, together with PGEN, shall have a fully-paid up, royalty free, perpetual, irrevocable and sublicensable license to use the licensed intellectual property thereunder. After ten years from the date of the MD Anderson License and subject to a

90-day

cure period, MD Anderson will have the right to convert the MD Anderson License into a

non-exclusive

license if ZIOPHARM and PGEN are not using commercially reasonable efforts to commercialize the licensed intellectual property on a

case-by-case

basis. After five years from the date of the MD Anderson License and subject to a

180-day

cure period, MD Anderson will have the right to terminate the MD Anderson License with respect to specific technology(ies) funded by the government or subject to a third-party contract if the Company and PGEN are not meeting the diligence requirements in such funding agreement or contract, as applicable. MD Anderson may also terminate the agreement with written notice upon material breach by us and PGEN, if such breach has not been cured within 60 days of receiving such notice. In addition, the MD Anderson License will terminate upon the occurrence of certain insolvency events for both the Company and PGEN and may be terminated by the mutual written agreement of the Company, PGEN, and MD Anderson.

On August 17, 2015, the Company, Precigen and MD Anderson entered into the Research and Development, or the 2015 Agreement, to formalize the scope and process for the transfer by MD Anderson, pursuant to the terms of the MD Anderson License, of certain existing research programs and related technology rights, as well as the terms and conditions for future collaborative research and development of new and ongoing research programs.

Pursuant to the 2015 Agreement, the Company, Precigen and MD Anderson formed a joint steering committee to oversee and manage the new and ongoing research programs. Under the License Agreement with PGEN, the Company and PGEN agreed that PGEN would no longer participate on the joint steering committee after the date of the License Agreement. As provided under the MD Anderson License, the Company provided funding for research and development activities in support of the research programs under the Research and Development Agreement for a period of three years and in an amount of no less than $15.0 million and no greater than $20.0 million per year. On October 22, 2019, the Company entered into an amendment to the Research and Development Agreement extending its term until December 31, 2026.

During the nine months ended September 30, 2020 and 2019, the Company made no payments to MD Anderson. The net balance of cash resources on hand at MD Anderson available to offset expenses and future costs is $11.2 million, which is included in prepaid expenses and other current assets on the Company’s balance sheet at September 30, 2020.

On October 22, 2019, the Company entered into the 2019 Research and Development Agreement, or the 2019 Agreement, with MD Anderson, pursuant to which the parties agreed to collaborate with respect to the Company’s

Sleeping Beauty

immunotherapy program, which uses

non-viral

gene transfer to stably express and clinically evaluate neoantigen-specific TCRs in T cells. Under the 2019 Agreement, the parties will, among other things, collaborate on programs to expand the Company’s TCR library and conduct clinical trials.

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ZIOPHARM Oncology, Inc.

NOTES TO FINANCIAL STATEMENTS (unaudited)

6. Commitments and Contingencies (Continued)

The Company will own all intellectual property developed under the 2019 Agreement and will retain all rights to intellectual property for oncology products manufactured using

non-viral

gene transfer technologies under the Agreement, including the Company’s

Sleeping Beauty

technology. The Company has granted MD Anderson an exclusive license for such intellectual property outside the field of oncology and to develop and commercialize autologous TCR products manufactured using viral gene transfer technologies, and a

non-exclusive

license for allogeneic TCR products manufactured using viral-based technologies.

The Company has agreed, beginning on January 1, 2021, to reimburse MD Anderson up to a total of $20.0 million for development costs incurred starting after January 1, 2021 under the 2019 Agreement. In addition, the Company will pay MD Anderson royalties on net sales of its TCR products at rates in the low single digits. The Company is required to make performance-based payments upon the successful completion of clinical and regulatory benchmarks relating to its TCR products. The aggregate potential benchmark payments are $36.5 million, of which only $3.0 million will be due prior to the first marketing approval of the Company’s TCR products. The royalty rates and benchmark payments owed to MD Anderson may be reduced upon the occurrence of certain events. The Company also agreed that it will sell the Company’s TCR products to MD Anderson at preferential prices and will sell its TCR products in Texas exclusively to MD Anderson for a limited period of time following the first commercial sale of the Company’s TCR products.

In connection with the execution of the 2019 Agreement, the Company issued MD Anderson a warrant to purchase 3,333,333 shares of common stock. Refer to Note 9 –

Warrants

for further details.

License Agreement with the National Cancer Institute

On May 28, 2019, the Company entered into a patent license agreement, or the Patent License, with the National Cancer Institute, or the NCI. Pursuant to the Patent License, the Company holds an exclusive, worldwide license to certain intellectual property to develop and commercialize patient-derived (autologous), peripheral blood

T-cell

therapy products engineered by transposon-mediated gene transfer to express TCRs reactive to mutated KRAS, TP53 and EGFR. In addition, pursuant to the Patent License, the Company holds an exclusive, worldwide license to certain intellectual property for manufacturing technologies to develop and commercialize autologous, peripheral blood

T-cell

therapy products engineered by

non-viral

gene transfer to express TCRs, as well as a

non-exclusive,

worldwide license to certain additional manufacturing technologies.

Pursuant to the terms of the Patent License, the Company is required to pay the NCI a cash payment in the aggregate amount of $1.5 million payable in $0.5 million installments within sixty days,

six-months,

and the twelve-month anniversary of the effective date of the agreement of the Patent License. The $1.5 million was

paid

as of

the nine months ended September 30,

On January 8, 2020, the Company entered into an amendment to the patent license agreement which expanded the TCR library to include additional TCR’s reactive to mutated KRAS and TP53. Under the amendment, the Company paid $0.6 million during the nine months ending September 30, 2020.

The Company recognized $0 and $0.6 million of expense for the three and nine months ended September 30, 2020, respectively.

The terms of the Patent License also require the Company to pay the NCI minimum annual royalties in the amount of $0.3 million, which amount will be reduced to $0.1 million once the aggregate minimum annual royalties paid by the Company equals $1.5 million. The first minimum annual royalty payment is payable on the date that is eighteen months following the date of the Patent License. As of September 30, 2020, the Company included a prepayment of $0.3 million related to the Patent License as prepaid expenses and other current assets on the Company’s

alance

heet.

ZIOPHARM Oncology, Inc.

NOTES TO FINANCIAL STATEMENTS (unaudited)

6. Commitments and Contingencies (Continued)

On September 28, 2020, the Company entered into a second amendment to the patent license agreement which expanded the TCR library to include additional TCR’s receptors. Under the second amendment, the Company will pay the NCI an additional $0.4 million. The Company recorded $0.4 million as an accrued expense as of September 30, 2020.

The Company is also required to make performance-based payments upon successful completion of clinical and regulatory benchmarks relating to the licensed products. The aggregate potential benchmark payments are $4.3 million, of which aggregate payments of $3.0 million are due only after marketing approval in the United States or in Europe, Japan, Australia, China or India. The first benchmark payment of $0.1 million will be due upon the initiation of the Company’s first sponsored Phase 1 clinical trial of a licensed product or licensed process in the field of use licensed under the Patent License.

In addition, the Company is required to pay the NCI

one-time

benchmark payments following aggregate net sales of licensed products at certain net sales up to $1.0 billion. The aggregate potential amount of these benchmark payments is $12.0 million. The Company must also pay the NCI royalties on net sales of products covered by the Patent License at rates in the low to

mid-single

digits depending upon the technology included in a licensed product. To the extent the Company enters into a sublicensing agreement relating to a licensed product, the Company is required to pay the NCI a percentage of all consideration received from a sublicensee, which percentage will decrease based on the stage of development of the licensed product at the time of the sublicense.

The Patent License will expire upon expiration of the last patent contained in the licensed patent rights, unless terminated earlier. The NCI may terminate or modify the Patent License in the event of a material breach, including if the Company does not meet certain milestones by certain dates, or upon certain insolvency events that remain uncured following the date that is 90 days following written notice of such breach or insolvency event. The Company may terminate the Patent License, or any portion thereof, in the Company’s sole discretion at any time upon 60 days’ written notice to the NCI. In addition, the NCI has the right to: (i) require the Company to sublicense the rights to the product candidates covered by the Patent License upon certain conditions, including if the Company is not reasonably satisfying required health and safety needs and (ii) terminate or modify the Patent License, including if the Company is not satisfying requirements for public use as specified by federal regulations.

Cooperative Research and Development Agreement (CRADA) with the National Cancer Institute

On January 10, 2017, the Company announced the signing of a CRADA, with the NCI for the development of adoptive cell transfer, or ACT,-based immunotherapies genetically modified using the

Sleeping Beauty

transposon/transposase system to express TCRs for the treatment of solid tumors. The principal goal of the CRADA is to develop and evaluate ACT for patients with advanced cancers using autologous peripheral blood lymphocytes, or PBL, genetically modified using the

non-viral

Sleeping Beauty

system to express TCRs that recognize neoantigens expressed within a patient’s cancer. Research conducted under the CRADA will be at the direction of Steven A. Rosenberg, M.D., Ph.D., Chief of the Surgery Branch at the NCI, in collaboration with the Company. In February 2019, the Company extended the CRADA with the NCI for two years, committing an additional $5.0 million to this program. The Company

recorded

$0.6 million and

$1.3

million of expense for the three and nine months ended September 30, 2020 and 2019, respectively.

Ares Trading License and Collaboration Agreement

On March 27, 2015, the Company, together with PGEN, signed the Ares Trading Agreement, with Ares Trading S.A., a subsidiary of the biopharmaceutical business of Merck KGaA, Darmstadt, Germany, through which the parties established a collaboration for the research and development and commercialization of certain products for the prophylactic, therapeutic, palliative or diagnostic use for cancer in humans.

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ZIOPHARM Oncology, Inc.

NOTES TO FINANCIAL STATEMENTS (unaudited)

6. Commitments and Contingencies (Continued)

PGEN was entitled to receive $5.0 million, from Ares Trading, payable in equal quarterly installments over two years for each identified product candidate, which will be used to fund discovery work. The Company was responsible for costs exceeding the quarterly installments and all other costs of the preclinical research and development. For the nine months ended September 30, 2020 and 2019, the Company incurred no expenses under the Ares Trading Agreement.

Ares Trading paid a

non-refundable

upfront fee of $115.0 million to PGEN as consideration for entry into the Ares Trading Agreement. Pursuant to the Third Amendment to Exclusive Channel Partner Agreement, or the 2016 ECP Amendment, the Company was entitled to receive 50% of the upfront fee, or $57.5 million, which was received from PGEN in July 2015.

Under the License Agreement, PGEN agreed to perform all future obligations of the Company under the Ares Trading Agreement other than certain payment obligations. Accordingly, the Company recognized the remaining deferred revenue as part of the settlement of a related party relationship in 2018.

Patent and Technology License Agreement—The University of Texas MD Anderson Cancer Center and the Texas A&M University System

On August 24, 2004, the Company entered into a patent and technology license agreement with MD Anderson and the Texas A&M University System, which the Company refers to, collectively, as the Licensors. Under this agreement, the Company was granted an exclusive, worldwide license to rights (including rights to U.S. and foreign patent and patent applications and related improvements and

know-how)

for the manufacture and commercialization of two classes of organic arsenicals (water- and lipid-based) for human and animal use. The class of water-based organic arsenicals includes darinaparsin.

Under the terms of the agreement, the Company may be required to make additional payments to the Licensors upon achievement of certain other milestones in varying amounts which, on a cumulative basis could total up to an additional $4.5 million. In addition, the Licensors are entitled to receive single digit percentage royalty payments on sales from a licensed product and will also be entitled to receive a portion of any fees that the Company may receive from a possible sublicense under certain circumstances.

Collaboration Agreement with Solasia Pharma K.K.

On March 7, 2011, the Company entered into a License and Collaboration Agreement with Solasia Pharma K.K., or Solasia, which was amended on July 31, 2014 to include an exclusive worldwide license. Pursuant to the License and Collaboration Agreement, the Company granted Solasia an exclusive license to develop and commercialize darinaparsin in both intravenous and oral forms and related organic arsenic molecules, in all indications for human use.

As consideration for the license, the Company is eligible to receive from Solasia development- and sales-based milestones, a royalty on net sales of darinaparsin, once commercialized, and a percentage of any sublicense revenues generated by Solasia. Solasia will be responsible for all costs related to the development, manufacturing and commercialization of darinaparsin. The Company’s Licensors, as defined in the agreement, will receive a portion of all milestone and royalty payments made by Solasia to the Company in accordance with the terms of the license agreement with the Licensors.

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ZIOPHARM Oncology, Inc.

NOTES TO FINANCIAL STATEMENTS (unaudited)

7. Leases

In June 2012, the Company entered into a master lease for the Company’s corporate office headquarters in Boston, which was originally set to expire in August 2016, but renewed through August 31, 2021. As of September 30, 2020 and December 31, 2019, a total security deposit of $0.1 million is included in deposits on the Company’s balance sheet. On January 30, 2018, the Company entered into a lease agreement for office space in Houston at MD Anderson. Under the terms of the Houston lease agreement, the Company leased approximately two hundred and ten square feet and were required to make rental payments at an average monthly rate of approximately $1 thousand. This lease was terminated effective March 31, 2020.

On March 12, 2019, the Company entered into a lease agreement for office space in Houston. Under the terms of the Houston lease agreement, the Company leases approximately one thousand and thirty-eight square feet and is required to make rental payments at an average monthly rate of approximately $2 thousand through April 2021. On October 15, 2019, the Company entered into a lease agreement for additional office space in Houston. Under the terms of the Second Houston Lease, the Company leases, from MD Anderson, approximately eight thousand four hundred and forty-three square feet and is initially required to make rental payments of approximately $17 thousand per month through February 2027, subject to an annual base rent increase of approximately 3.0% throughout the term.

Effective April 13, 2020, the Company leased an additional

five thousand five hundred eighty-four

square feet from MD Anderson. The Company is initially required to make rental payments of approximately $12 thousand per month through February 2027, subject to an annual base rent increase of approximately 3.0% throughout the term.

All future rent expense incurred in Houston, will be deducted from the Company’s prepayments at MD Anderson.

Effective June 1, 2020, the Company entered into a noncancelable lease for a period of less than a year with monthly payments of approximately $10 thousand

. Effective September 1, 2020, the Company added additional space to the noncancelable lease for a period of less than a year with monthly payments now totaling approximately $15 thousand

The components of lease expense were as follows:


	Three Months Ended September 30,			Nine Months Ended September 30,
(in thousands)	2020			2020
Operating lease cost	$	267		$	768

Total lease cost	$	267		$	768

Weighted-average remaining lease term (years)		4.99			4.99
Weighted-average discount rate		8.00	%		8.00	%

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ZIOPHARM Oncology, Inc.

NOTES TO FINANCIAL STATEMENTS (unaudited)

7. Leases (Continued)


	Three Months Ended September 30,			Nine Months Ended September 30,
(in thousands)	2019			2019
Operating lease cost	$	184		$	585

Total lease cost	$	184		$	585

Weighted-average remaining lease term (years)		2.15			2.15
Weighted-average discount rate		8.00	%		8.00	%

As of September 30, 2020, the maturities of the Company’s operating lease liabilities for the years ended December 31, were as follows (in thousands):


2020 (excluding the nine months ended September 30, 2020)	$	318
2021		896
2022		353
2023		364
2024		375
Thereafter		851

Total lease payments		3,157
Less: Imputed interest and adjustments		(637	)

Present value of lease payments	$	2,520

8. Stock-Based Compensation

The Company recognized stock-based compensation expense on all employee and

non-employee

awards as follows:


	For the three months ended September 30,				For the nine months ended September 30,
(in thousands)	2020		2019		2020		2019
Research and development	$	522	$	339	$	1,587	$	1,068
General and administrative		1,270		1,147		3,806		3,673

Stock-based compensation expense	$	1,792	$	1,486	$	5,393	$	4,741

The Company granted an aggregate of 203,178 and 1,252,178 stock options during the three and nine months ended September 30, 2020 with a weighted-average grant date fair value of $1.96 and $2.45 per share, respectively. The Company granted an aggregate of 140,000 and 1,835,755 stock options during the three and nine months ended September 30, 2019 with a weighted average grant date fair value of $3.05 and $1.90 per share, respectively.

On January 6, 2019, the Company

sett

an accrued annual performance bonus by issuing 446,428 shares of common stock.

On May 26, 2020

the Company extended the contractual life of 448,130 fully vested stock options and 31,220 stock options that vested on June 30, 2020

held by an officer of the Company. Additionally, on May 26, 2020

the Company accelerated the vesting of 45,277 shares of restricted stock held by an officer. These extensions and acceleration of vesting resulted in additional stock compensation expense of $65

thousand

and $154 thousand in the three and nine months ended September 30, 2020

respectively.

On September 18, 2020

the Company extended the contractual life of 113,350 fully vested stock options and 25,281 stock options that vested on September 18, 2020

held by a director of the Company. Additionally, on September 18, 2020

the Company accelerated the vesting of 25,281 stock options and 15,890 shares of restricted stock held by

a director of the Company

. These extensions and acceleration of vesting resulted in additional stock compensation expense of

$(250)

in the three and nine months ended September 30, 2020.

For the three months ended September 30, 2020 and 2019

the fair value of stock options was estimated on the date of grant using a Black-Scholes option valuation model with the following assumptions:


	For the three months ended September 30,
	2020	2019
Risk-free interest rate	0.36 - 0.39%	1.39 - 1.92%
Expected life in years	5.75 - 6.25	6.25
Expected volatility	73.59 - 74.18%	72.87 - 78.34%
Expected dividend yield	0%	0%

At September 30, 2020

there were 863,333

stock options that had been issued outside the 2012 Equity Incentive Plan, or the 2012 Plan. These options are excluded from the schedule below.

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ZIOPHARM Oncology, Inc.

NOTES TO FINANCIAL STATEMENTS (unaudited)

8. Stock-Based Compensation (Continued)

Stock option activity under the Company’s stock option plans for the nine months ended September 30, 2020 is as follows:


(in thousands, except share and per share data)	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding, December 31, 2019		5,842,879		$	3.21

Granted		1,252,178			3.89
Exercised		(22,916	)		1.87
Cancelled		(499,950	)		3.84

Outstanding, September 30, 2020		6,572,191		$	3.93		7.82	$	978

Options exercisable, September 30, 2020		3,711,684		$	4.10		6.96	$	704

Options exercisable, December 31, 2019		2,765,357		$	4.39		6.70	$	3,603

Options available for future grant		6,986,610

At September 30, 2020, total unrecognized compensation costs related to unvested stock options outstanding amounted to $8.0 million. The cost is expected to be recognized over a weighted-average period of 1.82 years.

A summary of the status of unvested restricted stock for the nine months ended September 30, 2020 is as follows:


	Number of Shares			Weighted-Average Grant Date Fair Value
Non-vested, December 31, 2019		939,636		$	2.93
Granted		555,900			4.21
Vested		(64,917	)		3.42
Cancelled		(141,230	)		3.15

Non-vested, September 30, 2020		1,289,389		$	3.43

At September 30, 2020, total unrecognized compensation costs related to unvested restricted stock outstanding amounted to $3.0 million. The cost is expected to be recognized over a weighted-average period of 1.57 years.

At the Company’s annual meeting held on June 29, 2020, the shareholders approved the 2020 Equity Incentive Plan, or the 2020 Plan, which is a successor to and continuation of the Company’s 2012 Equity Incentive Plan, or the 2012 plan. The 2020 Plan ha

21 million shares

authorized,

plus the shares remaining for issuance under the 2012 Plan. Our ability to utilize the total shares authorized under the 2020 Plan will be limited by the total number of shares authorized in our certificate of incorporation.

As of September 30, 2020, there are 6,986,610 Shares available to grant from the 2020 plan.

additional awards can be granted from the 2012 Plan or the Company’s 2003 Stock Option Plan.

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ZIOPHARM Oncology, Inc.

NOTES TO FINANCIAL STATEMENTS (unaudited)

9. Warrants

In connection with the Company’s November 2018 private placement which provided net proceeds of approximately $47.1 million, the Company issued warrants to purchase an aggregate of 18,939,394 shares of common stock, or the 2018 warrants, which became exercisable six months after the closing of the private placement. The warrants have an exercise price of $3.01 per share and have a five-year term. The relative fair value of the warrants was estimated at $18.4 million using a Black-Scholes model with the following assumptions: expected volatility of 71%, risk free interest rate of 2.99%, expected life of five years and no dividends.

The Company assessed whether the warrants require accounting as derivatives. The Company determined that the warrants were (1) indexed to the Company’s own stock and (2) classified in stockholders’ equity in accordance with Financial Accounting Standards Board

, or

(“FASB”) Accounting Standards Codification (“ASC”) Topic 815,

Derivatives and Hedging

. As such, the Company has concluded the warrants meet the scope exception for determining whether the instruments require accounting as derivatives and should be classified in stockholders’ equity.

On July 26, 2019 and September 12, 2019, the Company entered into agreements with existing investors for the exercise of previously issued warrants to purchase common stock in the private placement. Pursuant to the terms of the agreements, investors exercised their 2018 warrants for an aggregate of 17,803,031 shares of common stock, at an exercise price of $3.01 per share. Proceeds from the warrant exercise, after deducting placement agent fees and other related expenses of $1.1 million were approximately $52.5 million. The Company issued participating investors new warrants to purchase up to 17,803,031 additional shares of common stock, or the 2019 warrants, as an inducement for the warrant holders to exercise their 2018 warrants. The 2019 warrants will expire on the fifth anniversary of the initial exercise date and have an exercise price of $7.00. The 2019 warrants were valued using a Black-Scholes valuation model and resulted in a $60.8 million

non-cash

charge to the Company’s statement of operations in 2019.

On October 22, 2019, the Company entered into the 2019 Agreement with MD Anderson.

Refer to Note 6 –

Commitments and Contingencies

for further details

In connection with the execution of the 2019 Agreement, the Company issued MD Anderson a warrant to purchase 3,333,333 shares of common stock. The warrant has an initial exercise price of $0.001 per share and grant date fair value of $14.5 million. The warrant expires on December 31, 2026 and vests upon the occurrence of certain clinical milestones. The Company will recognize expense on the warrant in the same manner as if the Company paid cash for services to be rendered.

As of

September 30, 2020, work related to the clinical milestones has not been started and therefore, the Company did not recognize any expense related to the warrant.

10. Joint Venture

On December 18, 2018, the Company entered into a Framework Agreement with TriArm Therapeutics, Ltd., or TriArm, pursuant to which the parties agreed to launch Eden BioCell, Ltd., or Eden BioCell, to lead clinical development and commercialization of certain

Sleeping Beauty-

generated

CAR-T

therapies as set forth in a separate license agreement.

On January 3, 2019, Eden BioCell was incorporated in Hong Kong as a private company. Eden BioCell, the Company and TriArm entered into a Share Subscription Agreement on January 23, 2019, where the Company and TriArm agreed to contribute certain intellectual property, services and cash (only with respect to TriArm) to Eden BioCell to subscribe for a certain number of newly issued ordinary shares in the share capital of Eden BioCell. On the closing date, upon the issuance and subscription of the shares, in respect of the aforementioned consideration, 10,000,000 ordinary shares were issued to the Company and 10,000,000 ordinary shares were issued to TriArm.

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ZIOPHARM Oncology, Inc.

NOTES TO FINANCIAL STATEMENTS (unaudited)

10. Joint Venture (Continued)

The closing of the transaction occurred on July 5, 2019. The Framework Agreement and Share Subscription Agreements were each respectively amended to be effective as of this date. Upon consummation of the joint venture, Eden BioCell and the Company also entered into a license agreement, pursuant to which the Company licensed the rights to Eden BioCell for third-generation

Sleeping Beauty

-generated

CAR-T

therapies targeting the CD19 antigen for the territory of China (including Macau and Hong Kong), Taiwan and Korea. Eden BioCell will be responsible for certain milestone and royalty payments related to the Company’s license agreements with MD Anderson and PGEN (

see

Note 6). TriArm entered into a Master Services Agreement with Eden BioCell and contributed $10.0 million of cash on the closing date. TriArm also committed to contribute an additional $25.0 million to Eden BioCell over time through the achievement of

certain

spec

ified

milestones. TriArm and the Company each received a 50% equity interest in the joint venture in exchange for their contributions to Eden BioCell.

As of July 5, 2019, as a result of the design and purpose of Eden BioCell, the Company determined that Eden BioCell was considered a variable interest entity, or VIE, and concluded that it is not the primary beneficiary of the VIE as it did not have the power to direct the activities of the VIE that most significantly impact its performance. Rather, the Company accounts for the equity interest in Eden BioCell under the equity method of accounting as it has the ability to exercise significant influence over the operations of Eden BioCell.

The Company determined that Eden BioCell was not a customer and therefore, accounted for the transaction as the transfer of nonfinancial assets to be recognized at their fair value on the contribution date. The fair value of the intellectual property contributed to Eden BioCell had a de minimis value due to the early stage of the technology and the likelihood of clinical success. Due to the de minimis fair value of the intellectual property contributed, the Company did not record a gain or loss on this transaction and recognized no value for its equity-method investment.

Item 2.

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

The following information should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included in this Quarterly Report on Form

10-Q

and the audited financial information and the notes thereto included in our Annual Report on Form

10-K,

which was filed with the Securities and Exchange Commission, or the SEC, on March 2, 2020, or the Annual Report.

Except for the historical information contained herein, the matters discussed in this Quarterly Report on Form

10-Q

may be deemed to be forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. In this Quarterly Report on Form

10-Q,

words such as “may,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” and similar expressions (as well as other words or expressions referencing future events, conditions or circumstances) are intended to identify forward-looking statements.

Our actual results and the timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report, they may not be predictive of results or developments in future periods.

The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report on Form

10-Q,

including those risks identified under Part II, Item 1A. Risk Factors.

We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

Overview

We are a clinical-stage biopharmaceutical company focused on discovering, acquiring, developing and commercializing next generation immuno-oncology platforms that leverage cell- and gene-based therapies to treat patients with cancer. We are developing two immuno-oncology platform technologies that utilize the immune system by employing innovative cell engineering and novel, controlled gene expression technologies designed to deliver safe, effective, and scalable

non-viral

cell- and viral-based gene therapies for the treatment of multiple cancer types. Our first platform is referred to as

Sleeping Beauty

and is based on the genetic engineering of immune cells using a

non-viral

transposon/transposase system that is intended to stably reprogram T cells outside of the body for subsequent infusion. Our second platform is referred to as Controlled

IL-12

and is designed to stimulate expression of interleukin 12, or

IL-12,

a master regulator of the immune system, in a controlled and safe manner to focus the patient’s immune system to more effectively attack cancer cells. We intend to use both of our platforms to become a leading immuno-oncology company focused on developing innovative, cost-effective therapies primarily aimed at the large unmet needs in solid tumors.

Using our

Sleeping Beauty

platform, we are developing T cell receptor, or TCR, T cell therapies to target solid tumors. Our program designs and manufactures T cells that are intended to target tumor-specific antigens, thereby delivering personalized therapy that can attack patients’ malignancies. These genetic changes are referred to as neoantigens as they are only expressed by the tumor, reducing the potential for toxicity upon targeting normal cells. Under our Cooperative Research and Development Agreement, the National Cancer Institute, or NCI, is conducting a Phase 2 clinical trial to evaluate autologous peripheral blood lymphocytes genetically modified with the

Sleeping Beauty

system to express autologous (personalized) TCRs. In addition, we are currently planning a clinical program to study our TCR approach with The University of Texas MD Anderson Cancer Center, or MD Anderson. Under this program, we expect to clinically evaluate both our Personalized TCR Approach and our Library TCR Approach.

Our Controlled IL-12 platform uses virotherapy based on an engineered replication-incompetent adenovirus, referred to as

Ad-RTS-hIL-12,

plus veledimex as a gene delivery system to conditionally produce IL-12, a potent, naturally occurring anti-cancer protein, to treat patients with solid tumors where a specific target is unknown. Our Controlled IL-12 platform allows us to deliver

IL-12

in a tunable dose as the cytokine is under transcriptional control of the RheoSwitch Therapeutic System

(RTS

). We are currently studying our Controlled IL-12 Platform as a monotherapy for the treatment of recurrent glioblastoma multiforme, or rGBM, and for the treatment of glioma in the pontine region of the brain, known as diffuse intrinsic pontine glioma, or DIPG. We are currently evaluating Ad-RTS-hIL-12 plus veledimex in a Phase 1/2 clinical trial for the treatment of DIPG and expect to dose up to 12 patients in the initial portion of the clinical trial. We are also developing our Controlled IL-12 platform in combination with immune checkpoint inhibitors. We have completed dosing in a Phase 1 dose-escalation clinical trial of Ad-RTS-hIL-12 plus veledimex in combination with PD-1 antibody OPDIVO

(nivolumab) in patients with rGBM. We have also completed dosing in a Phase 2 clinical trial evaluating Ad-RTS-hIL-12 plus veledimex in combination with PD-1 antibody Libtayo

(cemiplimab) for the treatment of recurrent or progressive glioblastoma multiforme in adults.

We are developing chimeric antigen receptor, or CAR, T cell, or CAR

T, therapies targeting CD19 on malignant B cells using our

Sleeping Beauty

platform in collaboration with MD Anderson. In a Phase 1 trial, we plan to infuse donor-derived T cells after allogeneic bone marrow transplantation, or BMT, for recipients who have relapsed with CD19

leukemias and lymphomas with our CD19-specific CAR

T therapies manufactured using our rapid personalized manufacturing, or RPM, technology. RPM enables T cells to be infused as soon as the day after gene transfer which is made possible by the genetic modification of resting T cells to express CAR and membrane bound

IL-15,

or mbIL15. We are also advancing our RPM technology in Greater China with Eden BioCell, Ltd., or Eden BioCell, our joint venture with TriArm Therapeutics, Ltd. Eden BioCell will lead the clinical development and commercialization of

Sleeping Beauty

-generated CD19-specific RPM CAR

T therapies using patient-derived (autologous) T cells in order to treat patients with relapsed or refractory CD19

leukemias and lymphomas.

We have not generated significant revenue and have incurred significant net losses in each year since our inception. For the nine months ended September 30, 2020, we had a net loss of $57.2 million, and, as of September 30, 2020, we have incurred approximately $741.3 million of accumulated deficit since our inception in 2003. We expect to continue to incur significant operating expenditures and net losses. Further development of our product candidates will likely require substantial increases in our expenses as we:

•

continue to undertake clinical trials for product candidates;

•

seek regulatory approvals for product candidates;

•

work with regulatory authorities to identify and address program-related inquiries;

•

implement additional internal systems and infrastructure;

•

hire additional personnel; and

•

scale-up

the formulation and manufacturing of our product candidates.

We continue to seek additional financial resources to fund the further development of our product candidates. If we are unable to obtain sufficient additional capital, one or more of these programs could be delayed, and we may be unable to continue our operations at planned levels and be forced to reduce our operations. Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability.

Recent Developments

The ongoing

COVID-19

global pandemic has presented a significant health and economic challenge around the world and is affecting our employees, partners and business operations. The full extent to which the

COVID-19

pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted. We have implemented work-from-home policies for most of our employees in response to the

COVID-19

pandemic. The effects of our work-from-home policies may negatively impact productivity, disrupt our business and delay our clinical programs and timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. These and similar, and perhaps more severe, disruptions in our operations could negatively impact our business, operating results and financial condition. We continue to work with our partners, including the NCI and MD Anderson, to mitigate the impact the

COVID-19

pandemic is having on our business and clinical programs.

Clinical and Regulatory Developments

We expect to initiate our clinical trial with MD Anderson for our Library TCR-T approach in mid-2021. This study will evaluate treatments using TCR+ T cells expressing third party (allogeneic) TCRs in autologous (patient-derived) T cells to treat several cancers, including gynecologic, colorectal, pancreatic, non-small cell lung cancer and cholangiocarcinoma. We expect to submit an Investigational New Drug, or IND, application for this clinical trial to the FDA in the first quarter of 2021.

Under our Cooperative Research and Development Agreement, the NCI is undertaking a Phase 2 Personalized TCR-T clinical trial under an IND cleared by the FDA. In this study, the NCI will test autologous peripheral blood lymphocytes genetically modified with the

Sleeping Beauty

system to express TCRs that recognize neoantigens expressed by patients with a broad range of solid tumors. The NCI’s manufacturing facility is validating our non-viral manufacturing approach, which has been authenticated by the NCI at laboratory scale. Patient enrollment will be determined by the NCI and is expected to occur after the process validation, the completion of regulatory requirements and the NCI has identified and screened patients for neoantigens and TCRs to render them eligible for the trial.

Eden BioCell has continued to make significant progress preparing for a clinical trial of

Sleeping Beauty

-generated CD19-specific RPM CAR+ T therapies using patient-derived (autologous) T cells to treat patients with relapsed or refractory CD19+ leukemias and lymphomas. Eden BioCell has commenced the filing of its IND for a clinical trial in Taiwan. In addition, Eden BioCell and our partners in this joint venture have informed us that preliminary observations from several patients dosed under compassionate use requests in Greater China confirm the presence of infused autologous T cells measured weeks after infusion, which appears to support the benefit of genetically modifying T cells with our RPM technology.

In July 2020, we announced the initiation of our U.S. Phase 1 trial clinical trial infusing donor-derived T cells after allogeneic BMT for recipients who have relapsed with CD19

leukemias and lymphomas with our CD19-specific CAR

T therapies manufactured using our RPM technology. This clinical trial is being performed in collaboration with MD Anderson.

Each of the clinical trials of our Controlled IL-12 program continues to progress. We previously completed enrollment in our Phase 1 clinical trial of adult patients with rGBM evaluating Ad-RTS-hIL-12 plus daily veledimex in combination with OPDIVO

. In June 2020, we completed patient enrollment in our Phase 2 clinical trial evaluating Controlled IL-12 in combination with PD-1 antibody Libtayo

for the treatment of rGBM. In July 2020, we announced the first patient had been dosed in a Phase 1/2 clinical trial evaluating Ad-RTS-hIL-12 plus veledimex for the treatment of DIPG. Data will be presented from all three trials at the 2020 Society for Neuro-Oncology Annual Meeting (SNO).

Our research and development expense consists primarily of salaries and related expenses for personnel, costs of contract manufacturing services, costs of facilities and equipment, fees paid to professional service providers in conjunction with our clinical trials, fees paid to contract research organizations in conjunction with preclinical animal studies, costs of materials used in research and development, consulting, license and milestone payments and sponsored research fees paid to third parties.

We have not accumulated and tracked our internal historical research and development costs or our personnel and personnel-related costs on a

program-by-program

basis. Our employee and infrastructure resources are allocated across several projects, and many of our costs are directed to broadly applicable research endeavors. As a result, we cannot state the costs incurred for each of our programs on a

program-by-program

basis.

For the nine months ended September 30, 2020, our clinical stage projects included a Phase 1 clinical trial with

Ad-RTS-IL-12

plus veledimex in progressive glioblastoma; a Phase 1 clinical trial infusing our 2nd generation CD19-specific CAR

T cells in patients with advanced lymphoid malignancies; and a Phase 1/2 clinical trial of

Ad-RTS-hIL-12

with veledimex for the treatment of pediatric brain tumors. The expenses incurred by us to third parties for our Phase 1 clinical trial with

Ad-RTS-IL-12

plus veledimex in progressive glioblastoma were $2.5 million for the nine months ended September 30, 2020 and $13.8 million from the project’s inception in September 2015 through September 30, 2020. The expenses incurred by us to third parties for our Phase 1 clinical trial infusing our 2nd generation CD19-specific CAR

T cells in patients with advanced lymphoid malignancies were $0.1 million for the nine months ended September 30, 2020 and $6.2 million from the project’s inception in December 2015 through September 30, 2020. The expenses incurred by us to third parties for our Phase 1/2 clinical trial of Ad-RTS-hIL-12 with veledimex for the treatment of pediatric brain tumors were $0.1 million for the nine months ended September 30, 2020 and $2.1 million from the project’s inception in October 2017 through September 30, 2020. The expense incurred by us to third parties for our

investigator-led

Phase 2 clinical trial of

Ad-RTS-hIL-12

with veledimex in combination with cemiplimab-rwlc in progressive glioblastoma were $3.8 million for the nine months ended September 30, 2020 and $5.4 million from the projects inception in June 2019 through September 30, 2020.

Our future research and development expenses in support of our current and future programs will be subject to numerous uncertainties in timing and cost to completion. We test potential products in numerous preclinical studies for safety, toxicology and efficacy. We may conduct multiple clinical trials for each product. As we obtain results from trials, we may elect to discontinue or delay clinical trials for certain products to focus our resources on more promising products or indications. Completion of clinical trials may take several years or more, and the length of time generally varies substantially according to the type, complexity, novelty and intended use of a product. It is not unusual for preclinical and clinical development of each of these types of products to require the expenditure of substantial resources.

We estimate that clinical trials of the type generally needed to secure new drug approval are typically completed over the following timelines:


Clinical Phase		Estimated Completion Period
Phase 1		1 - 2 years
Phase 2		2 - 3 years
Phase 3		2 - 4 years

The duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development, including, among others, the following:

•

The number of clinical sites included in the trials;

•

The length of time required to enroll suitable patents;

•

The number of patients that ultimately participate in the trials;

•

The cost to manufacture the clinical products for patients;

•

The duration of patient

follow-up

to ensure the absence of long-term product-related adverse events; and

•

The efficacy and safety profile of the product.

As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our programs or when and to what extent we will receive cash inflows from the commercialization and sale of a product. Our inability to complete our programs in a timely manner or our failure to enter into appropriate collaborative agreements could significantly increase our capital requirements and could adversely impact our liquidity. These uncertainties could force us to reduce or eliminate our activities in one or more of our programs or seek additional, external sources of financing from

time-to-time

in order to continue with our product development strategy. Our inability to raise additional capital, or to do so on terms reasonably acceptable to us, would jeopardize the future success of our business.

General and administrative expenses.

General and administrative expenses during the three and nine months ended September 30, 2020 and 2019 were as follows:


	Three months ended September 30,								Nine months ended September 30,
	2020		2019		Change				2020		2019		Change
($ in thousands)
General and administrative	$	6,353	$	4,807	$	1,546	32	%	$	18,862	$	13,707	$	5,155	38	%

General and administrative expenses for the three months ended September 30, 2020 increased by $1.5 million as compared to three months ended September 30, 2019. The increase during the three months ended September 30, 2020 was primarily due to an increase of $0.8 million of legal expenses incurred as a result of our expanded patent portfolio and an increase of $0.7 million of salary and employee related expenses, including stock compensation expense.

General and administrative expenses for the nine months ended September 30, 2020 increased by $5.2 million as compared to nine months ended September 30, 2019. The increase during the nine months ended September 30, 2020 was primarily due to an increase of $2.5 million of salary and employee related expenses, including stock compensation expense, along with an increase of $2.0 million of legal expenses incurred as a result of our expanded patent portfolio, and an increase of $1.4 million in facilities expenses, offset by a decrease of $0.7 million of business development expenses.

Other income, (net).

Other income, net for the three and nine months ended September 30, 2020 and 2019 was as follows:


	Three months ended September 30,								Nine months ended September 30,
	2020		2019		Change				2020		2019		Change
($ in thousands)
Other income, net	$	6	$	203	$	(197)	(97	%)	$	383	$	523	$	(140)	(27	%)
Noncash inducement warrants		—		(60,751)	$	60,751	(100	%)		—		(60,751)	$	60,751	(100	%)

Total	$	6	$	(60,548)					$	383	$	(60,228)

Other income for the three months ended September 30, 2020 decreased by $0.2 million as compared to the three months ended September 30, 2019 because interest rates decreased due to market fluctuations. Other income for the nine months ended September 30, 2020 decreased by $0.1 million as compared to the nine months ended September 30, 2019 because interest rates decreased due to market fluctuations.

On July 26, 2019 and September 12, 2019, we entered into agreements with existing investors for the exercise of previously issued 2018 warrants. Pursuant to the terms of the agreements, we issued the investors new warrants to purchase an aggregate of 17,803,031 shares of common stock, as an inducement to exercise their 2018 warrants early. The 2019 warrants became exercisable six months following the date of issuance, will expire on the fifth anniversary of the initial exercise date, and have an exercise price of $7.00. The Black-Scholes valuation of the 2019 warrants resulted in a

non-cash

charge to the statement of operations of $60.8 million for the three and nine months ended September 30, 2019.

Liquidity and Capital Resources

Source of liquidity

We have not generated any revenue from product sales. Since inception, we have incurred net losses and negative cash flows from our operations.

As of September 30, 2020, we have approximately $135.5 million of cash and cash equivalents. During the nine months ended September 30, 2020, we completed an underwritten public offering of 29,110,111 shares of common stock, which includes a partial exercise by the underwriters of its over-allotment option of 1,284,025 shares from us at a price to the public of $3.25, less underwriting discounts. Our net proceeds from the sale of the shares, after deducting the underwriting discounts and offering expenses of $5.9 million, were $88.7 million.

At-the-market

offering program

In June 2019, we entered into an Open Market Sale Agreement, or sales agreement, with Jefferies LLC, or Jefferies, as a sale agent pursuant to which we may offer and sell, from time to time through Jefferies, shares of our common stock having an aggregate offering value of up to $100.0 million. Shares will be sold pursuant to the Company’s effective registration statement on Form

S-3ASR

(File

No. 333-232283),

as previously filed with the Securities and Exchange Commission. Subject to the terms of the sales agreement, we are able to determine, at our sole discretion, the timing and number of shares to be sold under this ATM facility. The compensation to Jefferies for sales of our common stock pursuant to the sales agreement will be an amount equal to 3% of the gross proceeds of any shares of common stock sold under the sales agreement. During the nine months ended September 30, 2020, we issued and sold 2,814,673 shares of common stock under the sales agreement for aggregate net proceeds of $13.0 million, after deducting commission and offering expenses of $0.4 million. During the nine months ended September 30, 2019, we issued and sold 639,442 shares of common stock under the sales agreement for aggregate net proceeds of $3.0 million, after deducting commission and offering expenses of $0.1 million.

Funding requirements

Given our current development plans, we expect that our existing cash and cash equivalents will be sufficient to fund our current operations into

mid-2022.

We currently do not have any committed sources of additional capital at this time. The forecast of cash resources is forward-looking information that involves risks and uncertainties, and the actual amount of our expenses could vary materially and adversely as a result of a number of factors. We have based our estimates on assumptions that may prove to be wrong, and our expenses could prove to be significantly higher than we currently anticipate. Management does not know whether additional financing will be on terms favorable or acceptable to us when needed, if at all. In addition, we have issued or reserved for future issuance shares nearing the maximum number of shares of common stock authorized by our certificate of incorporation. If we are unable to increase the total number of authorized shares, we may be unable to effectively utilize our common stock to raise capital. If adequate additional funds are not available when required, or if we are unsuccessful in entering into partnership agreements for further development of our products, management may need to curtail development efforts. The

COVID-19

pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets. If the disruption persists and deepens, we could experience an inability to access additional capital when and if needed. If we are unable to obtain funding, we could be forced to delay, reduce or eliminate some or all of our research and development programs, product portfolio expansion or commercialization efforts, which would adversely affect our business prospects, or we may be unable to continue operations.

Net cash provided by financing activities the nine months ended September 30, 2020 was $101.7 million. The net cash was provided by $88.7 million from the issuance of common stock in our

follow-on

public offering, net and $13.0 million from the issuance of common stock pursuant to our ATM facility. Net cash provided by financing activities for the nine months ended September 30, 2019 was $56.1 million. During the quarter, we received $52.5 million in proceeds from the exercise of warrants (Note 2), $3.0 million in proceeds through ATM offerings (Note 2) and $1.0 million in proceeds from the exercise of stock options.

Operating capital and capital expenditure requirements

We anticipate that losses will continue for the foreseeable future. At September 30, 2020, our accumulated deficit was approximately $741.3 million. Our actual cash requirements will depend on and could increase significantly as a result of a number of factors, including:

•

the scope, number, initiation, progress, timing, costs, design, duration, any potential delays, and results of clinical trials and nonclinical studies for our current or future product candidates;

•

changes in the focus, direction and pace of our development programs;

•

the effect of competitive and technical advances and market developments;

•

costs associated with the development of our product candidates;

•

our ability to establish and maintain partnering, collaborations or similar arrangements on favorable terms and whether and to what extent we retain development or commercialization responsibilities under any new licensing, collaboration or similar arrangement;

•

diversion of healthcare resources away from the conduct of clinical trials as a result of the ongoing

COVID-19

pandemic, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;

•

COVID-19

pandemic;

•

our need and ability to hire additional management and scientific and medical personnel;

•

the costs of acquiring, licensing or investing in businesses, product candidates and technologies;

•

costs of filing, prosecuting, defending and enforcing any patent claims and any other intellectual property rights, or other developments; and

•

other matters identified under Part II, Item 1A. “Risk Factors.”

Working capital as of September 30, 2020 was $135.8 million, consisting of $155.1 million in current assets and $19.3 million in current liabilities. Working capital as of December 31, 2019 was $93.0 million, consisting of $105.5 million in current assets and $12.5 million in current liabilities.

Contractual Obligations

The following table summarizes our outstanding obligations as of September 30, 2020 and the effect those obligations are expected to have on our liquidity and cash flows in future periods:


			Less than						More than
($ in thousands)	Total		1 year		2 - 3 years		4 - 5 years		5 years
Operating leases	$	3,157	$	1,128	$	712	$	755	$	562
CRADA		3,125		2,500		625		—		—
Royalty and license fees		3,461		434		700		700		1,627

Total	$	9,743	$	4,062	$	2,037	$	1,455	$	2,189

Our commitments for operating leases relate to the lease for our corporate headquarters in Boston, Massachusetts, and office and laboratory space in Houston, Texas. On December 21, 2015 and April 15, 2016, we renewed the sublease for our corporate headquarters in Boston, Massachusetts through August 31, 2021. On March 12, 2019, we entered into a lease agreement for additional office space in Houston through April 2021. On October 15, 2019, we entered into another lease agreement for additional office and laboratory space in Houston through February 2027. On April 13, 2020, we entered into another lease agreement for additional office and laboratory space in Houston through February 2027. On June 1, 2020, we entered into a short-term lease in Houston for office and laboratory space. On September 1, 2020, we entered an additional short-term lease in Houston for additional office and laboratory space.

On January 10, 2017, we announced the signing of the CRADA with the NCI for the development of

ACT-based

immunotherapies genetically modified using the

Sleeping Beauty

transposon/transposase system for the treatment of solid tumors. In February 2019, we extended the CRADA with the NCI until January 9, 2022.

On October 5, 2018, we entered into the License Agreement with PGEN. Under the License Agreement, we are obligated to pay PGEN an annual licensing fee of $0.1 million expected to be paid through the term of the agreement.

On May 28, 2019, we entered into a patent license agreement, or the Patent License, with the NCI. The terms of the Patent License require us to pay the NCI minimum annual royalties in the amount of $0.3 million, which amount will be reduced to $0.1 million once the aggregate minimum annual royalties paid by us equals $1.5 million. The first minimum annual royalty payment is payable on the date that is eighteen months following the date of the Patent License.

On January 8, 2020, we entered into an amendment of Patent License agreement. Under this agreement, we paid $0.6 million. On September 28, 2020, we entered into a second amendment of the Patent License with the NCI. The terms of the second Amendment require us to pay the NCI a

one-time

payment of $0.4 million, which is included in the “less than 1-year” category in the chart above.

Off-balance

Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any

off-balance

sheet arrangements, as defined in the rules and regulations of the SEC.

Critical Accounting Policies and Estimates

In our Annual Report, our most critical accounting policies and estimates upon which our financial status depends were identified as those relating to clinical trial expenses; collaboration agreements; fair value measurements for stock-based compensation; and income taxes. We reviewed our policies and determined that those policies remain our most critical accounting policies for the nine months ended September 30, 2020.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Our exposure to market risk is limited to our cash. The goals of our investment policy are preservation of capital, fulfillment of liquidity needs and fiduciary control of cash. We also seek to maximize income from our investments without assuming significant risk. To achieve our goals, we maintain our cash in interest-bearing bank accounts in global banks, United States treasuries and other government-backed investments, which are subject to minimal interest rate risk.

Effect of Currency Exchange Rates and Exchange Rate Risk Management

We currently have no clinical studies or clinical trials taking place outside of the United States. Therefore, any currency fluctuations will not have a material impact on our financial position, results of operations or cash flows.

Part II - Other Information

Item 1.

Legal Proceedings

In the ordinary course of business, we may periodically become subject to legal proceedings and claims arising in connection with ongoing business activities from time to time. The results of litigation and claims cannot be predicted with certainty, and unfavorable resolutions are possible and could materially affect our results of operations, cash flows or financial position. In addition, regardless of the outcome, litigation could have an adverse impact on us because of defense costs, diversion of management attention and resources and other factors.

As of September 30, 2020, based on information readily available, there are no material matters that, in the opinion of management, are likely to result in a material adverse effect on our financial position, results of operations or cash flows.

Item 1A.

Risk Factors

The following important factors could cause our actual business and financial results to differ materially from those contained in forward-looking statements made in this Quarterly Report on

Form 10-Q

or elsewhere by management from time to time. The risk factors in this Quarterly Report have been revised to incorporate changes to our risk factors from those included in our Annual Report on Form

10-K

for the fiscal year ended December 31, 2019. The risk factors set forth below with an asterisk (*) next to the title are new risk factors or risk factors containing changes, which may be material, from the risk factors previously disclosed in Item 1A of our Annual Report on Form

10-K

for the fiscal year ended December 31, 2019, as filed with the Securities and Exchange Commission. The market price of our common stock could decline if one or more of these risks or uncertainties actually occur, causing you to lose all or part of your investment. The impact of

COVID-19

may also exacerbate other risks discussed in this filing, any of which could have a material effect on us. This situation is changing rapidly and additional impacts may arise. Additional risks that we currently do not know about, or that we currently believe to be immaterial, may also impair our business. Certain statements below are forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements” in this Quarterly Report.

RISKS RELATED TO OUR BUSINESS

Our business, operations and clinical development plans and timelines could be adversely affected by the effects of health epidemics, including the

COVID-19 pandemic,

on the manufacturing, clinical trial and other business activities performed by us or by third parties with whom we conduct business, including our contract manufacturers, clinical research organizations, or CROs, shippers and others.

Our business could be adversely affected by health epidemics wherever we have clinical trial sites or other business operations. In addition, health epidemics could cause significant disruption in the operations of third-party manufacturers, CROs and other third parties upon whom we rely. For instance, NCI has taken precautionary measures in response to the

COVID-19

pandemic that has delayed the commencement of the clinical trial under the CRADA and MDACC may take precautionary measures in the future that may delay enrollment of patients in our ongoing and planned clinical trials.

We have implemented work-from-home policies for most of our employees. The effects of our work-from-home policies and travel restrictions may negatively impact productivity, disrupt our business and delay our clinical programs and timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. These and similar, and perhaps more severe, disruptions in our operations could negatively impact our business, operating results and financial condition.

We depend on a worldwide supply chain to manufacture products used in our preclinical studies and clinical trials.

Quarantines, shelter-in-place and

similar government orders, or the expectation that such orders, shutdowns or other restrictions could occur, whether related

to COVID-19 or

other infectious diseases, could impact personnel at third-party manufacturing facilities in the United States and other countries, or the availability or cost of materials, which could disrupt our supply chain.


	September 30, 2020			December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	135,471		$	79,741
Receivables		5,428			3,330
Prepaid expenses and other current assets		14,172			22,421

Total current assets		155,071			105,492

Property and equipment, net		7,577			1,110
Right of use asset		2,370			2,272
Deposits		130			130
Other non-current assets		746			110

Total assets	$	165,894		$	109,114

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,619		$	906
Accrued expenses		15,836			10,846
Lease liability - current portion		866			774

Total current liabilities		19,321			12,526

Lease liability - noncurrent portion		1,655			1,578

Total liabilities		20,976			14,104

Commitments and contingencies (Note 6)

Stockholders’ equity:
Common stock, $0.001 par value; 250,000,000 shares authorized; 214,165,690 and 181,803,320 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively		214			182
Additional paid-in capital		886,033			778,953
Accumulated deficit		(741,329	)		(684,125	)

Total stockholders’ equity		144,918			95,010

Total liabilities and stockholders’ equity	$	165,894		$	109,114


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2020			2019			2020			2019
Operating expenses:
Research and development	$	13,968		$	8,641		$	38,725		$	28,115
General and administrative		6,353			4,807			18,862			13,707

Total operating expenses		20,321			13,448			57,587			41,822

Loss from operations		(20,321	)		(13,448	)		(57,587	)		(41,822	)

Other income, net		6			203			383			523
Non-cash inducement warrant expense		—			(60,751	)		—			(60,751	)

Net loss	$	(20,315	)	$	(73,996	)	$	(57,204	)	$	(102,050	)

Basic and diluted net loss per share	$	(0.10	)	$	(0.43	)	$	(0.27	)	$	(0.62	)

Weighted average common shares outstanding used to compute basic and diluted net loss per share		212,837,367			170,613,712			208,497,410			164,053,029

	Common Stock					Additional Paid In Capital Common Stock			Accumulated Deficit			Total Stockholders’ Deficit
	Shares			Amount
Balance at June 30, 2019		162,477,963		$	162	$	656,216		$	(594,383	)	$	61,995
Stock-based compensation		—			—		1,486			—			1,486
Exercise of employee stock options		94,584			—		420			—			420
Restricted stock awards		15,000			—		—			—			—
Issuance of common stock upon exercise of warrants, net		17,803,031			18		52,481			—			52,499
Issuance of inducement warrants		—			—		60,751			—			60,751
Issuance of common stock in connection with at the market offering, net		639,442			1		2,970			—			2,971
Net loss		—			—		—			(73,996	)		(73,996	)

Balance at September 30, 2019		181,030,020		$	181	$	774,324		$	(668,379	)	$	106,126


For the Nine Months Ended September 30, 2019

	Common Stock					Additional Paid In Capital Common Stock			Accumulated Deficit			Total Stockholders’ Deficit
	Shares			Amount
Balance at December 31, 2018		161,066,136		$	161	$	651,732		$	(566,329	)	$	85,564
Stock-based compensation		—			—		4,741			—			4,741
Exercise of employee stock options		352,652			—		1,020			—			1,020
Restricted stock awards		1,408,536			1		999			—			1,000
Issuance of common stock upon exercise of warrants, net		17,803,031			18		52,481			—			52,499
Issuance of inducement warrants		—					60,751			—			60,751
Cancelled restricted common stock		(74,599	)		—		—			—			—
Restricted stock buy-back at vesting to cover taxes		(165,178	)		—		(370	)		—			(370	)
Issuance of common stock in connection with at the market offering, net		639,442			1		2,970			—			2,971
Net loss		—			—		—			(102,050	)		(102,050	)

Balance at September 30, 2019		181,030,020		$	181	$	774,324		$	(668,379	)	$	106,126


	For the Nine Months Ended September 30,
	2020			2019
Cash flows from operating activities:
Net loss	$	(57,204	)	$	(102,050	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		708			453
Stock-based compensation		5,393			5,741
Non-cash inducement warrant expense		—			60,751
Change in operating assets and liabilities
(Increase) decrease in:
Receivables		(2,098	)		(1,577	)
Prepaid expenses and other current assets		8,249			(3,047	)
Right of use asset		(98	)		—
Deposits		—			(2	)
Other noncurrent assets		(636	)		9,432
Increase (decrease) in:
Accounts payable		1,713			219
Accrued expenses		3,828			810
Deferred rent		—			17
Lease liabilities		168			7

Net cash used in operating activities		(39,977	)		(29,246	)

Cash flows from investing activities:
Purchases of property and equipment		(6,012	)		(184	)

Net cash used in investing activities		(6,012	)		(184	)

Cash flows from financing activities:
Repurchase of common stock		—			(370	)
Proceeds from exercise of stock options		43			1,020
Issuance of common stock in connection with a public offering, net		88,661			2,971
Issuance of common stock in connection with at the market offerings, net		13,015			52,499

Net cash provided by financing activities		101,719			56,120

Net increase in cash and cash equivalents, and restricted cash		55,730			26,690
Cash and cash equivalents, and restricted cash, beginning of period		79,741			61,729

Cash and cash equivalents, and restricted cash, end of period	$	135,471		$	88,419

Supplementary disclosure of cash flow information:
Compensation paid in restricted stock, gross	$	—		$	1,000

Accounts included in accounts payable and accrued expenses related to property and equipment	$	1,163		$	—


	Nine months ended September 30,
	2020			2019
($ in thousands)
Net cash provided by (used in):
Operating activities	$	(39,977	)	$	(29,246	)
Investing activities		(6,012	)		(184	)
Financing activities		101,719			56,120

Net increase in cash, cash equivalents, and restricted cash	$	55,730		$	26,690